[THE AMERICAN FUNDS GROUP(R)]
FUNDAMENTAL
INVESTORS
IDEAS MAKE THE DIFFERENCE
SEMI-ANNUAL REPORT
[cover: abstract painting of person looking through binoculars in the forest]
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Fundamental Investors(SM) seeks long-term growth of capital and income
primarily through investments in common stocks.
Fundamental Investors is one of the 29 mutual funds in The American Funds
Group(r), the nation's third-largest mutual fund family. For more than six
decades, Capital Research and Management Company, the American Funds adviser,
has invested with a long-term focus based on thorough research and attention to
risk.
RESULTS AT A GLANCE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total return through 6/30/99 Six Twelve Ten
with all Distributions Reinvested Months Months Years
Fundamental Investors +16.9% +21.0% +395.5%
Standard & Poor's 500 Composite +12.4 +22.7 +456.6
Index
Average Savings Institution* +2.3 +4.6 +61.5
</TABLE>
*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, 1999,
assuming payment of the 5.75% maximum sales charge at the beginning of the
stated periods:
<TABLE>
<CAPTION>
<S> <C> <C>
Total Average Annual
Return Compound Return
Ten Years +367.10% + 16.67%
Five Years +172.09 +22.16
One Year +14.00 -
</TABLE>
Sales charges are lower for accounts of $50,000 or more. The fund's 30-day
yield as of July 31, 1999, calculated in accordance with the Securities and
Exchange Commission formula, was 1.20%
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY.
FELLOW SHAREHOLDERS:
It finally happened. After three years, the stock market's gains broadened to
include a wider range of stocks, including those of value-oriented companies in
which Fundamental Investors invests. An investment in the fund increased 16.9%
in the first six months of 1999 (with reinvestment of dividends and capital
gains).
Though growth-and-income funds generally flourished in this period, Fundamental
Investors' results far outpaced its peers. The Lipper Growth & Income Funds
Index - tracking 30 of the largest U.S. growth-and-income funds - returned
11.6% for the period. The proxy for large-company U.S. stocks, the unmanaged
Standard & Poor's 500 Composite Index, returned 12.4% for the first half of the
year.
Your fund also maintained its tradition of paying quarterly 10-cent dividends.
The income return of 0.70% for the period (1.40% annualized) resulted from two
such dividends paid in February and May. A long-term capital gain distribution
of 60 cents was also paid in February.
IMPROVED WORLD OUTLOOK
The world is far more economically promising today than it was at this time
last year. At that point, prospects seemed dismal in several Pacific Basin and
Latin American economies. Many European economies were frail, and the
likelihood of war in Yugoslavia increased the unease. There was talk of global
deflation.
A turning point came last fall when the Federal Reserve cut interest rates.
Central bankers around the world followed suit. The result? Deflationary fears
greatly diminished. A synchronized global recovery appears to be in the works.
Companies that focused on greater efficiencies, productivity and earnings when
times were tough are now prospering. These are the kinds of companies that
attract us. In the past few years, while the mega-capitalized companies were
dominating attention, we paid bargain prices for little-noticed, well-run
companies whose products and services would eventually be in demand. Their time
is here. Had we waited until conventional wisdom recognized the shifting
environment, we would have missed the gains earned on the way to that
realization.
CYCLICALS HAVE BENEFITED
As countries around the world regain strength, the biggest beneficiaries have
been economically sensitive industries such as oil, paper, aluminum and
chemicals. Companies in these industries are plentiful in our portfolio -
particularly oil. We significantly increased our oil and natural gas holdings
in anticipation of their turnaround after an extended period of
underperformance. We see important opportunities in natural gas since it
appears that the North American supply will be quite constrained in the near
future. Two large U.S. holdings outpaced the market: Texaco (+18.2%) and Unocal
(+24.5%). We are especially enthusiastic about Canadian-based synthetic-oil
producers Suncor (+36.5%) and Shell Canada (+34.1%), which have substantially
greater reserves than their competition.
Other holdings benefiting from an improved global economy include Alcoa
(+66.0%), Boeing (+35.4%), Caterpillar (+30.4%), Motorola (+55.2%) and
Weyerhaeuser (+35.3%).
FUNDAMENTAL VALUES RECOGNIZED
The biggest single contributor to the fund's results was Texas Instruments.
With an increase of 69.5% for the period, the fund's largest holding beat the
S&P 500's return by 5-1/2 times. This is a classic story of a fundamental value
we recognized long before the market. The technology company's discipline in
shedding businesses and focusing on the profitable digital signal processors
business has paid off. (DSPs have 40 times the processing power of comparable
computer chips.)
