[The American Funds Group(r)]
FUNDAMENTAL INVESTORS
FUNDAMENTAL VALUES BEHIND SOUND INVESTING
CAUTION
PERSISTENCE
PATIENCE
TRUST
1999 Annual Report
For the year ended December 31
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 nearly seven
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.
FUNDAMENTAL INVESTORS' RESULTS COMPARED TO ITS COMPETITION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Average Annual Returns One Year Five Years 10 Years Lifetime*
Fundamental Investors
(with dividends reinvested) + 24.58% + 24.29% + 16.94% + 16.88%
Lipper Multi-Cap Value Funds + 5.94 + 17.82 + 13.03 + 14.75
Index**
</TABLE>
*Since Capital Research and Management Company began managing the fund on
8/1/78.
**Tracks 30 of the largest U.S. multi-cap value funds. These funds seek
long-term growth of capital by investing in companies that have a broad range
of market capitalizations and are considered to be undervalued when compared to
a major unmanaged stock index. The index reflects reinvested dividends. Lipper,
Inc. recently reclassified U.S. domestic equity funds into several new
categories based on portfolio holdings. As a result of these changes, the fund
is now included in the Lipper Multi-Cap Value Funds Index. The fund previously
compared its investment results to the Lipper Growth & Income Funds Index.
ON THE COVER:
A long-term commitment to investing starts with caution, persistence and
patience...and eventually results in trust. Pictured in the collage are
long-time Fundamental Investors shareholders Dr. Tony Alonso and Sumi Iwasaki.
We invite you to read more about them and our Investors' Fundamentals in the
feature story on pages 8-13.
FUNDAMENTAL INVESTORS' TOTAL RETURN YEAR BY YEAR
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital Income Total
Return Return Return
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
1998 +15.2 +1.5 +16.7
1999 +23.2 +1.4 +24.6
</TABLE>
10-year average annual compound rate of return +16.9%
10-year total return +378.2%
Lifetime total return (since 8/1/78) +2,722.6%
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.
Fund results in this report were calculated at net asset value (without a sales
charge) unless otherwise indicated. The fund's 30-day yield as of January 31,
2000, calculated in accordance with the Securities and Exchange Commission
formula, was 1.17%.
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
The year 1999 proved to be another extraordinarily rewarding period for
shareholders of Fundamental Investors. The fund produced a 24.6% increase in
the value of an investment if you reinvested dividends and capital gains. This
brings us to 16 years of positive double-digit returns within our 21-year
tenure of managing the fund.
The fund outpaced by a wide margin its peers in Lipper's Multi-Cap Value Funds
Index, which returned 5.9% for the year. The fund also surpassed the 21.0%
return of the unmanaged Standard & Poor's 500 Composite Index.
This was an especially challenging period for investors. More than half the
stocks that were in the S&P 500 Index for the full year produced negative
returns in 1999. Quality stock selection influenced our ability to beat the
index in this environment without sacrificing our tradition of paying
10-cent-per-share quarterly dividends. This represented an income return of
1.4%. (Capital gain distributions paid in February and December totaled $2.79 a
share.)
Years' worth of detective work seeking out low-priced companies with potential
for high value paid off. The fund benefited from a focus on technology,
media/entertainment and basic-material companies and a reduced emphasis on
retail and banking. The key was a deliberate concentration in midsize companies
that are among the best in their industries.
LONG-TERM FOCUS - We have a strong conviction about the long-term promise of
the fund's 10 largest holdings (see page 16). Four of these companies - Corning
(+186.5%), Ericsson (+174.4%), Texas Instruments (+126.4%) and Alcoa (+122.6%)
- - were also four of the best holdings for the year, making a significant impact
on the fund. Seven of the 10 beat the S&P 500, returning from about two to nine
times the index's results.
It's ironic that in the shadow of Y2K computer jitters, technology boomed and
drove results in 1999. Technology and the Internet have worked their way into
our mainstream consciousness. Three large holdings - Texas Instruments, Corning
and Ericsson - all benefited from this trend without being caught up in the
dot-com frenzy.
UNDERSTANDING POTENTIAL - We seized on Texas Instruments' potential when others
focused on its tough times. We concentrated on its plan to abandon the
traditional computer memory business to build digital signal processors (DSPs).
Today, it's the leading maker of in-demand DSPs, high-speed chips that power
cell phones, modems and digital cameras.
We gravitated to Corning as it transformed itself from the company that made
your casserole dishes to one that provides your phone lines with high-tech
glass fiber optics. Sweden-based Ericsson is a leading mobile phone
manufacturer and the world's largest supplier of the infrastructure that
provides wireless services.
Basic materials also did well in the market and for the fund. The proposed
acquisition of Union Carbide by Dow Chemical (+46.9%) will make it the
second-largest chemical company in the world. Alcoa, now the world's largest
producer of aluminum, profited from increasing demand and improving prices.
Media and entertainment companies News Corp. and Viacom returned +40.2% and
+63.8%, respectively. Big news for Time Warner (+16.7%) came after the period
in an announced merger with America Online, bringing content and connectivity
under one mega-roof. The value of the merger is estimated at $350 billion.
The only company in the fund's list of 10 largest holdings with a negative
return was AstraZeneca (-6.2%). This and other pharmaceutical companies
suffered this year under the cloud of possibly onerous regulation.
