[THE AMERICAN FUNDS GROUP(R)]
FUNDAMENTAL INVESTORS
1997 Annual Report
For the Year Ended December 31
[photo: hat on a coat rack]
WHERE TO HANG YOUR HAT: A PERSPECTIVE ON INVESTING
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.
FUNDAMENTAL INVESTORS' TOTAL RETURN
Year by Year CAPITAL INCOME TOTAL
RESULTS RETURN RETURN
1988 +12.4% +3.6 +16.0
1989 +24.3 +4.3 +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
1995 +31.9 +2.3 +34.2
1996 +18.2 +1.8 +20.0
1997 +25.0 +1.7 +26.7
10-year average annual compound rate of return +17.2%
10-year total return +390.3%
Lifetime total return (since 8/1/78) +1,841.2%
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 LARGEST EQUITY HOLDINGS
PERCENT OF PERCENT
(as of 12/31/97) NET ASSETS CHANGE/1/
Time Warner 2.4% + 63.2%
Texas Instruments 1.9 + 41.2
Tele-Communications, TCI Group 1.7 +113.9
Monsanto 1.6 + 10.7/2/
Pfizer 1.6 + 79.9
Royal Dutch Petroleum/
"Shell" Transport and Trading 1.5 + 27.0
General Re 1.5 + 34.4
AT&T 1.4 + 46.7
U S WEST Communications 1.4 + 39.9
Schlumberger 1.4 + 61.2
/1/Reflects increase in market price for the year ended 12/31/97.
/2/Not held for entire period. Change reflects increase from 9/25/97-12/31/97.
Because the portfolio is actively managed, its holdings may change from time to
time.
Fund results in this report were computed without a sales charge unless
otherwise indicated. The fund's 30-day yield as of January 31, 1998, calculated
in accordance with the Securities and Exchange Commission formula, was 1.35%.
THE FIGURES SHOWN REFLECT PAST 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.
FELLOW SHAREHOLDERS:
It is our pleasure to report that for the third straight year, the value of an
investment in Fundamental Investors increased 20% or better. During 1997, your
account had a gain of 26.7% if you reinvested income dividends and capital gain
distributions.
The fund paid income dividends of 10 cents for each of the first three quarters
and 12 cents for the fourth quarter. This represented an income return of 1.7%
on a reinvested basis. The capital gain distributions paid in February and
December totaled $3.13 per share: $0.515 in short-term gains and $2.615 in
long-term gains.
It was quite a year. In some ways, the United States felt a world apart -
secure in its rising employment, strong dollar, low interest rates and
improving standard of living. But by the fourth quarter, Asian currency
devaluations and the resulting stock market tumbles began to impact our world,
adding to an already volatile year in the stock market. On nearly a third of
the trading sessions in 1997, the unmanaged Dow Jones Industrial Average rose
or fell more than 1%, only the fourth time it has been so volatile in 20
years. And in the fourth quarter of the year, several of your fund's major
holdings corrected severely in response to the uncertainties arising from the
Asian crisis.
In spite of an overall up trend of 33.3% for the unmanaged Standard & Poor's
500 Composite Index, it was not a broad-based surge. This narrow path of
success is one reason for the differential between the market and our fund's
results. Fundamental Investors roughly matched the 27.0% gain of the Lipper
Growth & Income Fund Index. (The Lipper index tracks the returns of 30 of the
largest U.S. growth and income funds.) The Dow Jones 30 industrial stocks
lagged the S&P 500 even further with a total return of 24.9%.
In absolute terms, Fundamental Investors' 26.7% is a return far above the 10%
historical benchmark for long-term stock performance. The returns for the fund
this year were very favorably influenced by our 10 most dominant holdings. As
shown on the inside front cover, nine of the 10 largest holdings beat the
market for the period held, and the "laggard" Royal Dutch Petroleum/"Shell"
Transport and Trading returned a solid 27.0%.
The results of both Time Warner (+63.2%) and Tele-Communications, TCI Group
(+113.9%) reflect a resurgence of interest in the cable TV business. Almost 40%
of Time Warner's business is in cable, and TCI is one of the country's largest
cable TV operators. Texas Instruments, mentioned in last year's annual report
as having potential to become the most improved semiconductor company in the
industry, is well on its way with a +41.2% return for the year - despite
dropping almost 25 points in the fourth quarter.
Monsanto, though only purchased in September, holds the fourth-largest position
in the fund. Its potential comes from both its agricultural business and its
ownership of Searle, a pharmaceutical company with at least one blockbuster in
its new-product pipeline. Monsanto's 10.7% return for the period held far
surpasses the 3.5% rise in the S&P 500 for the same period.
Other companies on the list of 10 largest positions hold premier places in
their industries. Pfizer (+79.9%) may be one of the best pharmaceutical
companies in the world with its robust product, research and marketing prowess.
General Re (+34.4%) is considered by many to be the top re-insurance company in
the country. A beneficiary of lower interest rates, its high-quality management
turned out solid growth for the year. Schlumberger (+61.2%) is the leading
provider of services to the oil industry. High demand for its products and
systems gives the company maximum price flexibility. Royal Dutch/Shell is one
of the world's best global oil companies. Though exposure to emerging markets
hurt the company this year, it has strong long-term potential.
Some of the most successful and least successful companies we owned for the
period tie in with the trends we've discussed: Cable company Comcast (+77.2%),
pharmaceutical maker Eli Lilly (+90.8%) and oil service provider Halliburton
(+72.4%) are some of the best companies in their fields. Three long-time
holdings for the fund, Seagram (-16.6%), Oracle (-19.8%) and Eastman Kodak
(-24.2%), had tough years, but we believe they have good long-term potential.
We can't predict the future. But we can go into the future with some educated
assumptions. Join us in the next few pages for a discussion with your portfolio
counselors about how we get comfortable with our investments - how we determine
where to hang our hat.