With a broader global prosperity comes the opportunity to widen our net in
gathering fundamentally sound non-U.S. companies. We own close to the fund's
15% allowance for non-U.S., non-S&P 500 holdings. These are not added merely
for diversification. Japanese companies Honda (+29.9%) and Nissan (+56.9%),
German-based Siemens (+19.6%), Australian News Corp. (+30.8%), and Canadian
Seagram (+32.6%) fit our long-term approach to finding undervalued,
well-managed companies with good long-term prospects for growth of capital and
income.
Although we are always cautious about our ability to predict short-term market
movement, we are confident in our ability to find fundamentally strong
companies to help you meet your long-term financial goals. We appreciate your
patience and support.
Sincerely,
/s/James F. Rothenberg
James F. Rothenberg
Chairman
/s/James E. Drasdo
James E. Drasdo
President
August 12, 1999
<TABLE>
Fundamental Investors, Inc.
Investment Portfolio, June 30, 1999 - UNAUDITED
<S> <C> <C> <C>
Percent of Percent
LARGEST EQUITY HOLDINGS Net Assets Change*
Texas Instruments 2.86% + 69.5%
Time Warner 2.61 +18.4
Seagram 2.07 +32.6
News Corp. 2.04 + 30.8
Monsanto 2.03 - 17.0
Alcoa 1.73 +66.0
Viacom 1.48 +19.4
Weyerhaeuser 1.47 + 35.3
Texaco 1.43 + 18.2
Limited 1.30 + 55.8
*Reflects change in market price for the
for the six months ended June 30, 1999.
(Excludes dividends)
Percent
Of Net
Largest Industry Holdings Assets
Broadcasting & Publishing 11.85%
Energy Sources & Equipment 9.32
Electronic Components 6.59
Telecommunications 5.89
Chemicals 4.67
Shares or Market Percent
Principal Valu of Net
EQUITY SECURITIES Amount (000 Assets
(Common and Preferred Stocks and Convertible
Debentures)
- -------------------------------------------- -------- -------- --------
BROADCASTING & PUBLISHING - 11.85%
Time Warner Inc. $5,344,000 392,784 2.61%
News Corp. Ltd., preferred (ADR)(Australia) 6,200,000 195,688
News Corp. Ltd. (ADR) 3,150,000 111,234 2.04
Viacom Inc., Class B (1) 2,710,000 119,240
Viacom Inc., Class A (1) 2,351,200 103,747 1.48
Tribune Co. 1,741,100 151,693 1.01
CBS Corp. (1) 3,100,000 134,656 .90
Dow Jones & Co., Inc. 2,415,200 128,157 .85
AT&T Corp. Liberty Media Group, Class A 2,762,652 101,527 .68
(formerly Tele-Communications, Inc., Liberty
Media Group)(1)
Fox Entertainment Group, Inc., Class A (1) 3,300,000 88,894 .59
Comcast Corp., Class A, special stock 1,921,568 73,860 .49
A. H. Belo Corp., Class A 2,100,000 41,344 .27
New York Times Co., Class A 1,000,000 36,812 .24
Gannett Co., Inc. 500,000 35,688 .24
Knight-Ridder, Inc. 625,000 34,336 .23
E.W. Scripps Co., Class A 700,000 33,294 .22
ENERGY SOURCES & EQUIPMENT - 9.32%
Texaco Inc. 3,450,000 215,625 1.43
Suncor Energy Inc. (Canada) 4,390,000 179,874 1.20
Unocal Corp. 3,900,000 154,538
Unocal Capital Trust $3.125 convertible preferred 450,000 24,975 1.19
Chevron Corp. 1,800,000 171,337 1.14
Phillips Petroleum Co. 2,940,000 147,919 .98
Conoco Inc., Class A 4,400,000 122,650 .82
Murphy Oil Corp. 1,829,000 89,278 .59
USX-Marathon Group 2,000,000 65,125 .43
Shell Canada Ltd., Class A (Canada) 2,808,100 57,100 .38
Royal Dutch Petroleum Co. (New York Registered)
(Netherlands) 500,000 30,125
"Shell" Transport and Trading Co., PLC
(New York Registered) (United Kingdom) 450,000 20,869 .34