BEYOND OUR BORDERS - The fund took full advantage of its flexibility to invest
15% of its assets outside the U.S. We focused particularly on Japan as it comes
off a 10-year bear market that destroyed 70% of stock values. Fujitsu and Fuji
Bank, though not held the entire year, were among our best holdings.
As the U.S. market with its unprecedented run of prosperity gets long in the
tooth, we are eager to diversify in global markets with greater potential for
unrealized values. As a result, we asked and were granted permission from the
fund's board of directors to increase from 15% to a maximum of 30% the
investment of Fundamental Investors' assets in companies domiciled outside the
United States and not part of the S&P 500. Though we may not always use the
full non-U.S. allowance, this privilege (effective as of January 5, 2000)
allows us the flexibility to invest in the world's best companies, regardless
of their home base. It also reflects the increased globalization of the
companies and industries in which the fund invests.
We believe the fund is well-positioned for economic strength here and abroad.
The U.S. economy continues to be in a growth mode with low unemployment and
increased productivity. Economies in other parts of the world such as Japan and
Europe are beginning to heat up. Our biggest concern going forward is
inflation. Though the government's numbers don't reflect it yet, we see higher
wages, homes costing more and medical costs increasing. In the short run, this
could lead to even higher interest rates and the accompanying negative effects
on the economy. Long term, however, we continue to be optimistic.
We appreciate the confidence you've shown in us. We count ourselves among the
fund's 600,000 shareholder accounts and $16.6 billion in assets. We invite you
to read our feature story about the fundamental values our fellow investors use
to guide them in their long-term commitment to Fundamental Investors.
Sincerely,
/s/James F. Rothenberg
James F. Rothenberg
Chairman
/s/James E. Drasdo
James E. Drasdo
President
February 14, 2000
[Begin Sidebar]
THE VALUE OF A LONG-TERM PERSPECTIVE
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, 1999, taking into account the
maximum 5.75% sales charge. Sales charges are lower for accounts of $25,000 or
more. The chart also shows how the S&P 500 Index (an unmanaged measure of the
stocks of mostly large companies in U.S. markets) and the Lipper Multi-Cap
Value Funds Index fared over this same period, and what happened to inflation
(as measured by the Consumer Price Index).
Here are the fund's total returns and average annual compound returns with all
distributions reinvested for periods ended December 31, 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
10 years +350.78% +16.25%
Five years +179.52% +22.82%
One year +17.44% -
</TABLE>
/1/Results reflect payment of 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.
/2/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
/3/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.
HOW A $10,000 INVESTMENT HAS GROWN
$308,848
S&P 500 Index
with dividends
reinvested
$265,881/1/
Fundamental
Investors
with dividends
reinvested
$190,445
Lipper Multi-
Cap Value
Funds Index
with dividends
reinvested
$138,151/1/
Fundamental
Investors
not including
dividends
$25,616/2/
Consumer
Price Index
(inflation)
$10,000
original
investment
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fundamental Fundamental S&P 500
Investors Investors Index with
with dividends not including dividends
reinvested dividends reinvested
/1//2//3/ /2//5/ /1/
Initial Investment 07/31/78 $9,425 $9,425 $10,000
1978 High 9/11 10,000 9,919 High 9/12 10,627
Low 11/14 8,667 8,596 Low 11/14 9,299
Close 12/29 9,155 8,947 Close12/29 9,799
1979 Low 2/27 9,086 8,880 Low 2/27 9,801
High 10/5 10,823 10,310 High 10/5 11,802
Close 12/31 10,556 9,892 Close12/31 11,607
1980 Low 4/21 9,625 8,907 Low 3/27 10,562
High 11/20 13,131 11,876 High 11/28 15,729
Close 12/31 12,807 11,390 Close12/31 15,373
1981 High 4/27 13,986 12,308 High 1/6 15,640
Low 9/25 11,906 10,243 Low 9/25 13,082
Close 12/31 12,954 10,688 Close12/31 14,623
1982 Low 1/22 10,593 8,947 Low 8/12 12,602
High 12/7 17,346 13,833 High 11/9 17,851
Close 12/31 16,957 13,522 Close12/31 17,767