Sincerely,
/s/Walter P. Stern
Walter P. Stern
Chairman of the Board
/s/James E. Drasdo
James E. Drasdo
President
February 12, 1998
FOLLOWING THE COURSE OF AN INVESTMENT IN FUNDAMENTAL INVESTORS
This chart illustrates how a $10,000 investment in the fund grew between August
1, 1978 - when Capital Research and Management Company became Fundamental
Investors' investment adviser - and December 31, 1997, taking into account the
maximum 5.75% sales charge. Sales charges are lower for accounts of $50,000 or
more. The chart also shows how the S&P 500 Index, an unmanaged measure of the
stocks of large U.S. companies, and Lipper Growth & Income Fund Index fared
over this same period, and what happened to inflation (as measured by the
Consumer Price Index).
Here are the total returns and average annual compound returns with all
distributions reinvested for periods ended December 31, 1997, assuming payment
of the 5.75% maximum sales charge at the beginning of the stated periods:
Total Average Annual
Return Compound Return
10 years +362.12% +16.54%
Five years +130.17% +18.14%
One year +19.37% -
[begin chart]
HOW A $10,000 INVESTMENT HAS GROWN
[chart]
<TABLE>
<CAPTION>
Lipper
Growth &
Income Fund
Year CAPITAL TOTAL S&P 500 Consumer Index with
Ended VALUE Value at VALUE Value at Index with Price Index dividends
December Dividends Year-End Dividends Year-End Total dividends (inflation) reinvested
31 in Cash /2/ Reinvested /2/ Return reinvested/1/ /6/ /1,4/
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1978/7/ $216 $8,947 $217 $9,155 -8.4% $9,800 $10,304 $9,684
1979 405 9,892 421 10,556 15.3 11,625 11,674 11,995
1980 552 11,390 603 12,807 21.3 15,379 13,136 15,386
1981 579 10,688 665 12,654 -1.2 14,616 14,307 15,172
1982 634 13,522 769 16,957 34.0 17,755 14,855 18,839
1983 594 16,424 755 21,389 26.1 21,759 15,419 23,127
1984 555 16,759 734 22,620 5.8 23,126 16,027 24,119
1985 581 21,148 795 29,448 30.2 30,449 16,636 31,006
1986 636 25,151 894 35,941 22.0 36,101 16,819 36,472
1987 717 25,463 1,034 37,295 3.8 38,010 17,565 37,434
1988 895 28,561 1,328 43,246 16.0 44,307 18,341 44,304
1989 1,225 35,438 1,877 55,597 28.6 58,316 19,193 54,819
1990 1,059 32,180 1,678 52,130 -6.2 56,492 20,365 51,534
1991 903 40,940 1,477 67,947 30.3 73,659 20,989 65,836
1992 989 44,059 1,655 74,871 10.2 79,250 21,598 72,177
1993 1,083 50,884 1,857 88,466 18.2 87,213 22,192 82,730
1994 1,238 50,319 2,171 89,641 1.3 88,342 22,786 82,387
1995 1,161 66,210 2,082 120,306 34.2 121,500 23,364 108,042
1996 1,197 78,143 2,188 144,351 20.0 149,324 24,140 130,396
1997 1,351 97,513 2,511 182,855 26.7 199,072 25,551 165,547
</TABLE>
[end chart]
average annual compound rate of return for 19 1/2 years
16.1%/2/
$199,072/1/
S&P 500 Index with dividends reinvested
$182,855/2,3/
Fundamental Investors with dividends reinvested
$165,547/1,4/
Lipper Growth & Income Fund Index with dividends reinvested
$97,513/2,5/
Fundamental Investors not including dividends
$24,551/6/
Consumer Price Index (inflation)
$10,000/2/
Original investment
/1/All results are calculated with dividends and capital gains reinvested.
/2/Results reflect payment of the maximum sales charge of 5.75% on the $10,000
investment. Thus, the net amount invested was $9,425. As outlined in the
prospectus, the sales charge is reduced for larger investments. There is no
sales charge on dividends or capital gain distributions that are reinvested in
additional shares. The maximum initial sales charge was 8.5% prior to July 1,
1988. No adjustment has been made for income or capital gain taxes.
/3/Includes reinvested dividends of $25,711 and reinvested capital gain
distributions of $69,225.
/4/Tracks 30 of the largest U.S. growth and income funds.
/5/Includes reinvested capital gain distributions of $40,934, but does not
reflect income dividends of $16,570 taken in cash.
/6/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
/7/For the period August 1, 1978 (when Capital Research and Management Company
became investment adviser) through December 31, 1978.
Past results are not predictive of future results.
The indexes are unmanaged.
[end chart]
WHERE TO HANG YOUR HAT WHEN YOU CAN'T PREDICT THE FUTURE
[photo: hat on chair]
Would you have believed us three years ago if we had told you that, by the dawn
of 1998, the stock market would deliver three straight years of 20% or better
returns, the federal budget would be nearly balanced, the country would be
almost fully employed and inflation almost nonexistent? A reasonable person
wouldn't make such crazy predictions.
So, being the reasonable investment managers that we are, we don't delude
ourselves into thinking we can predict the future. Yet it's our job to make
some educated assumptions about the future in order to invest your money
wisely.
How do we do that? We stand back to assess the current situation, look for
opportunities others can't or don't see and do our homework. The more questions
we ask, the more answers we get $ the more clear the future possibilities
become. We use that information to guide us to individual companies, at which
point we work to gain enough knowledge and trust to feel comfortable with
investing in their future.
ASSESSING THE SITUATION
When fund president Jim Drasdo looks around to assess the current situation, he
concludes, "This is a bull market I can feel good about.
"It's the third bull market I've been associated with in my professional
career," continues Jim, one of three key Fundamental Investors portfolio
counselors. "My first was the Nifty Fifty era of the early '70s. It was led by
a handful of large companies that became extraordinarily overvalued as they
were indiscriminately purchased as $one-decision stocks' - mostly for pension
funds by a handful of New York banks. Other issues were virtually ignored and
sold at very low valuations; thus many fine companies were denied access to
equity capital.
"My next bull market was in the mid-80s - the era when financiers such as
Michael Milken became powerful," says Jim. "It was a time in which financial
engineers got rich and workers lost out. It was not a satisfying experience.