Baker Hughes Inc. 950,000 31,825 .21
Sunoco, Inc. 1,000,000 30,187 .20
Imperial Oil Ltd. (Canada) 1,161,900 22,003 .15
Schlumberger Ltd. (Netherlands Antilles) 236,300 15,049 .10
Atlantic Richfield Co. 140,900 11,774 .08
Pogo Trust I, Series A, 6.50% convertible 130,000 6,557 .04
preferred 2029
Diamond Offshore Drilling, Inc. 3.75% convertible $6,500,000 6,435 .04
debentures 2007
ELECTRONIC COMPONENTS - 6.59%
Texas Instruments Inc. 2,968,256 430,397 2.86
Corning Inc. 2,500,000 175,313 1.17
Motorola, Inc. 1,653,700 156,688 1.04
SCI Systems, Inc. (1) 2,500,000 118,750 .79
Intel Corp. 1,800,000 107,100 .71
Western Digital Corp. 0% convertible subordinated $22,500,000 3,712 .02
debentures 2018 (2)
TELECOMMUNICATIONS - 5.89%
U S WEST, Inc. 3,196,800 187,812 1.25
AT&T Corp. 3,329,300 185,817 1.23
Sprint FON Group 2,643,700 139,620 .93
Telefonos de Mexico, SA de CV, Class L (ADR) (Mexico) 1,200,000 96,975 .64
MediaOne Group, Inc., 6.25% PIES convertible 975,000 88,238 .59
preferred 2001
Bell Atlantic Corp. 1,000,000 65,375 .43
SBC Communications Inc. 1,000,000 58,000 .39
Telecomunicacoes Brasileiras SA (Brazil)(ADR) 550,000 49,603
Telecomunicaoes Brasileiras SA, preferred 550,000 34 .33
nominative (ADR) (1)
GTE Corp. 200,000 15,150 .10
CHEMICALS - 4.67%
Monsanto Co. 7,553,200 297,879
Monsanto Co. 6.50% ACES convertible preferred 200,000 8,025 2.03
2001, Units
Imperial Chemical Industries PLC (ADR) (United Kingdom) 3,500,000 139,125 .92
Dow Chemical Co. 611,500 77,584 .52
Air Products and Chemicals, Inc. 1,800,000 72,450 .48
Bayer AG (Germany) 1,130,000 47,040 .31
International Flavors & Fragrances Inc. 881,800 39,130 .26
BOC Group PLC (United Kingdom) 600,000 11,726 .08
Witco Corp. 500,000 10,000 .07
DATA PROCESSING & REPRODUCTION - 4.53%
Computer Associates International, Inc. 3,150,000 173,250 1.15
Hewlett-Packard Co. 1,275,000 128,137 .85
Microsoft Corp. (1) 1,200,000 108,225 .72
International Business Machines Corp. 800,000 103,400 .69
Oracle Corp. (1) 1,400,000 51,975 .35
Lexmark International Group, Inc., Class A (1) 540,000 35,674 .24
Cadence Design Systems, Inc. (1) 2,500,000 31,875 .21
Fujitsu Ltd. (Japan) 900,000 18,116 .12
Gateway, Inc. (1) (formerly Gateway 2000, Inc.) 300,000 17,700 .12
Compaq Computer Corp. 500,000 11,844 .08
HEALTH & PERSONAL CARE - 3.86%
AstraZeneca PLC (ADR) (United Kingdom) 2,589,766 101,487
AstraZeneca PLC 2,000,000 77,476
AstraZeneca (Sweden) (1) 150,000 5,850 1.23
Pharmacia & Upjohn, Inc. 1,200,000 68,175 .45
Amgen Inc. (1) 1,000,000 60,875 .40
Kimberly-Clark Corp. 800,000 45,600 .30
American Home Products Corp. 725,000 41,688 .28
Warner-Lambert Co. 600,000 41,625 .28
Elan Corp., PLC (ADR) (Ireland) (1) 1,400,000 38,850 .26
Pfizer Inc 300,000 32,925 .22
Cardinal Health, Inc., Class A 454,650 29,154 .19
Eli Lilly and Co. 400,000 28,650 .19
Celera Genomics (formerly Perkin-Elmer Corp.)(1) 564,400 9,136 .06
BANKING - 3.83%
First Union Corp. 2,086,104 98,047 .65
J.P. Morgan & Co. Inc. 600,000 84,300 .56
Chase Manhattan Corp. 800,000 69,300 .46
Wells Fargo & Co. 1,400,000 59,850 .40
Fuji Bank, Ltd. (Japan) 8,550,000 59,653 .40
Bank of America Corp. (formerly BankAmerica Corp.) 800,000 58,650 .39
Sumitomo Bank, Ltd. (Japan) 4,600,000 57,077 .38
Washington Mutual, Inc. 1,600,000 56,600 .38