1983 Low 1/3 16,636 13,266 Low 1/3 17,477
High 10/10 21,599 16,721 High 10/10 22,530
Close 12/30 21,389 16,424 Close12/30 21,758
1984 High 1/9 22,004 16,896 Low 7/24 19,968
Low 7/24 18,549 13,980 High 11/6 23,277
Close 12/31 22,620 16,759 Close12/31 23,111
1985 Low 5/1 22,881 16,819 Low 1/4 22,619
High 12/16 29,735 21,355 High 12/16 30,243
Close 12/31 29,448 21,148 Close12/31 30,424
1986 Low 2/14 31,766 22,813 Low 1/22 29,302
High 9/4 36,751 25,757 High 12/2 37,531
Close 12/31 35,941 25,151 Close12/31 36,088
1987 High 8/25 34,478 34,478 High 8/25 50,924
Low 12/4 23,002 23,002 Low 12/4 34,094
Close 12/31 37,295 25,463 Close12/31 37,957
1988 Low 1/20 36,464 24,895 Low 1/20 37,273
High 7/2 43,076 28,988 High 10/21 44,765
Close 12/30 43,246 28,561 Close12/30 44,219
1989 Low 1/3 43,068 28,443 Low 1/3 43,835
High 10/9 58,786 38,138 High 10/9 58,765
Close 12/29 55,597 35,438 Close12/29 58,187
1990 High 6/4 60,265 37,947 High 7/16 61,791
Low 10/11 46,988 29,390 Low 10/11 49,968
Close 12/31 52,130 32,180 Close12/31 56,375
1991 Low 1/9 50,201 30,989 Low 1/9 53,177
High 12/31 67,947 40,940 High 12/31 73,476
Close 12/31 67,947 40,940 Close12/31 73,476
1992 Low 4/8 66,472 39,828 Low 4/8 69,998
High 11/12 72,487 42,938 High 12/18 79,524
Close 12/31 74,871 44,059 Close12/31 79,067
1993 Low 1/8 74,615 43,908 Low 1/8 77,858
High 11/2 88,379 51,169 High 12/28 87,260
Close 12/31 88,466 50,884 Close12/31 87,000
1994 High 2/2 91,634 52,706 Low 2/2 89,900
Low 12/8 86,773 48,708 High 4/4 82,442
Close 12/30 89,641 50,319 Close12/30 88,181
1995 Low 1/3 89,539 50,261 Low 1/3 88,150
High 11/29 119,497 66,056 High 12/13 121,633
Close 12/29 120,306 66,210 Close12/29 121,201
1996 Low 1/10 117,715 64,784 Low 1/10 117,767
High 11/26 145,601 79,119 High 11/25 151,457
Close 12/31 144,351 78,143 Close12/31 148,956
1997 Low 4/11 144,443 77,891 Low 1/2 148,206
High 10/7 189,427 101,423 High 12/5 200,499
Close 12/31 182,855 97,513 Close12/31 198,582
1998 High 7/17 212,583 112,606 Low 1/9 189,836
Low 10/8 173,533 91,600 High 12/29 256,994
Close 12/31 213,421 112,292 Close12/31 255,218
1999 Low 14-Jan 211,059 111,050 Low 1/14 251,680
High 10-Dec 258,553 134,742 High 12/31 308,848
Close 31-Dec 265,881 138,151 Close12/31 308,848
Lipper
Fundamental Fundamental Multi-Cap
Investors Investors Value Funds
with dividends not including Index with
reinvested dividends dividends
/1//2//3/ /2//5/ reinvested
Initial Investment 07/31/78 $9,425 $9,425 $10,000
1978 High 9/11 10,000 9,919 High 8/31 10,482
Low 11/14 8,667 8,596 Low 10/31 8,964
Close 12/29 9,155 8,947 Close12/29 9,503
1979 Low 2/27 9,086 8,880 Low 2/28 9,655
High 10/5 10,823 10,310 High 12/31 12,179
Close 12/31 10,556 9,892 Close12/31 12,179
1980 Low 4/21 9,625 8,907 Low 3/31 11,460
High 11/20 13,131 11,876 High 11/30 17,210
Close 12/31 12,807 11,390 Close12/31 16,418
1981 High 4/27 13,986 12,308 High 5/31 16,827
Low 9/25 11,906 10,243 Low 9/30 14,738
Close 12/31 12,954 10,688 Close12/31 15,873
1982 Low 1/22 10,593 8,947 Low 7/31 15,038
High 12/7 17,346 13,833 High 12/31 19,943
Close 12/31 16,957 13,522 Close12/31 19,943
1983 Low 1/3 16,636 13,266 Low 1/31 20,541
High 10/10 21,599 16,721 High 6/30 25,073
Close 12/30 21,389 16,424 Close12/30 24,570
1984 High 1/9 22,004 16,896 Low 5/31 22,916
Low 7/24 18,549 13,980 High 6*31 25,441
Close 12/31 22,620 16,759 Close12/31 25,441
1985 Low 5/1 22,881 16,819 Low 1/31 17,107
High 12/16 29,735 21,355 High 12/31 31,853
Close 12/31 29,448 21,148 Close12/31 31,853
1986 Low 2/14 31,766 22,813 Low 1/31 22,383
High 9/4 36,751 25,757 High 3/30 38,348
Close 12/31 35,941 25,151 Close12/31 36,847
1987 High 8/25 34,478 34,478 High 8/31 48,805
Low 12/4 23,002 23,002 Low 11/30 36,634
Close 12/31 37,295 25,463 Close12/31 39,077
1988 Low 1/20 36,464 24,895 Low 1/31 40,742
High 7/2 43,076 28,988 High 12/30 46,157
Close 12/30 43,246 28,561 Close12/30 46,157
1989 Low 1/3 43,068 28,443 Low 2/28 48,445
High 10/9 58,786 38,138 High 8/31 57,692
Close 12/29 55,597 35,438 Close29/5 55,951
1990 High 6/4 60,265 37,947 High 5/31 56,248
Low 10/11 46,988 29,390 Low 10/31 48,012
Close 12/31 52,130 32,180 Close12/31 52,178
1991 Low 1/9 50,201 30,989 Low 1/31 54,419
High 12/31 67,947 40,940 High 12/31 66,222
Close 12/31 67,947 40,940 Close12/31 66,222
1992 Low 4/8 66,472 39,828 Low 1/31 66,357