"But today's bull market seems to manifest the beauty of the American system,"
says Jim. "We can balance budgets. We can create wealth. We are competitive in
industries where innovation is key. Unquestionably, we are producing better
products and are more competitive than ever before. New companies are being
formed - and they're good companies that are creating thousands of jobs and
fueling a broad-based rise in our standard of living. The best news is that the
fortunes of managers, employees and shareholders are increasingly intertwined.
This is a good bull market ... one you can hang your hat on."
The environment remains ripe for investors with long-range time horizons.
"Long-term interest rates are the lowest they've been since 1993," says Gordon
Crawford, another of your portfolio counselors, "and inflation in the U.S.
should continue to be low for a long time to come."
"The U.S. economy is very strong," says Dina Perry, also a portfolio counselor.
"When you look around the world, you see that - unlike countries such as Japan
- - we don't have any major imbalances in our system. We're strong enough that
even if we had a recession, it would not be severe.
"In general, U.S. corporations are very well managed, productive and
increasingly efficient," says Dina. "Despite the rise in the dollar, U.S.
companies remain very competitive."
UNCERTAINTIES THAT LIE AHEAD
That's not to say there aren't uncertainties on the horizon. There's the fact
that the stock market has yet to experience a broad-based correction. "Some
stocks have corrected," points out Jim, "but the market hasn't."
There's the risk that now with the deficit under control, the resolve behind
our collective belt-tightening will weaken and we could end up back in the
deficit-spending era from which we just emerged.
And then, of course, there's "the Asian contagion." One expected result of that
region's currency devaluations and wounded stock markets is that these
countries will export goods into the U.S. at cut-rate prices. Low-priced
imports will force U.S. companies to reduce prices, and their inability to pass
along costs to consumers could affect profits.
In these uncertainties lie the challenges and opportunities.
BUILDING FOR TOMORROW FROM WHAT WE KNOW TODAY
Each portfolio counselor builds a strategy based on his or her assessment of
the current investing environment, extrapolating on what may happen in the
future. The greatest potential is in areas other investors cannot or do not
recognize.
[photo: hat on coat rack]
SEEING POSITIVES WHEN OTHERS SEE ONLY NEGATIVES
In the shadow of a bad earnings report, a rocky run in the stock market or an
unexpected development, many investors become mired in negativity. Dina Perry
eagerly looks to take advantage of these situations.
Take the Asian crisis, for instance. Many investors are concerned about the
profitability of U.S. companies during a period in which they may be forced to
lower prices to compete with cheap imports. Dina believes that although there
will be ramifications to the Asian crisis, they will be short-lived. She's
confident that the strong U.S. economy and profitable, lean U.S. companies can
see us through this period.
"Short-term," she says, "we may see price deflation because of the Asian
situation, but the turnaround will be very good for U.S. companies. In Korea,
for example, banks will no longer be so free with loans to "DRAM" (dynamic
random access memory) computer memory manufacturers. After a period of little
investment in such plants, customers will have to turn back to the U.S. as an
equipment supplier - and at our prices."
Dina believes the same holds true for paper, oil and other commodities affected
by Asian troubles. Though demand may be down temporarily, she says, over time
it will resume and U.S. companies will be there to meet that demand.
Investors who take a long-term approach to investing can benefit from buying
the stocks of these companies early and waiting patiently for them to reap
their rewards.
"When investors get a short-term negative focus, they can lose sight of some
big positives," says Dina. "Their inability to see the long-term possibilities
provides us with some important opportunities."
Kodak is a good example of this short-sightedness. "Investors are impressed
with Fuji's rising market share," says Dina, "yet they overlook Kodak's 70%
share of the richest market in the world - the U.S. - enviable by any
standard."
AT&T is another prime example of investors focusing on a company's negatives
instead of its well-run business, widely established franchise and name
recognition.
The secret: find companies you can feel confident about, when situations of the
moment may mask their attractiveness.
NEGATIVES DON'T NEED TO BE OBSTACLES
Another way to gain confidence in your investment selections is to avoid the
negatives altogether. Is that possible? Sometimes.
Many investors have resigned themselves to accept that almost every U.S.
company will be touched by the Asian situation, whether it's the glut of cheap
imports expected at our doorstep, the lack of interest in our exports or other
repercussions.
One way to stay clear of those effects is to invest in companies that can
withstand the possible impact of the situation. That's Gordon Crawford's
approach. He first looks to companies that sell strictly domestic services.
"Tele-Communications, Inc., for example, one of the largest U.S. cable TV
companies,doesn't have to concern itself with imported competition," says
Gordon. "Banks and insurance companies that work with domestic clients are also
insulated."
U.S.-dominated businesses such as entertainment also fit the bill for Gordon.
"Companies like Time Warner don't have Asian competitors with products that
rival theirs, at any price." So threats of Asian products that undercut
American competitors shouldn't affect companies like these. Brand name also
provides a layer of protection from the Asian situation. Disney's brand
recognition comes to mind. It has earned them the right to charge customers
certain rates for their products, regardless of the environment. "Customers
find special value in the Disney product and will continue to pay the going
rate at their entertainment parks and for their many other entertainment
products."
Another approach is to find companies that aren't compelled to lower costs,
primarily because of an unrelenting demand for their product. "Given the
world's aging population and our ongoing need for pharmaceuticals, there's a
relative insensitivity to price for these items," says Gordon. "And with little
competition abroad, these companies can continue to recoup their costs in their
product pricing."
FEELING GOOD ABOUT THE PROCESS
Both the knowns and the unknowns about the future tell us that companies are
going to have to focus more than ever on ways to be more effective and
profitable.
DON'T OVERLOOK WHAT OTHERS MAY NOT SEE - THE OBVIOUS
"In a full-employment economy, there is one way to grow faster than the labor
supply - through productivity," says Jim Drasdo. "Technology can help meet that
challenge by simplifying processes. Greater use of sound, pictures and speed in
programming can enhance training and move a new employee up the skill ladder
faster and more productively than before."