Pacific Century Financial Corp. 1,475,000 31,804 .21
MERCHANDISING - 3.64%
Limited Inc. 4,314,289 195,761 1.30
Albertson's, Inc. (formerly American Stores Co.) 2,132,550 109,960 .73
May Department Stores Co. 1,950,000 79,706 .53
Lowe's Companies, Inc. 830,000 47,051 .31
Dillard's Inc. 1,200,000 42,150 .28
Ito-Yokado Co., Ltd. (Japan) 610,000 40,845 .27
J.C. Penney Co., Inc. 500,000 24,281 .16
Koninklijke Ahold NV 3.00% convertible debentures $14,400,000 8,370 .06
2003 (Netherlands)
BUSINESS & PUBLIC SERVICES - 3.55%
FDX Corp. (1) 2,600,000 141,050 .94
Electronic Data Systems Corp. 2,000,000 113,125 .75
Cendant Corp. (1) 2,700,000 55,350
Cendant Corp. 7.50% PRIDES convertible preferred 1,242,100 42,775
Cendant Corp. 3.00% convertible debentures 2002 (2) $7,900,000 7,110 .70
Avery Dennison Corp. 1,000,000 60,375 .40
First Data Corp. 700,000 34,256 .23
Columbia/HCA Healthcare Corp. 1,100,000 25,094 .17
Galileo International, Inc. 400,000 21,375 .14
Waste Management, Inc. 4.00% convertible $11,000,000 14,740 .10
debentures 2002
Budget Group, Inc. 6.25% TIDES convertible 300,000 11,250 .07
preferred 2005
Interpublic Group of Companies, Inc. $ 6,668,000 6,034 .04
1.87% convertible debentures 2006 (2)
Triad Hospitals, Inc. (1) 57,894 782 .01
LifePoint Hospitals, Inc. (1) 57,894 778 .00
FOOD & HOUSEHOLD PRODUCTS - 3.10%
Colgate-Palmolive Co. 1,500,000 148,125 .98
Kellogg Co. 2,000,000 66,000 .44
Dole Food Co., Inc. 2,204,500 64,757 .43
Unilever NV (New York Registered) (Netherlands) 900,000 62,775 .42
Archer Daniels Midland Co. 3,400,000 52,487 .35
Nabisco, Inc., Class A 1,000,000 43,250 .29
General Mills, Inc. 202,100 16,244 .11
Tupperware Corp. 500,000 12,750 .08
INSURANCE - 2.99%
Marsh & Mclennan Companies, Inc. 1,850,000 139,675 .93
Chubb Corp. 1,100,000 76,450 .51
Aetna Inc. 550,000 49,191
Aetna Inc., Class C, 6.25% convertible preferred 300,000 22,275 .48
SAFECO Corp. 1,400,000 61,775 .41
XL Capital Ltd. (formerly EXEL Ltd.) 756,200 42,725 .28
20th Century Industries 2,000,000 37,750 .25
American International Group, Inc. 170,000 19,901 .13
FOREST PRODUCTS & PAPER - 2.94%
Weyerhaeuser Co. 3,210,000 220,688 1.47
International Paper Co. 2,313,720 116,843 .78
Bowater Inc. 700,000 33,075 .22
Georgia-Pacific Corp., Georgia-Pacific Group 500,000 23,687
Georgia-Pacific Corp., Timber Group 150,000 3,787 .18
Fort James Corp. 600,000 22,725 .15
Chesapeake Corp. 572,200 21,422 .14
UTILITIES: ELECTRIC & GAS - 2.44%
Constellation Energy Group, Inc.
(formerly Baltimore Gas and Electric Co.) 2,000,000 59,250 .39
Questar Corp. 3,000,000 57,375 .38
Williams Companies, Inc. 1,000,000 42,563 .28
DTE Energy Co. 1,050,000 42,000 .28
KeySpan Corp. (formerly KeySpan Energy Corp.) 1,584,000 41,778 .28
Western Resources, Inc. 1,300,000 34,612 .23
Southern Co. 982,400 26,034 .17
Consolidated Natural Gas Co. 400,000 24,300 .16
Florida Progress Corp. 500,000 20,656 .14
Duke Energy Corp. 205,200 11,158 .07
Texas Utilities Co. 120,800 4,983 .03
Entergy Corp. 150,000 4,687 .03
ELECTRICAL & ELECTRONICS - 2.42%
Telefonaktiebolaget LM Ericsson, Class B (ADR) 3,600,000 118,575 .79
(Sweden)
Siemens AG (Germany) 1,200,000 92,489 .61
NEC Corp. (Japan) 4,925,000 61,272 .41
Nortel Networks Corp. (Canada) (formerly Northern 613,440 53,254 .35
Telecom, Ltd.)