High 11/12 72,487 42,938 High 12/31 73,682
Close 12/31 74,871 44,059 Close12/31 73,682
1993 Low 1/8 74,615 43,908 Low 1/31 74,957
High 11/2 88,379 51,169 High 12/31 83,799
Close 12/31 88,466 50,884 Close12/31 83,799
1994 High 2/2 91,634 52,706 Low 3/31 81,489
Low 12/8 86,773 48,708 High 8/31 87,466
Close 12/30 89,641 50,319 Close12/30 83,890
1995 Low 1/3 89,539 50,261 Low 1/31 85,186
High 11/29 119,497 66,056 High 12/31 109,805
Close 12/29 120,306 66,210 Close12/29 109,805
1996 Low 1/10 117,715 64,784 Low 1/31 113,277
High 11/26 145,601 79,119 High 11/30 133,361
Close 12/31 144,351 78,143 Close12/31 132,974
1997 Low 4/11 144,443 77,891 Low 3/31 135,217
High 10/7 189,427 101,423 High 12/31 168,757
Close 12/31 182,855 97,513 Close12/31 168,757
1998 High 7/17 212,583 112,606 High 4/30 189,102
Low 10/8 173,533 91,600 Low 8/31 150,398
Close 12/31 213,421 112,292 Close12/31 179,769
1999 Low 14-Jan 211,059 111,050 Low 2/28 176,204
High 10-Dec 258,553 134,742 High 6/30 202,462
Close 31-Dec 265,881 138,151 Close12/31 190,445
Fundamental Fundamental
Investors Investors Consumer
with dividends not including Price Index
reinvested dividends (inflation)
/1/ /1/ /2/
Initial Investment 07/31/78 $9,425 $9,425 $10,000
1978 High 9/11 10,000 9,919 Low 7/31 10,000
Low 11/14 8,667 8,596 High 12/29 10,304
Close 12/29 9,155 8,947 Close12/29 10,304
1979 Low 2/27 9,086 8,880 Low 1/31 10,396
High 10/5 10,823 10,310 High 12/31 11,674
Close 12/31 10,556 9,892 Close12/31 11,674
1980 Low 4/21 9,625 8,907 Low 1/31 11,842
High 11/20 13,131 11,876 High 12/31 13,135
Close 12/31 12,807 11,390 Close12/31 13,135
1981 High 4/27 13,986 12,308 Low 1/31 13,242
Low 9/25 11,906 10,243 High 12/31 14,307
Close 12/31 12,954 10,688 Close12/31 14,307
1982 Low 1/22 10,593 8,947 Low 1/31 14,353
High 12/7 17,346 13,833 High 10/31 14,947
Close 12/31 16,957 13,522 Close12/31 14,855
1983 Low 1/3 16,636 13,266 Low 1/31 14,886
High 10/10 21,599 16,721 High 12/30 15,419
Close 12/30 21,389 16,424 Close12/30 15,419
1984 High 1/9 22,004 16,896 Low 1/31 15,510
Low 7/24 18,549 13,980 High 10/31 16,027
Close 12/31 22,620 16,759 Close12/31 16,027
1985 Low 5/1 22,881 16,819 Low 1/31 16,058
High 12/16 29,735 21,355 High 12/31 16,636
Close 12/31 29,448 21,148 Close12/31 16,636
1986 Low 2/14 31,766 22,813 Low 4/30 16,530
High 9/4 36,751 25,757 High 12/31 16,819
Close 12/31 35,941 25,151 Close12/31 16,819
1987 High 8/25 34,478 34,478 Low 1/31 16,925
Low 12/4 23,002 23,002 High 11/30 17,565
Close 12/31 37,295 25,463 Close12/31 17,565
1988 Low 1/20 36,464 24,895 Low 1/31 17,610
High 7/2 43,076 28,988 High 12/30 18,341
Close 12/30 43,246 28,561 Close12/30 18,341
1989 Low 1/3 43,068 28,443 Low 1/31 18,432
High 10/9 58,786 38,138 High 12/29 19,193
Close 12/29 55,597 35,438 Close12/29 19,193
1990 High 6/4 60,265 37,947 Low 1/31 19,391
Low 10/11 46,988 29,390 High 11/30 20,365
Close 12/31 52,130 32,180 Close12/31 20,365
1991 Low 1/9 50,201 30,989 Low 1/31 20,487
High 12/31 67,947 40,940 High 12/31 20,989
Close 12/31 67,947 40,940 Close12/31 20,989
1992 Low 4/8 66,472 39,828 Low 1/31 21,020
High 11/12 72,487 42,938 High 11/30 21,613
Close 12/31 74,871 44,059 Close12/31 21,598
1993 Low 1/8 74,615 43,908 Low 1/31 21,705
High 11/2 88,379 51,169 High 11/30 22,192
Close 12/31 88,466 50,884 Close12/31 22,192
1994 High 2/2 91,634 52,706 Low 1/31 22,253
Low 12/8 86,773 48,708 High 11/30 22,785
Close 12/30 89,641 50,319 Close12/30 22,785
1995 Low 1/3 89,539 50,261 Low 1/31 22,877
High 11/29 119,497 66,056 High 10/31 23,394
Close 12/29 120,306 66,210 Close12/29 23,364
1996 Low 1/10 117,715 64,784 Low 1/31 23,501
High 11/26 145,601 79,119 High 11/30 24,140
Close 12/31 144,351 78,143 Close12/31 24,140
1997 Low 4/11 144,443 77,891 Low 1/31 24,216
High 10/7 189,427 101,423 High 10/31 24,597
Close 12/31 182,855 97,513 Close12/31 24,551
1998 High 7/17 212,583 112,606 Low 6/1 24,216
Low 10/8 173,533 91,600 High 10/31 24,597
Close 12/31 213,421 112,292 Close12/31 24,551
1999 Low 14-Jan 211,059 111,050 Low 1/31 25,008
High 10-Dec 258,553 134,742 High 11/30 25,616
Close 31-Dec 265,881 138,151 Close12/31 25,616
</TABLE>
<TABLE>
<CAPTION>
Year CAPITAL TOTAL
Ended VALUE Value at VALUE Value at
December Dividends Year-End Dividends Year-End Total
31 in Cash /2/ Reinvested /2/ Return
<S> <C> <C> <C> <C> <C>
1978/7/ $216 $8,947 $217 $9,155 -8.4%