Another obvious need for technology will come from Asia itself. "Japan has no
choice but to get on track technologically in its financial services," says
Jim. "Taiwan, China and Korea need to keep purchasing state-of-the-art
semiconductor manufacturing equipment in order to keep pace."
FINDING THE COMPANIES THAT OFFER POTENTIAL FOR THE FUTURE
Which technology companies have developed the best systems to aid companies in
their efforts toward profitability? Which entertainment companies will make a
difference both here and abroad? And which pharmaceutical companies will work
hardest to extend the lives of the aging worldwide population?
Our ideas only have merit if we can find companies to make the ideas reality.
We find those companies through our network of research analysts. Capital's
analysts, who number over 65 and hail from 32 countries, travel millions of
miles each year to meet with company managers, visit facilities and try out new
products. They also talk to suppliers, customers and competitors to get a
well-rounded view of each company's prospects. This research provides the
foundation for analysts to make purchase and sale recommendations to our
portfolio counselors.
MULTIPLE PERSPECTIVES
Though the future is unknowable today, there are ways we can provide ourselves
with some assurances as we go forward. One is to rely on a process of investing
that has worked through good times and bad, that evens out the highs and lows
and takes into account different points of view. We call it the multiple
portfolio counselor system.
Fundamental Investors is divided into four segments. Three pieces are each
managed separately by Jim, Dina and Gordon. The other segment is managed by a
group of our research analysts, each of whom is a specialist in a particular
industry.
The portfolio counselors manage their slices of Fundamental Investors as if the
segments were separate funds: developing their own approaches, conducting some
of their own research, working with analysts, and investing their portfolios in
the way they think best meets the objectives of the fund.
A group of research analysts has responsibility for the fourth slice of the
fund. At this point, we ask them to act as portfolio counselors, not simply
making recommendations to others like their colleagues at other investment
firms, but actually putting their money where their mouths are and investing in
companies in which they have confidence.
We've had almost 40 years to perfect this system that blends a unique
combination of individuality with teamwork. It tends to smooth out peaks and
valleys associated with the more common one-manager approach. Best of all, the
multiple portfolio counselor system achieves one of the primary risk reducers
known to investors - diversification. You get a diversified mix of investments,
approaches and expertise.
It's a process that has produced outstanding results over the long haul. It's a
process we feel confident about hanging our hats on.
WHAT YOU CAN HANG YOUR HAT ON
Taking a long-term view is an essential element of success as an investor in
Fundamental Investors. Having shareholders who are looking to reach objectives
over a period of time - not immediately - gives the fund flexibility to look
beyond short-term situations and focus on opportunities before they reach their
potential. It gives us an advantage that short-timers don't have the luxury to
appreciate.
[photo: hat on coat rack]
[photo: hat]
<TABLE>
FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - December 31, 1997
Percent
Of Net
LARGEST EQUITY HOLDINGS Assets
As of 12/31/97
<S> <C>
Time Warner 2.38%
Texas Instruments 1.94
Tele-Communications, TCI Group 1.68
Monsanto 1.62
Pfizer 1.57
Royal Dutch Petroleum/"Shell" Transport and Trading 1.54
General Re 1.47
AT&T 1.40
U S WEST Communications 1.38
Schlumberger 1.37
Percent
Of Net
Largest Industry Holdings Assets
Energy Sources & Equipment 13.24%
Broadcasting & Publishing 6.30
Health & Personal Care 5.60
Telecommunications 5.24
Chemicals 4.50
Shares or Market Percent
EQUITY SECURITIES Principal Value of Net
(Common and Preferred Stocks and Amount (000) Assets
Convertible Debentures)
- ---------------------------------------------------- ---------- ---------- ----------
Energy Sources & Equipment- 13.24%
Royal Dutch Petroleum Co. (New York Registered Shares) (Netherlands) 2851600 $154,521
"Shell" Transport and Trading Co., PLC (New York Registered Shares) 1.54%
(United Kingdom) 150000 6563
Schlumberger Ltd. (Netherlands Antilles) 1786700 143829 1.37
Atlantic Richfield Co. 1700000 136213 1.30
Suncor Energy Inc. (Canada) 3890000 133247 1.27
Western Atlas Inc. /1/ 1600000 118400 1.13
Halliburton Co. 1950000 101278 .97
Chevron Corp. 1200000 92400 .88
Texaco Inc. 1600000 87000 .83
Murphy Oil Corp. 1535000 83178 .80
Elf Aquitaine (American Depositary Receipts) (France) 1400000 82075 .78
Unocal Corp. 700000 27169
Unocal Capital Trust, convertible preferred 450000 25369 .50
Shell Canada Ltd., Class A (Canada) 2649900 47607 .46
Phillips Petroleum Co. 900000 43762 .42
Enterprise Oil PLC (United Kingdom) 3000000 28750 .28
TOTAL, Class B (American Depositary Receipts)
(France) 407013 22589 .22
Mobil Corp. 300000 21656 .21
Diamond Offshore Drilling, Inc. 240000 11550 .11
Cyprus Amax Minerals Co., convertible preferred,
Series A 230000 10810 .10
Loews Corp. 3.125% convertible debentures 2007 $7,500,000 7575 .07