Toshiba Corp. (Japan) 5,525,000 39,415 .26
METALS: NONFERROUS - 2.13%
Alcoa Inc. 4,200,000 259,875 1.73
Phelps Dodge Corp. 800,000 49,550 .33
Cyprus Amax Minerals Co., Series A, $4.00 230,000 10,465 .07
convertible preferred
AEROSPACE & MILITARY TECHNOLOGY - 2.10%
Boeing Co. 3,841,340 169,739 1.13
Raytheon Co., Class B 662,500 46,624
Raytheon Co., Class A 670,232 46,162 .62
Northrop Grumman Corp. 800,000 53,050 .35
LEISURE & TOURISM - 2.07%
Seagram Co. Ltd. (Canada) 6,175,000 311,066 2.07
TRANSPORTATION: AIRLINES - 1.98%
Delta Air Lines, Inc. 2,806,600 161,730 1.07
AMR Corp. (1) 2,000,000 136,500 .91
AUTOMOBILES - 1.94%
Volvo AB, Class B (Sweden) 3,200,000 92,944 .62
Honda Motor Co., Ltd. (Japan) 1,954,000 82,864 .55
General Motors Corp. 1,150,000 75,900 .50
Nissan Motor Co., Ltd. (Japan) 8,624,000 41,206 .27
MACHINERY & ENGINEERING - 1.87%
Caterpillar Inc. 2,200,000 132,000 .88
Deere & Co. 2,000,000 79,250 .53
Parker Hannifin Corp. 1,500,000 68,625 .46
MULTI-INDUSTRY - 1.51%
AlliedSignal Inc. 2,200,000 138,600 .92
Canadian Pacific Ltd. (Canada) 2,000,000 47,625 .32
Textron Inc. 500,100 41,164 .27
INDUSTRIAL COMPONENTS - 1.34%
Federal-Mogul Corp. 1,450,000 75,400 .50
Delphi Automotive Systems Corp. 3,095,669 57,463 .38
Dana Corp. 1,100,000 50,669 .34
Genuine Parts Co. 525,000 18,375 .12
RECREATION OTHER CONSUMER PRODUCTS - 1.27%
EMI Group PLC (United Kingdom) 14,200,000 113,910 .76
Eastman Kodak Co. 900,000 60,975 .41
Hasbro, Inc. 525,000 14,667 .10
FINANCIAL SERVICES - 0.95%
Household International, Inc. 1,700,000 80,538 .54
Capital One Financial Corp. 450,000 25,059 .17
MBNA Corp. 810,000 24,806 .16
AXA SA 2.50% convertible preferred 2014 (France)(2) 45,000 7,558 .05
Bell Atlantic Financial Services, Inc., 4.25% senior $5,000,000 5,113 .03
exchangeable notes, 2005(2)
ELECTRONIC INSTRUMENTS - 0.86%
PE Biosystems Group (formerly Perkin-Elmer Corp.) 1,128,800 129,530 .86
BEVERAGES & TOBACCO - 0.86%
Nabisco Group Holdings Corp. 5,000,000 97,813 .65
PepsiCo, Inc. 800,000 30,950 .21
TEXTILES & APPAREL - 0.84%
NIKE, Inc. Class B 2,000,000 126,625 .84
METALS: STEEL - 0.43%
Allegheny Teledyne Inc. 2,850,000 64,481 .43
WHOLESALE & INTERNATIONAL TRADE - 0.18%
Tech Data Corp. (1) 700,000 26,775 .18
APPLIANCES & HOUSEHOLD DURABLES - 0.09%
Newell Financial Trust 5.25% QUIPS convertible 254,000 14,240 .09
preferred 2027
TRANSPORTATION: RAIL & ROAD - 0.09%
Union Pacific Capital Trust 6.25% TIDES convertible 260,000 13,358 .09
preferred 2028(2)
MISCELLANEOUS MATERIALS & COMMODITIES - 0.03%
Owens-Illinois, Inc. 4.75% convertible preferred 2049 120,000 5,250 .03
MISCELLANEOUS - 1.80%
Other equity securities in initial period
of acquisition 270,205 1.80
-------------------
TOTAL EQUITY SECURITIES (cost: $10,372,590,000) 14,138,38 93.96
-------------------
PRINCIPAL MARKET PERCENT
AMOUNT VALUE OF NET
Bonds & Notes (OOO) (000) ASSETS
- -------------------------------------------- ---------- -------- --------
INDUSTRIALS - 0.66%
Charter Communications Holdings, LLC 8.25% 2007 (2) 50,000 47,625 .32
Ziff-Davis Inc. 8.50% 2008 35,000 33,075 .22
CSC Holdings, Inc. 9.875% 2013 (formerly Cablevision 10,000 10,800 .07
Systems Corp.)
Time Warner Inc. 10.15% 2012 6,000 7,379 .05
TRANSPORTATION - 0.09%
Delta Air Lines, Inc.,
Series 1993-A2, 10.50% 2016 (3) 11,500 14,010 .09
----------
TOTAL BONDS & NOTES (cost: $112,718,000) 112,889 .75
----------
Short-Term Securities
- --------------------------------------------
CORPORATE SHORT-TERM NOTES - 4.71%
BellSouth Telecommunications, Inc. 4.90% $79,500 $79,133 .53
due 8/2-8/4/1999 (2)
General Electric Corp. 5.17%-5.625% due 7/1-8/17/1999 70,000 69,642 .46
American Home Products Corp. 4.83%-4.99% due 64,500 64,193 .43
7/20-8/18/1999 (2)
Coca-Cola Co. 4.77%-5.00% due 8/20-9/28/1999 63,300 62,746 .42
Ford Motor Credit Co. 4.82%-5.00% due 7/9-9/3/1999 57,500 57,203 .38
H.J. Heinz Co. 4.82%-5.15% due 7/22-8/23/1999 56,789 56,494 .38
National Rural Utilities Cooperative Finance Corp.