1979 405 9,892 421 10,556 15.3
1980 552 11,390 603 12,807 21.3
1981 579 10,688 665 12,654 -1.2
1982 634 13,522 769 16,957 34.0
1983 594 16,424 755 21,389 26.1
1984 555 16,759 734 22,620 5.8
1985 581 21,148 795 29,448 30.2
1986 636 25,151 894 35,941 22.0
1987 717 25,463 1,034 37,295 3.8
1988 895 28,561 1,328 43,246 16.0
1989 1,225 35,438 1,877 55,597 28.6
1990 1,059 32,180 1,678 52,130 -6.2
1991 903 40,940 1,477 67,947 30.3
1992 989 44,059 1,655 74,871 10.2
1993 1,083 50,884 1,857 88,466 18.2
1994 1,238 50,319 2,171 89,641 1.3
1995 1,161 66,210 2,082 120,306 34.2
1996 1,197 78,143 2,188 144,351 20.0
1997 1,351 97,513 2,511 182,855 26.7
1998 1,427 112,292 2,690 213,421 16.7
</TABLE>
AVERAGE
ANNUAL
COMPOUND
RATE OF
RETURN FOR
21-1/2 YEARS
16.6%/1/
[End Sidebar]
MAKING A LONG-TERM COMMITMENT
INVESTORS' FUNDAMENTALS
[Begin Sidebar]
CAUTION
PERSISTENCE
PATIENCE
TRUST
[End Sidebar]
Long bull markets like the one we've experienced over the past decade can make
investing look easy and full of short-term rewards. History reminds us,
however, that staying focused on long-term goals and paying some heed to risk
generally are keys to success over longer periods.
Some of the most important decisions in our lives revolve around the long-term
commitments we make - friendships, a marriage, a career. And investing. Often
we're cautious as we begin. If it feels right, we stick with it and persevere.
It may be frustrating but patience can have its rewards. Ultimately, no
long-term commitment feels right until there's trust.
Many investors who have had a long relationship with Fundamental Investors have
gone through a similar pattern of caution, then persistence in their
investments, patience and - ultimately - trust.
BE CAUTIOUS - For most of the last two decades since Capital Research and
Management Company took responsibility for Fundamental Investors, it may have
been difficult for cautious investors to make a commitment to investing while
watching the ever-rising indexes. We wouldn't have been surprised to hear
someone say, "The market is way too high. This isn't a good time to get
started. I'd better wait." Who could have known that this unusual bull market
would have lasted this long?
It may sound cautious to try to time your entry into the market at just the
right moment, but the reality is that it's not possible. No one can actually
pick the best day to invest year after year - not even the professionals. More
significantly, over the long term, timing makes little difference. The biggest
mistake investors make in the name of caution is staying out of the market and
missing out on potential long-term gains.
As you'll see in the sidebar on the right - Time, Not Timing - over the life of
Fundamental Investors, there wouldn't have been a big difference in long-term
results between investing on the very best day or the worst day of the year.
Over the long haul, what mattered most was not when you invested but that you
did invest.
TIME, NOT TIMING
Let's say you had special powers and, for 21 years (every full year since we
began managing the fund), you were able to pick the best day to invest in
Fundamental Investors - the day the fund was at its lowest price. If you had
invested $10,000 on each of those days, your total investment of $210,000 would
have been worth $2.1 million by the end of 1999. That would have been an 18.4%
average annual total return.
But let's say you didn't have that kind of luck. What if you had chosen the
absolute worst day of the year to invest in the fund, year after year - the day
the fund's price was at its highest? You may have felt like a failure, but your
investment actually would have been quite successful. Even by investing your
$210,000 on the worst days each year, your balance would have grown to $1.6
million after 21 years and produced a 17.0% average annual total return.
Sometimes in the name of caution, investors focus on the importance of timing
their investment. Whether you had invested on the best or worst day of the year
in Fundamental Investors over the past 21 years, the rewards would have been
significant. Though it could have appeared cautious to stay on the sidelines,
the prudent move would have been for investors to get into the fund early to
get time, not timing, on their side.