British Petroleum Co. PLC (American Depositary
Receipts) (United Kingdom) 2904 231 .00
Broadcasting & Publishing- 6.30%
Time Warner Inc. 4022000 249364 2.38
Tele-Communications, Inc., Series A, TCI Group /1/ 6300000 176006 1.68
News Corp. Ltd. (American Depositary Receipts) (Australia) 2200000 49088
News Corp. Ltd., preferred shares (American Depositary Receipts) 1500000 29813 .76
Dow Jones & Co., Inc. 1135000 60935 .58
E.W. Scripps Co., Class A 700000 33906 .32
Comcast Corp., Class A, special stock 810784 25590 .25
Viacom Inc., Class B /1/ 500000 20719 .20
Tele-Communications, Inc., Series A, Liberty Media Group /1/ 376504 13648 .13
Health & Personal Care- 5.60%
Pfizer Inc 2200000 164038 1.57
Warner-Lambert Co. 1054900 130808 1.25
AB Astra, Class A (American Depositary Receipts)
(Sweden) 6000000 103125 .99
Pharmacia & Upjohn, Inc. 1200000 43950 .42
Eli Lilly and Co. 600000 41775 .40
Zeneca Group PLC (United Kingdom) 1160400 41348 .39
Johnson & Johnson 410000 27009 .26
Dura Pharmaceuticals, Inc. 3.50% convertible debentures 2002 $12,128,000 13113 .12
Bristol-Myers Squibb Co. 125000 11828 .11
Merck & Co., Inc. 86900 9233 .09
Telecommunications- 5.24%
AT&T Corp. 2400000 147000 1.40
U S WEST Communications Group 3200000 144400 1.38
Sprint Corp. 1166500 68386 .65
France Telecom (France) 1376600 49994 .48
Bell Atlantic Corp. 500000 45500 .43
Ameritech Corp. 409600 32973 .32
MCI Communications Corp. 550000 23547 .23
AirTouch Communications /1/ 500000 20781 .20
Tele-Communications Inc., Series A, TCI Ventures Group /1/ 550000 15572 .15
Chemicals- 4.50%
Monsanto Co. 4044500 169869 1.62
Dow Chemical Co. 1000000 101500 .97
Air Products and Chemicals, Inc. 775000 63744 .61
Engelhard Corp. 1900000 33013 .31
Imperial Chemical Industries PLC (American Depositary
Receipts) (United Kingdom) 500000 32469 .31
Witco Corp. 500000 20406 .20
Mallinckrodt Inc. 443400 16849 .16
Hoechst AG (Germany) 400000 14019 .13
BOC Group PLC (United Kingdom) 600000 10072 .10
E.I. du Pont de Nemours and Co. 150000 9009 .09
Insurance- 4.35%
General Re Corp. 725000 153700 1.47
Marsh & McLennan Companies, Inc. 1400000 104388 1.00
Lincoln National Corp. 900000 70312 .67
Aetna Inc. 779900 55032
Aetna Inc., Class C, 6.25% convertible preferred 200000 14300 .66
20th Century Industries 1100000 28600 .27
American International Group, Inc. 163125 17740 .17
PMI Group, Inc. 160000 11570 .11
Banking- 4.21%
Norwest Corp. 2000000 77250 .74
Marshall & Ilsley Corp. 1026500 63771 .61
PNC Bank Corp. 971100 55413 .53
Mellon Bank Corp. 800000 48500 .46
CoreStates Financial Corp 589200 47173 .45
KeyCorp 600000 42488 .41
J.P. Morgan & Co. Inc. 300000 33863 .32
First Chicago NBD Corp. 400000 33400 .32
Toronto-Dominion Bank (Canada) 500000 18805 .18
Banc One Corp. 190000 10319 .10
Chase Manhattan Corp. 90000 9855 .09
Electronic Components- 3.85%
Texas Instruments Inc. 4518256 203322 1.94
Intel Corp. 1500000 105375 1.01
Micron Technology, Inc. /1/ 2331700 60624 .58
AMP Inc. 800000 33600 .32
Business & Public Services- 3.60%
Federal Express Corp. /1/ 1300000 79381 .76
Shared Medical Systems Corp. 1030000 67980 .65
Columbia/HCA Healthcare Corp. 1880000 55695 .53
Avery Dennison Corp. 1000000 44750 .43
Humana Inc. /1/ 1500000 31125 .30
Ecolab Inc. 300000 16631 .16
Ceridian Corp. /1/ 270000 12369 .12
USA Waste Services, Inc., 4.00% convertible debentures
2002 $11,000,000 11935 .11
IKON Office Solutions, Inc. 400000 11250 .11
Cendant Corp., 3.00% convertible debentures 2002 /2/
(formerly CUC International Inc.) $7,900,000 9845 .09
Deluxe Corp. 280000 9660 .09
First Data Corp. 330000 9653 .09
First Health Group Corp. /1/ 180000 9202 .09
Loewen Group Inc. (Canada) 270000 6969 .07
Leisure & Tourism- 3.04%
Walt Disney Co. 1085153 107498 1.03
Hilton Hotels Corp. 3200000 95200 .91
McDonald's Corp. 1900000 90725 .86
Galileo International, Inc. 872900 24114 .24
Machinery & Engineering- 2.78%
Caterpillar Inc. 2000000 97125 .93
Deere & Co. 1400000 81637 .78
Parker Hannifin Corp. 1650000 75694 .73
Cummins Engine Co., Inc. /2/ 500000 29531 .28
New Holland NV (Netherlands) 250000 6609 .06
Merchandising- 2.57%
May Department Stores Co. 1200000 63225 .60
Mercantile Stores Co., Inc. 800000 48700 .47
Limited Inc. 1800000 45900 .44
Woolworth Corp. /1/ 1839600 37482 .36
Intimate Brands, Inc., Class A 900000 21656 .21
American Stores Co. 800000 16450 .16
J.C. Penney Co., Inc. 200000 12063 .11
Albertson's, Inc. 250000 11844 .11
Lowe's Companies, Inc. 240000 11445 .11
Utilities: Electric & Gas- 2.45%
Long Island Lighting Co. 1800000 54225 .52
Western Resources, Inc. 1022600 43972 .42
Baltimore Gas & Electric Co. 1200000 40875 .39
DTE Energy Co. 1050000 36422 .35
Duke Energy Corp. 325000 17997 .17
Eastern Utilities Associates 640000 16800 .16
Southern Co. 500000 12938 .12
Edison International 450000 12234 .12
Florida Progress Corp. 300000 11775 .11
Texas Utilities Co. 120800 5021 .05
Entergy Corp. 150000 4491 .04
Forest Products & Paper- 2.28%
Union Camp Corp. 1100000 59056 .57
Weyerhaeuser Co. 900000 44156 .42
International Paper Co. 900000 38812 .37
Georgia-Pacific Corp. 400000 24300
Georgia-Pacific Corp. - Timber Group /1/ 400000 9075 .32
Fort James Corp. (formerly James River Corp. of Virginia) 600000 22950 .22
Bowater Inc. 350000 15553 .15
Rayonier Inc. 365000 15535 .15
Deltic Timber Corp. 320000 8760 .08
Financial Services- 2.26%