4.84%-5.03% due 7/27-9/16/1999 56,600 55,989 .37
Ciesco LP 4.83%-5.00% due 7/7-9/9/1999 54,800 54,466 .36
E.I. du Pont de Nemours and Co. 4.92% due 8/3-8/9/1999 50,700 50,443 .33
Equilon Enterprises LLC 4.79%-5.75% due 7/1-7/19/1999 50,000 49,914 .33
Monsanto Co. 4.80%-4.87% due 7/8-8/9/1999 50,000 49,838 .33
Schering Corp. 4.86% due 7/27-7/29/1999 33,000 32,874 .22
International Lease Finance Corp. 4.78% due 8/26/1999 25,700 25,491 .17
Federal Agency Discount Notes - 1.90%
Freddie Mac 4.70%-4.93% due 7/15-9/15/1999 170,705 169,547 1.13
Fannie Mae 4.70%-4.90% due 7/13-9/8/1999 117,071 116,403 .77
-------------------
TOTAL SHORT-TERM SECURITIES (cost: $994,514,000) 994,376 6.61
-------------------
TOTAL INVESTMENT SECURITIES (cost: $11,479,822,000) 15,245,65 101.32
Excess of payables over cash and receivables 198,534 1.32
-------------------
NET ASSETS $15,047,1 100.00%
-------------------
(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.
ADR = American Deposit Receipts
See Notes to Financial Statements
FUNDAMENTAL INVESTORS, INC.
EQUITY SECURITIES ADDED
SINCE DECEMBER 31, 1998
A.H. Belo
Cadence Design Systems
CBS
Chevron
Chubb
Conoco
Consolidated Natural Gas
Delphi Automotive Systems
Elan
EXA
Fuji Bank
Fujitsu
Gannett
GTE
Interpublic Group
Ito-Yokado
Knight-Ridder
LifePoint Hospitals
MBNA
NEC
Nabisco
New York Times
Pacific Century Financial
Pogo Trust I
Questar
SAFECO
SBC Communications
Sumitomo Bank
Telefonos de Mexico
Toshiba
Triad Hospitals
Tribune
Tupperware
USX - Marthon
Volvo
EQUITY SECURITIES ELIMINATED
SINCE DECEMBER 31, 1998
AMB Property
Ameritech
AMP
Autozone
BANK ONE
CCA Prison Realty
Citigroup
DaimlerChrysler
Disney
Eastern Utilities
FIRST HEALTH
Fannie Mae
Freddie Mac
Frontier
Fruit of the Loom
Gillette
GTECH
Johnson & Johnson
Keycorp
Lincoln National
Marshall & Ilsley
McDonald's
MCI WorldCom
Meditrust
MGIC Investment
Micron Technology
Nine West Group
Nintendo
Nokia
PMI Group
Praxair
Rockwell International
Silicon Graphics
Sundstrand
Tele-Communications, TCI Group
Venator Group
</TABLE>
<TABLE>
Fundamental Investors, Inc.
<S> <C> <C>
Financial Statements Unaudited
Statement of Assets and Liabilities (dollars in thousands)
at June 30, 1999
- ---------------------------------------- ------------------------
Assets:
Investment securities at market
(cost: $11,479,822) $15,245,650
Cash 152
Receivables for-
Sales of investments $ 52,250
Sales of fund's shares 25,634
Dividends and interest 16,601 94,485
------------------------
15,340,287
Liabilities:
Payables for-
Purchases of investments 267,927
Repurchases of fund's shares 18,604
Management services 3,379
Other expenses 3,261 293,171
------------------------
Net Assets at June 30, 1999-
Equivalent to $32.91 per share on
457,216,051 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $15,047,116
============
Statement of Operations Unaudited
for the six months ended June 30, 1999 (dollars in thousands)
------------------------
Investment Income:
Income:
Dividends $ 117,016
Interest 22,592 $ 139,608
------------
Expenses:
Management services fee 19,217
Distribution expenses 17,073
Transfer agent fee 5,350
Reports to shareholders 277
Registration statement and prospectus 644
Postage, stationery and supplies 959
Directors' fees 85
Auditing and legal fees 49
Custodian fee 240
Taxes other than federal income tax 1
Other expenses 168 44,063
------------------------
Net investment income 95,545
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,072,662
Net increase in unrealized
appreciation on investments:
Beginning of period 2,778,798
End of period 3,765,817
Net unrealized appreciation ------------
on investments 987,019
Net realized gain and unrealized ------------
appreciation on investments 2,059,681
Net Increase in Net Assets Resulting ------------
from Operations $2,155,226
============
Statement of Changes in Net Assets (dollars in thousands)
- ---------------------------------------- -------------------------
Six Months Year
ended ended
06/30/99* 12/31/1998
Operations: -------------------------
Net investment income $ 95,545 $ 171,916
Net realized gain on investments 1,072,662 1,319,973
Net unrealized appreciation
on investments 987,019 292,575
-------------------------
Net increase in net assets
resulting from operations 2,155,226 1,784,464
-------------------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (89,210) (159,781)
Distributions from net realized
gain on investments (263,558) (1,046,680)
-------------------------
Total dividends and distributions (352,768) (1,206,461)
-------------------------
Capital Share Transactions:
Proceeds from shares sold:
36,867,019 and 74,101,353
shares, respectively 1,139,783 2,164,869
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
11,527,850 and 39,927,149 shares,
respectively 335,047 1,142,562
Cost of shares repurchased:
30,752,838 and 56,364,713
shares, respectively (943,083) (1,637,083)
Net increase in net assets resulting -------------------------
from capital share transactions 531,747 1,670,348
-------------------------
Total Increase in Net Assets 2,334,205 2,248,351
Net Assets:
Beginning of period 12,712,911 10,464,560
End of period (including undistributed -------------------------