FROM 1979 - 1999,
IF YOU HAD INVESTED ON:
THE BEST DAY OF THE YEAR
(lowest daily fund price)
Annual Investment: $10,000
Total Invested $210,000
Ending Value $2.1 million
Average Annual
Total Return: 18.4%
THE WORST DAY OF THE YEAR
(highest daily fund price)
Annual Investment: $10,000
Total Invested $210,000
Ending Value $1.6 million
Average Annual
Total Return: 17.0%
What mattered most was not when you invested but that you did invest.
This example is hypothetical and your experience may be different. Also keep in
mind that the past is not an indicator of future results. These examples assume
a $10,000 annual investment in the fund for each full calendar year since
Capital Research and Management Company took responsibility as Fundamental
Investors' investment adviser. The example reflects results at net asset value,
with all dividends and capital gains reinvested. A strategy of regular
investing like the one depicted here and on the next page only works if you
continue to invest regularly, even when share prices are down, and it doesn't
guarantee a profit or protect against a loss.
[Begin Sidebar]
[photo: Sumi Iwasaki]
History reminds us that staying focused on long-term goals and paying some heed
to risk generally are keys to success over longer periods.
[End Sidebar]
[Begin Sidebar]
PERSISTENCE COUNTS
Sticking to a long-term investment commitment such as saving for retirement is
a key to achieving your goal, even if you invest small amounts. Say you began
an IRA investing program 18 years ago when IRA legislation was first
liberalized and stuck to the plan, investing $2,000 every year. Though this is
just a hypothetical example and the past may not repeat itself, you can see the
potential for small amounts to add up.
STICKING TO THE PROGRAM
$2,000 invested in Fundamental Investors on January 1, every year, 1982-1999
would have grown to $241,301 by the end of 1999.
[Begin Line Chart]
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ending 12/31 $2,000 Annual Growth of Investment
IRA Investment
1,981 2,000 2,000
1,982 2,000 4,680
1,983 2,000 7,903
1,984 2,000 10,358
1,985 2,000 15,485
1,986 2,000 20,899
1,987 2,000 23,687
1,988 2,000 29,466
1,989 2,000 39,881
1,990 2,000 39,395
1,991 2,000 53,347
1,992 2,000 60,784
1,993 2,000 73,821
1,994 2,000 76,801
1,995 2,000 105,074
1,996 2,000 128,075
1,997 2,000 164,237
1,998 2,000 193,690
1,999 2,000 241,301
</TABLE>
[End Chart]
Growth of Investment
Results are at net asset value and include reinvestment of dividends and
capital gains.
[End Sidebar]
INVESTORS' FUNDAMENTALS
BE PERSISTENT - No long-term commitment works if you don't keep it. That's
especially important for those with a long-term investment goal such as
retirement. More than 250,000 shareholders use Fundamental Investors for their
Individual Retirement Accounts (IRAs), not to mention thousands who use the
fund in their corporate retirement plans. The fund's long-term style of
management meshes well with the long-term goal of retirement. Persistence
counts when saving for retirement. Keeping up a regular investment program is
essential to meeting your goals.
The average shareholder in Fundamental Investors stays with the fund several
times longer than the industry average, as tracked by the Investment Company
Institute. Call it persistence. Call it discipline. It makes a difference. For
a concrete example, see the sidebar to the left entitled Persistence Counts.
BE PATIENT - Instant gratification is the name of the game for day-traders and
those who are hoping to get rich quick. The best philosophy for investors in
Fundamental Investors is: patience is a virtue. We try to prove that to you in
each annual report's mountain chart by showing you how a $10,000 investment has
grown over the long term - the life of the fund. An initial $10,000 investment
made in August 1978 with dividends and capital gains taken in cash would have
grown to $138,151 by the end of 1999. Patience works even more in an investor's
favor if dividends and capital gains are reinvested instead of taking them as
cash. This approach would have grown that $10,000 investment (after the maximum
sales charge) to $265,881.
BE TRUSTING - To stick with something over a long time requires caution,
persistence and patience. But trust is essential to maintain those
fundamentals. The following elements have helped investors develop trust in
Fundamental Investors over the years:
[Begin Sidebar]
THE FUND'S MULTIPLE PORTFOLIO COUNSELOR SYSTEM
[Begin Pie Chart]
Jim Drasdo - responsible for managing 25% of portfolio
Dina Perry - responsible for managing 25% of portfolio
Gordon Crawford - responsible for managing 25% of portfolio
Research Analysts - responsible for managing remaining 25% of portfolio
[End Chart]
[End Sidebar]
STABILITY OF MANAGEMENT - We utilize a unique system of investment management
called the multiple portfolio counselor system. Within Fundamental Investors,
three portfolio counselors each take responsibility for separately managing a
portion of the fund in a way that they believe best meets its objectives. A
fourth segment is managed by our research analysts. This system provides
continuity in case one person leaves the fund, as well as providing greater
stability due to a diversified management perspective within the fund's overall
portfolio. Further stability comes from the long tenure of the fund's
investment professionals. The portfolio counselors have been in the industry an
average of 26 years and with the fund an average of 19. The analysts on the
fund have been with us an average of eight years.
BALANCE - Each portfolio counselor has a different expertise and point of view.
The combination of perspectives in such diverse fields as entertainment, media,
technology, energy and cyclicals provides a comforting balance. Members of our
research team give us insight into the full range of investment possibilities.
COMMITTED FINANCIAL ADVISERS - The financial advisers who recommend Fundamental
Investors to their clients have earned our trust over the years. By
understanding the nature of the fund, they bring our story to the right
investors whose goals, investment objectives and time frames match ours.