Freddie Mac (formerly Federal Home Loan Mortgage Corp.) 1650000 69197 .66
Capital One Financial Corp. 1200000 65025 .62
Fannie Mae (formerly Federal National Mortgage Assn.) 600000 34238 .33
Shohkoh Fund & Co., Ltd. (Japan) 95000 28969 .28
Nichiei Co., Ltd. (Japan) 250000 26624 .25
Household International, Inc. 100000 12756 .12
Data Processing & Reproduction- 2.17%
Digital Equipment Corp. /1/ 2000000 74000 .71
Oracle Corp. /1/ 1750000 39047 .37
Data General Corp. /1/ 2000000 34875 .33
Computer Associates International, Inc. 540000 28552 .27
International Business Machines Corp. 200000 20913 .20
Silicon Graphics, Inc. /1/ 1385500 17232 .17
Lexmark International Group, Inc., Class A /1/ 340000 12920 .12
Appliances & Household Durables- 2.11%
Newell Co. 1806700 76785
Newell Co. 5.25% preferred /1/ /2/ 254000 13240 .87
Sony Corp. (Japan) 1000000 88875 .85
Philips Electronics NV (New York Registered Shares)
(Netherlands) 700000 42350 .39
Food & Household Products- 1.88%
Unilever NV (New York Registered Shares) (Netherlands) 1300000 81169 .78
Archer Daniels Midland Co. 2310000 50098 .48
Kellogg Co. 441400 21904 .21
McCormick & Co. 650000 18200 .17
Bestfoods (formerly CPC International Inc.) 156100 16820 .15
General Mills, Inc. 125000 8953 .09
Transportation: Airlines- 1.88%
Delta Air Lines, Inc. 1110000 132090 1.26
AMR Corp. /1/ 500000 64250 .62
Aerospace & Military Technology- 1.78%
Raytheon Co., Class B 662500 33456
Raytheon Co. Class A 670232 33051 .64
Boeing Co. 1141340 55854 .53
General Motors Corp., Class H 1050000 38784 .37
Sundstrand Corp. 500000 25188 .24
Multi-Industry- 1.57%
Textron Inc. 1127000 70438 .67
AlliedSignal Inc. 1800000 70088 .67
Tenneco Inc. 346900 13703 .13
Whitman Corp. 400000 10425 .10
Industrial Components- 1.55%
Dana Corp. 1100000 52250 .50
Rockwell International Corp. 900000 47025 .45
Goodyear Tire & Rubber Co. 700000 44538 .43
Genuine Parts Co. 525000 17817 .17
Automobiles- 1.12%
General Motors Corp. 1250000 75781 .72
Honda Motor Co., Ltd. (American Depositary Receipts) (Japan) 350000 25856
Honda Motor Co., Ltd. 39000 1431 .26
Ford Motor Co. 295000 14363 .14
Electrical & Electronics- 1.07%
Siemens AG (Germany) 1100000 65174 .62
Lucent Technologies Inc. 400000 31950 .31
Nokia Corp., Class A (American Depositary Receipts)
(Finland) 210000 14700 .14
Beverages & Tobacco- 0.93%
Seagram Co. Ltd. (Canada) 2400000 77550 .74
PepsiCo, Inc. 550000 20041 .19
Metals: Nonferrous- 0.90%
Aluminum Co. of America 800000 56300 .54
Phelps Dodge Corp. 600000 37350 .36
Metals: Steel- 0.71%
Allegheny Teledyne Inc. 2850000 73744 .71
Transportation: Rail & Road- 0.67%
Union Pacific Corp. 1129419 70518 .67
Recreation & Other Consumer Products- 0.67%
Eastman Kodak Co. 900000 54731 .52
Nintendo Co., Ltd. (Japan) 160000 15691 .15
Textiles & Apparel - 0.59%
NIKE, Inc. Class B 1200000 47100 .45
Nine West Group Inc. /1/ 300000 7781 .07
Fruit of the Loom, Inc. /1/ 280000 7175 .07
Miscellaneous Materials & Commodities- 0.54%
Potash Corp. of Saskatchewan Inc. (Canada) 675000 56025 .54
Electronic Instruments- 0.47%
Tektronix, Inc. 1237500 49113 .47
Miscellaneous
Other equity securities in initial period
of acquisition 328631 3.14
----------- -----------
TOTAL EQUITY SECURITIES (cost: $6,944,964,000) 9420565 90.02
----------- -----------
PRINCIPAL
AMOUNT
Bonds & Notes (OOO)
- -------------------------------------------------------- ---------- ---------- -----------
Industrials - 0.94%
Adelphia Communications Corp.
10.50% 2004 $25,000 27000
9.875% 2007 /2/ 10000 10525 .46
9.25% 2002 /2/ 10000 10200
Fox Kids Worldwide, Inc. 9.25% 2007 /2/ 17500 16975 .16
Cablevision Systems Corp. 9.875% 2013 14000 15435 .15
Fox/Liberty Networks, LLC 8.875% 2007 /2/ 10000 9975 .10
Time Warner Inc. 10.15% 2012 6000 7674 .07
Transportation- 0.14%
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016 /3/ 11500 14983 .14
U.S. Treasury Obligations- 1.51%
6.375% 2027 150000 158203 1.51
---------- ----------
.00
---------- ----------
0 .00
---------- ----------
TOTAL BONDS & NOTES (cost: $260,320,000) 270970 2.59
---------- ----------
Short-Term Securities
- ----------------------------------------------------
CORPORATE SHORT-TERM NOTES-4.50%
General Electric Capital Corp. 5.55%-6.75% due 1/2-1/28/98 81400 81284 .78
International Lease Finance Corp. 5.55%-5.73% due 1/9-1/13/98 64900 64784 .62
E.I. du Pont de Nemours and Co. 5.52%-5.73% due 1/23-2/3/98 56170 55911 .53
A. I. Credit Corp. 5.61%-6.05% due 1/6-1/23/98 54000 53840 .52
Lucent Technologies Inc. 5.50%-6.03% due 1/5-1/20/98 50700 50581 .48
H.J. Heinz Co. 5.60%-5.65% due 1/5/98 44000 43965 .42
Walt Disney Co. 5.70% due 1/2-1/15/98 43000 42934 .41
Avco Financial Services, Inc. 5.54%-5.71% due 1/29-3/19/98 43200 42906 .41
IBM Credit Corp. 5.68%-5.77% due 1/12-1/16/98 34700 34616 .33
FEDERAL AGENCY DISCOUNT NOTES-2.16%
Fannie Mae 5.42%-5.62% due 1/15-3/30/98 90900 90109 .86
Federal Home Loan Banks 5.40%-5.66% due 1/7-2/25/98 87632 87051 .83
Freddie Mac 5.50%-5.65% due 1/21-3/13/98 48993 48635 .47
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $696,642,000) 696616 6.66
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $7,901,926,000) 10388151 99.27
Excess of cash and receivables over payables 76409 .73
---------- ----------
NET ASSETS $10,464,560 100.00%
========== ========
/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
is shorter than the stated maturity.