net investment income: $27,645 and
$21,310, respectively) $15,047,116 $12,712,911
========================
*Unaudited
See Notes to Financial Statements
</TABLE>
FUNDAMENTAL INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Fundamental Investors, Inc. (the "fund") is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks long-term growth of capital and income
primarily through investments in common stocks.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
SECURITY VALUATION - Equity securities, including depositary receipts, are
valued at the last reported sale price on the exchange or market on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price. In
cases where equity securities are traded on more than one exchange, the
securities are valued on the exchange or market determined by the investment
adviser to be the broadest and most representative market, which may be either
a securities exchange or the over-the-counter market. Fixed-income securities
are valued at prices obtained from a pricing service, when such prices are
available; however, in circumstances where the investment adviser deems it
appropriate to do so, such securities will be valued at the mean quoted bid and
asked prices or at prices for securities of comparable maturity, quality and
type. The ability of the issuers of the debt securities held by the fund to
meet their obligations may be affected by economic developments in a specific
industry, state or region. Short-term securities maturing within 60 days are
valued at amortized cost, which approximates market value. 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.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for as of the trade date. Realized gains and losses
from securities transactions are determined based on specific identified cost.
Dividend income is recognized on the ex-dividend date, and interest income is
recognized on an accrual basis. Market discounts and original issue discounts
on securities purchased are amortized daily over the expected life of the
security. The fund does not amortize premiums on securities purchased.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION - The fund complies with the requirements of the
Internal Revenue Code applicable to regulated investment companies and intends
to distribute all of its net taxable income and net capital gains for the
fiscal year. As a regulated investment company, the fund is not subject to
income taxes if such distributions are made. Required distributions are
determined on a tax basis and may differ from net investment income and net
realized gains for financial reporting purposes. In addition, the fiscal year
in which amounts are distributed may differ from the year in which the net
investment income and net realized gains are recorded by the fund.
As of June 30, 1999, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $3,765,828,000, of which $4,036,044,000
related to appreciated securities and $270,216,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended June 30, 1999. Net losses
related to non-U.S. currency transactions of $8,000 were treated as an
adjustment to ordinary income for federal income tax purposes. The cost of
portfolio securities for book and federal income tax purposes was
$11,479,822,000 at June 30, 1999.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $19,217,000 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 $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. If net
assets fall below $8 billion the fee schedule will be based on 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.
DISTRIBUTION EXPENSES - Pursuant to a Plan of Distribution, the fund may
expend up to 0.25% of its average net assets annually for any activities
primarily intended to result in sales of fund shares, provided the categories
of expenses for which reimbursement is made are approved by the fund's Board of
Directors. Fund expenses under the Plan include payments to dealers to
compensate them for their selling and servicing efforts. During the six months
ended June 30, 1999, distribution expenses under the Plan were limited to
$17,073,000. Had no limitation been in effect, the fund would have paid
$17,113,000 in distribution expenses under the plan. As of June 30, 1999,
accrued and unpaid distribution expenses were $2,541,000. American Funds
Distributors, Inc. (AFD), the principal underwriter of the fund's shares,
received $3,793,000 (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.
TRANSFER AGENT FEES - American Funds Service Company (AFS), the transfer
agent for the fund, was paid a fee of $5,350,000.
DEFERRED DIRECTORS' FEES - 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, 1999, aggregate deferred amounts and earnings
thereon since the deferred compensation plan's adoption (1993), net of any
payments to Directors, were $643,000.
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $4,009,857,000 and $3,888,491,000, respectively,
during the six months ended June 30, 1999.
As of June 30, 1999, accumulated undistributed net realized gain on
investments was $1,068,434,000 and additional
paid-in capital was $9,728,020,000.