LONG-TERM APPROACH - We have a realistic attitude toward our long-term
investment commitment. We anticipate that from time to time setbacks will
occur. If we're right in our long-term assessment of the companies whose shares
we purchase for the fund, these market setbacks can present buying
opportunities. If we incorporate the right fundamental evaluation in our
search to help you meet your financial goals, in the long run we should both be
satisfied.
[Begin Caption]
[photos: Tony Alonso and Sumi Iwasaki]
We spoke to two of your fellow shareholders to see how their fundamental values
led them to their long-term commitment to Fundamental Investors. Join us on the
next several pages as we chat with them.
[End Caption]
"I'M INTERESTED IN THE LONG TERM."
DR. TONY ALONSO
[photos: Tony Alonso]
When you meet Tony Alonso and hear him reminisce about his boyhood in Puerto
Rico, you can just imagine him sitting next to his father at a New York
Yankees' spring training game (then in Puerto Rico) and soaking in the wisdom
that would guide him through his life. The Tampa-based physician admiringly
recalls how his Spanish-speaking father and American-born mother created a
loving household and set the stage for their sons to become successful,
well-rounded adults.
Today, Tony has his own ear, nose and throat practice, teaches at the
University of Florida, serves as a spring training doctor for the Yankees and,
with his wife, Irma, has raised two bright, family-oriented college-age
children. Along the way, he managed to begin and sustain a disciplined
investment program for himself and his family.
Though certainly it was his father's overall example in his own medical career
and the emphasis on tradition and family that helped shape Tony's life, there
were specific decisions that made a big difference. "Only English was spoken at
home," says Tony. "My parents assumed we would learn Spanish at school and with
our friends." That bilingual ability and an insistence on serious study time
went far toward earning Tony the opportunity to excel at Amherst College and
Yale Medical School when his father steered him to the "states" for his
education. Watching his father manage the family's money guided Tony toward his
own approach to spending and investing.
[Begin Pull Quote]
"My father believed in the value of hard work, living within a budget, buying
quality blue chip stocks and holding on to them."
[End Pull Quote]
"My father believed in the value of hard work, living within a budget, buying
quality blue chip stocks and holding on to them," says Tony. "It was a strategy
that bore fruit and continues to support my 89-year-old mother today. I learned
a lot about handling money just from observing him," continues Tony. "An
overriding message was: handle money carefully, don't be ostentatious. Live
comfortably if you can, but protect yourself for a rainy day."
[Begin Pull Quote]
"An overriding message was: handle money carefully, don't be ostentatious. Live
comfortably if you can, but protect yourself for a rainy day."
[End Pull Quote]
[Begin Sidebar]
CAUTION
PERSISTENCE
PATIENCE
TRUST
[End Sidebar]
Tony and Irma (also a child of a Puerto Rican physician) began looking for a
financial adviser who had the same prudent, long-term philosophy they had. "I
think it's best to know what you don't know so that you can avail yourself of
the best possible advice," says Tony. His relationship with his financial
adviser started off on the right foot with the two sharing a mutual
understanding of the importance of a long-term time horizon. "A shared
philosophy and trust were established between us early on and remains after
many years," says Tony. When his adviser suggested Fundamental Investors for
Tony's medical practice's retirement plan, he trusted the recommendation and
felt it was a natural for the portfolio.
[Begin Pull Quote]
Tony's relationship with his financial adviser started off on the right foot
with the two sharing a mutual understanding of the importance of a long-term
time horizon.
[End Pull Quote]
"I'm not interested in superstars," says Tony. "I'm attracted to a fund that's
managed by a group of carefully selected, highly talented people who quietly
keep doing their job. I rely on them. As a professional, as a practicing
physician, I don't have the time or the knowledge to play the market or to make
day-to-day decisions. I count on the fund's managers to keep doing what they've
been doing for me: reasonable turnover, low expenses and attention to what's
important."
To Tony, a long-term approach is paramount. "Sure the fund has done very well
short term, but I'm more interested in the long term. I don't look at one year.
I'm interested in 20 years. My father taught me the value of putting money away
over time. I developed the habit of saving - putting money away with the
knowledge that you don't need to get rich overnight."
[Begin Pull Quote]
"I developed the habit of saving - putting money away with the knowledge that
you don't need to get rich overnight. It takes time for things to play
themselves out."
[End Pull Quote]
"It takes time for things to play themselves out," says Tony, who now watches
Yankees' games with his own son. "I get a special perspective in seeing some of
the young Yankees players in my role as a team doctor. You see them with their
hopes and ambitions. Some will make it and some won't. You also see the older,
more established players, too. It takes time for success to develop, but it's
worth the wait."
"IF IT'S LONG TERM, IT'LL WORK OUT."
SUMI IWASAKI
[photos: Sumi Iwasaki]
[Begin Pull Quote]
"I grew up understanding that money was earned, not something just given to
you."
[End Pull Quote]
Money wasn't something that was talked about much during Sumi Iwasaki's
girlhood. "Other kids would say something about allowances and I didn't really
know what they were talking about. I grew up understanding that money was
earned, not something just given to you."