See Notes to Financial Statements
EQUITY SECURITIES APPEARING IN
THE PORTFOLIO SINCE JUNE 30, 1997
American Stores
Baltimore Gas & Electric
Bristol-Myers Squibb
Ceridian Corp.
Data General
Digital Equipment
Dow Chemical
Dow Jones
Dura Pharmaceuticals
First Health
Ford Motor
France Telecom
Galileo International
Georgia-Pacific-Timber Group
Hilton Hotels
IKON Office Solutions
Lexmark International
Lincoln National
Loews
Loewen
Marsh & McLennan
Marshall & Ilsley
Mellon Bank
Micron Technology
Monsanto
Nichiei
NIKE
Phelps Dodge
Southern Co.
Sprint
Tele-Communications, TCI Ventures
20th Century Industries
Unocal
Western Resources
Zeneca Group
EQUITY SECURITIES ELIMINATED FROM THE
PORTFOLIO SINCE JUNE 30, 1997
American Home Products
Armco
Ascend Communications
Baker Hughes
Browning-Ferris
Case
Chiron
Citicorp
CNA Financial
Colgate-Palmolive
Electronic Data Systems
Fleet Financial Group
Gillette
Houston Industries
Imation
Inco
ITT
Kyocera
Northeast Utilities
NYNEX
Old Kent Financial
Pioneer Hi-Bred International
Rubbermaid
Sun Co.
Tandem Computers
Tribune
Union Pacific Resources
Waste Management
</TABLE>
<TABLE>
Fundamental Investors, Inc.
Financial Statements
Statement of Assets and Liabilities (dollars in thousands)
at December 31, 1997
- -------------------------------------- ------------ ------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $7,901,926) $10,388,151
Cash 3,689
Receivables for-
Sales of investments $ 68,121
Sales of fund's shares 18,688
Dividends and accrued interest 18,451 105,260
------------ ------------
10,497,100
Liabilities:
Payables for-
Purchases of investments 12,110
Repurchases of fund's shares 15,979
Management services 2,551
Accrued expenses 1,900 32,540
------------ ------------
Net Assets at December 31, 1997-
Equivalent to $27.40 per share on
381,910,231 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $10,464,560
============
Statement of Operations
for the year ended December 31, 1997 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Dividends $ 151,477
Interest 43,407 $ 194,884
------------
Expenses:
Management services fee 26,675
Distribution expenses 20,321
Transfer agent fee 6,514
Reports to shareholders 302
Registration statement and prospectus 918
Postage, stationery and supplies 1,433
Directors' fees 123
Auditing and legal fees 49
Custodian fee 359
Taxes other than federal income tax 1
Other expenses 110 56,805
------------ ------------
Net investment income 138,079
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 994,082
Net increase in unrealized
appreciation on investments:
Beginning of year 1,580,787
End of year 2,486,223
Net unrealized appreciation ------------
on investments 905,436
Net realized gain and unrealized ------------
appreciation on investments 1,899,518
Net Increase in Net Assets Resulting ------------
from Operations $2,037,597
============
Statement of Changes in Net Assets (dollars in thousands)
- --------------------------------------------------- -------------
Year Ended December 31
1997 1996
Operations: ------------- -------------
Net investment income $ 138,079 $ 105,755
Net realized gain on investments 994,082 528,775
Net unrealized appreciation
on investments 905,436 476,321
------------- -------------
Net increase in net assets
resulting from operations 2,037,597 1,110,851
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (135,717) (100,250)
Distributions from net realized
gain on investments (1,056,767) (470,174)
------------- -------------
Total dividends and distributions (1,192,484) (570,424)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
85,048,442 and 90,269,651
shares, respectively 2,340,020 2,123,860
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
41,671,055 and 21,801,000 shares,
respectively 1,123,929 534,260
Cost of shares repurchased:
36,786,737 and 33,388,411
shares, respectively (1,009,875) (787,668)
Net increase in net assets resulting ------------- -------------
from capital share transactions 2,454,074 1,870,452
------------- -------------
Total Increase in Net Assets 3,299,187 2,410,879
Net Assets:
Beginning of year 7,165,373 4,754,494
End of year (including undistributed ------------- -------------
net investment income: $17,230 and
$15,128, respectively) $10,464,560 $7,165,373
============= ============
See Notes to Financial Statements
</TABLE>
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 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 foreign 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 December 31, 1997 net unrealized appreciation on investments for book
and federal income tax purposes aggregated $2,486,225,000, of which
$2,637,278,000 related to appreciated securities and $151,053,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended December 31, 1997. Net
losses related to non-U.S. currency transactions of $91,000 were treated as
ordinary income for federal income tax purposes. The cost of portfolio
securities for book and federal income tax purposes was $7,901,926,000 at
December 31, 1997.