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 $240,000 includes $20,000 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, 1999, such non-U.S. taxes were $4,273,000. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable, on a book basis, were $8,000 for the six months ended June 30,
1999.
<TABLE>
<S> <C> <C> <C>
Per-Share Data and Ratios SIX MONTHS
ENDED Year Ended December 31
6/30/1999 (1 1998 1997
----------------------
Net Asset Value, Beginning of Period $28.92 $27.40 $24.54
------------ ----------------------
Income From Investment Operations:
Net investment income $.21 $.42 $.41
Net gains or losses on securities (both
realized and unrealized) $4.58 $4.09 $6.00
------------ ----------------------
Total from investment operations 4.79 4.51 6.41
----------- ---------------------
Less Distributions:
Dividends (from net investment income) (.20) (.40) (.42)
Distributions (from capital gains) (.60) (2.59) (3.13)
----------- ---------------------
Total distributions (.80) (2.99) (3.55)
----------- ---------------------
Net Asset Value, End of Period $32.91 $28.92 $27.40
========== ====================
Total Return (2) 16.94% 16.72% 26.67%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $15,047 $12,713 $10,465
Ratio of expenses to average net assets .32%(3) 0.63% 0.63%
Ratio of net income to average net assets .70%(3) 1.47% 1.54%
Portfolio turnover rate 29.64%(3) 52.57% 45.09%
1996 1995 1994
------------ ----------------------
Net Asset Value, Beginning of Period $22.29 $17.50 $18.15
---------- -------------------
Income From Investment Operations:
Net investment income $.41 $.41 $.42
Net gains or losses on securities (both
realized and unrealized) $4.00 $5.46 ($.18)
---------- -------------------
Total from investment operations 4.41 5.87 .24
--------- -------------------
Less Distributions:
Dividends (from net investment income) (.40) (.40) (.44)
Distributions (from capital gains) (1.76) (.68) (.45)
--------- -------------------
Total distributions (2.16) (1.08) (.89)
--------- -------------------
Net Asset Value, End of Period $24.54 $22.29 $17.50
======== ======== =======
Total Return (2) 19.99% 34.21% 1.33%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $7,165 $4,754 $2,611
Ratio of expenses to average net assets 0.66% 0.70% 0.68%
Ratio of net income to average net assets 1.78% 2.08% 2.45%
Portfolio turnover rate 39.07% 25.47% 23.02%
(1) Unaudited
(2) Excludes maximum sales charge of 5.75%.
(3) Based on operations for the period shown and, accordingly,
not representative of a full year.
</TABLE>
DIRECTORS AND OTHER OFFICERS
FUNDAMENTAL INVESTORS
DIRECTORS
GUILFORD C. BABCOCK, San Marino, California
Associate Professor of Finance,
Marshall School of Business,
University of Southern California
JAMES E. DRASDO, Los Angeles, California
Principal Executive Officer
and President of the fund
Senior Vice President and Director,
Capital Research and Management Company
ROBERT A. FOX, Livingston, California
President and Chief Executive Officer,
Foster Farms Inc.
ROBERTA L. HAZARD, McLean, Virginia
Consultant; Rear Admiral,
U.S. Navy (retired)
LEONADE D. JONES, Burlingame, California
Former Treasurer, The Washington Post Company
JOHN G. MCDONALD, Stanford, California
The IBJ Professor of Finance, Graduate School
of Business, Stanford University
GAIL L. NEALE, Burlington, Vermont
President, The Lovejoy Consulting Group, Inc.;
former Executive Vice President of the
Salzburg Seminar
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
JAMES F. ROTHENBERG, Los Angeles, California
Chairman of the Board of the fund
President and Director, Capital Research
and Management Company
PATRICIA K. WOOLF, PH.D., Princeton, New Jersey
Private investor; lecturer, Department
of Molecular Biology, Princeton University;
corporate director
OTHER OFFICERS
GORDON CRAWFORD, Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR., Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and Management Company
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
C. ROSS SAPPENFIELD, New York, New York
Vice President of the fund
Vice President, Capital Research Company
JULIE F. WILLIAMS, Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
SHERYL F. JOHNSON, Norfolk, Virginia
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
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)]
OFFICES OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02105-1713
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, 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, 1999, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
PREPARING FOR THE YEAR 2000
The fund's key service providers - Capital Research and Management Company, the
investment adviser, and American Funds Service Company, the transfer agent -
have updated all significant computer systems to process date-related
information properly following the turn of the century. Testing of these and
other systems with business partners, vendors and other service providers will
continue through much of 1999. We will continue to keep you up to date in our
regular publications. If you'd like more detailed information, call Shareholder
Services at 800/421-0180, ext. 21, or visit our Web site at
www.americanfunds.com.
Printed on recycled paper
Litho in USA KBD/GRS/4242
Lit. No. FI-013-0899