3. The fee of $26,675,000 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.
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 year ended December 31, 1997,
distribution expenses under the Plan were $20,321,000. As of December 31, 1997,
accrued and unpaid distribution expenses were $1,447,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $6,514,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $8,356,000 (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 December 31,
1997, aggregate amounts deferred and earnings thereon were $397,000.
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 December 31, 1997, accumulated undistributed net realized gain on
investments was $42,943,000 and additional paid-in capital was $7,536,254,000.
The fund reclassified $260,000 of realized currency loss from undistributed net
realized gains to undistributed net investment income.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $4,771,902,000 and $3,761,954,000, respectively,
during the year ended December 31, 1997.
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 $359,000 includes $82,000 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
year ended December 31, 1997, such non-U.S. taxes were $3,564,000. Net realized
currency losses on dividends, interest, and withholding taxes reclaimable were
$91,000 for the year ended December 31, 1997.
<TABLE>
PER-SHARE DATA AND RATIOS
Year ended December 31
--------- --------- --------- -------- --------
1997 1996 1995 1994 1993
--------- --------- ------------------ --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $24.54 $22.29 $17.50 $18.15 $17.52
--------- --------- --------- --------- --------
Income from Investment
Operations:
Net investment income .41 .41 .41 .42 .44
Net realized and unrealized
gain (loss) on investments 6.00 4.00 5.46 (.18) 2.65
Total income from --------- --------- --------- --------- --------
investment operations 6.41 4.41 5.87 .24 3.09
--------- --------- --------- --------- --------
Less Distributions:
Dividends from net investment
income (.42) (.40) (.40) (.44) (.43)
Distributions from net realized
gains (3.13) (1.76) (.68) (.45) (2.03)
--------- --------- --------- --------- --------
Total distributions (3.55) (2.16) (1.08) (.89) (2.46)
--------- --------- --------- --------- --------
Net Asset Value, End of Year $27.40 $24.54 $22.29 $17.50 $18.15
========= ========= ========= ========= ========
Total Return /1/ 26.67% 19.99% 34.21% 1.33 18.16%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $10,465 $7,165 $4,754 $2,611 $1,979
Ratio of expenses to average
net assets .63% .66% .70% .68% .65%
Ratio of net income to
average net assets 1.54% 1.78% 2.08% 2.45% 2.43%
Average commissions paid
per share /2/ 4.51 5.69 5.95 c 6.02 c 6.14 c
Portfolio turnover rate 45.09% 39.07% 25.47% 23.02% 29.22%
/1/ Excludes maximum sales charge of 5.75%
/2/ 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>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Fundamental Investors, Inc.:
We have audited the accompanying statement of assets and
liabilities of Fundamental Investors("the fund"), including
the investment portfolio, as of December 31, 1997, and the
related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years
in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended. These
financial statements and 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
per-share data and ratios based on our audits.
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
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, 1997 by
correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing 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 and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Fundamental Investors at December 31, 1997, the results
of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 28, 1998
1997 Tax Information (Unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE>
<CAPTION>
DIVIDENDS AND DISTRIBUTIONS PER SHARE
FROM FROM NET FROM NET
NET REALIZED REALIZED
TO SHAREHOLDERS OF RECORD PAYMENT INVESTMENT SHORT-TERM LONG-TERM
DATE INCOME GAINS GAINS
<S> <C> <C> <C> <C>
February 21, 1997 February 24, 1997 $0.10 $0.150 $0.200
May 23, 1997 May 27, 1997 0.10 ----- ----
August 15, 1997 August 18, 1997 0.10 ----- ----
November 28, 1997 December 1, 1997 0.12 0.365 2.415*
</TABLE>
* Includes $1.162 long-term capital gain taxed at a maximum rate of 28%.
Corporate shareholders may exclude up tp 70% of qualifying
dividends received during the year. For purposes of computing this exclusion,
31% of the dividends paid by the fund from net investment income represent
qualifying dividends.
Dividends and distributions received by retirement plans
such as IRA's, Keogh-type plans and 403(b) plans need not be reported as
taxable income. However, many plan retirement trusts may need this information
for their annual information reporting.
SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV,
WHICH WAS MAILED IN JANUARY, TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR
1997 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS.
DIRECTORS AND OTHER OFFICERS
DIRECTORS
GUILFORD C. BABCOCK
San Marino, California
Associate Professor of Finance,
Marshall School of Business,
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
San Marino, California
Private investor
GAIL L. NEALE
Burlington, Vermont
President, The Lovejoy Consulting Group,
Inc., former Executive Vice President of the
Salzburg Seminar; former Director of
Development and of the Capital Campaign,
Hampshire College
KIRK P. PENDLETON
Southampton, Pennsylvania
Chairman and Chief Executive Officer,
Cairnwood, Inc. (venture capital investment)
JAMES W. RATZLAFF
San Francisco, California
Senior Partner, The Capital Group Partners L.P.
HENRY E. RIGGS
Claremont, California
President, Keck Graduate Institute of
Applied Life Sciences
R. MICHAEL SHANAHAN
Los Angeles, California
Chairman of the Board and
Principal Executive Officer,
Capital Research and Management Company
WALTER P. STERN
New York, New York
Chairman of the Board of the fund
Chairman of the Board,
Capital Group International, Inc.
OTHER OFFICERS
JAMES E. DRASDO
Los Angeles, California
Principal Executive Officer and
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 and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and Management Company
DINA N. PERRY
Washington, D.C.
Senior Vice President of the fund
Senior Vice President, Capital Research and Management Company
MICHAEL T. KERR
Los Angeles, California
Vice President of the fund
Executive Vice President and Director,
Capital Research Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President - Fund Business
Management Group, Capital Research and Management Company
MARY C. HALL
Brea, California
Treasurer of the fund
Senior Vice President - Fund Business
Management Group, 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
ROBERT P. SIMMER
Norfolk, Virginia
Assistant Treasurer of the fund
Vice President - Fund Business
Management Group, Capital Research and Management Company
[The American Funds Group(r)]
[photo: hat]
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
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
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. Summary investment results are
documented in the current Statement of Additional Information. If used as sales
material after March 31, 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/GRS/3207
Lit. No. FI-011-0298