The fundamental lessons of self-reliance and hard work were a natural outcome
of an adolescence spent in a relocation camp in the deserts of Colorado with
her Japanese-immigrant parents and her brothers. "It was a confusing time since
my parents had always embraced America as their home. They had encouraged us to
be part of the American mainstream - in language and culture." A positive and
practical person, Sumi focuses on the good that came from that experience - an
opportunity to attend Simpson College in Iowa as part of a program sponsored by
the American Friends Society. "I knew how lucky I was to be getting that
education," says Sumi. Years later, mirroring what was taught to her by her own
parents, she passed along to her sons the value of education and hard work. "I
liked sending them downtown with their father so they could see how hard he
worked in his fruit stand and grocery store and what it took to support this
family." When her husband was alive, the number one goal was to get the
children to college. "We focused on making sure they grew up well, were
healthy, got an education and learned to work. Once they had their education,
it was up to them," says Sumi.
During these years Sumi took occasional classes and eventually earned teaching
credentials from UCLA. "Sometimes you do things and you just don't know why,"
says Sumi. If it hadn't been for her earlier education and her teaching
credentials, she would not have been able to find a job to support herself when
her husband passed away. She spent most of her early years focused on the home.
"For a long time I was a homemaker who taught school. Eventually, I became a
schoolteacher who was a homemaker. I think my husband would have been very
proud of me."
It was more education that brought Sumi to her financial adviser. She signed up
for a series of lectures on personal finance. "My husband and I hadn't talked
much about money when he was alive," says Sumi. "When he died unexpectedly at
57 years old, I had no contingency plans and really didn't know what to do."
Sumi taped all of the finance lectures and listened to them again when she went
home at night. She asked the teacher, a professional investment adviser, to
begin advising her on her own finances and soon formed a trusting relationship
with him.
[Begin Sidebar]
CAUTION
PERSISTENCE
PATIENCE
TRUST
[End Sidebar]
[Begin Pull Quote]
She asked the teacher, a professional investment adviser, to begin advising her
on her own finances and soon formed a trusting relationship with him.
[End Pull Quote]
[Begin Pull Quote]
Her adviser understood her trepidation and took the time to educate her and
develop a cautious, long-term strategy.
[End Pull Quote]
[Begin Pull Quote]
"It just gives me peace of mind to know that it's there. I'm patient, I let it
grow. If it's long term, it'll work out."
[End Pull Quote]
Due to her lack of investment experience, Sumi started out slowly, gradually
investing regular amounts in Fundamental Investors. "I didn't have the
confidence or the knowledge to just jump in," says Sumi. Her adviser understood
her trepidation and took the time to educate her and develop a cautious,
long-term strategy.
"I've always lived simply," says Sumi. "The relocation camp, the necessity to
work hard to get through college and raising a family instilled in me the
ability to make money go far and to live with minimal needs." As a result, Sumi
disciplined herself to live off her salary when she was working and, now that
she has retired, a combination of Social Security and her teacher's pension.
Since she hasn't relied on her investments for daily budget needs, she has had
the advantage of long-term growth.
Sumi primarily uses her Fundamental Investors assets for her true joy - travel.
"I may have been very traditional at one point, but I've become very
independent and nontraditional. Working gives you confidence and security. My
investments have given me the opportunity to learn about the world." Always
practical and looking for the most efficient way to travel, she joins tours to
Europe, Africa, to such South American destinations as Brazil, Argentina,
Chile, Peru and, of course, to Asia - 70 countries in all.
"Because I don't rely on this money to live, I don't worry about it," says
Sumi. "I don't even check on it very much. Sure, I hate to see those downward
arrows on CNN, but I don't pick up the phone to make a call to my adviser
because we've had many discussions about the importance of a long-term
perspective."
"It just gives me peace of mind to know that it's there. I'm patient, I let it
grow. If it's long term, it'll work out," says Sumi. "And I've got longevity on
my side. My mother lived until 94 and my grandmother until 104!"
WHAT MAKES THE AMERICAN FUNDS DIFFERENT?
[photos: American flag, globe, magnifying glass, map]
AMERICAN FUNDS
As a shareholder in Fundamental Investors, you are also a member of The
American Funds Group,(r) the nation's third-largest mutual fund family. You
won't find us advertised, yet thousands of financial advisers recommend the
American Funds for their clients' serious money - money set aside for
education, a home, retirement and other important dreams.
What the 29 funds in our group have in common is a commitment to your best
interests and the proven approach of our investment adviser, Capital Research
and Management Company. In business since 1931, Capital's calling cards
include:
A LONG-TERM, VALUE-ORIENTED APPROACH: Rather than follow short-term fads, we
rely on our own intensive research to find well-managed companies with
reasonably priced shares and solid, long-term potential. Despite our size, we
offer relatively few funds compared with many large fund families, allowing us
to maintain a careful focus on our objectives and enabling you to benefit from
economies of scale.
A GLOBAL PERSPECTIVE: We opened our first overseas office in 1962, well before
most mutual funds began investing internationally. Today, the American Funds
draw on one of the industry's most globally integrated research networks. We
spend substantial resources getting to know companies and industries around the
world.
A MULTIPLE PORTFOLIO COUNSELOR SYSTEM: More than 40 years ago, we developed a
unique strategy for managing investments that blends teamwork with individual
accountability. Every American Fund is divided among a number of portfolio
counselors, each of whom manages his or her portion independently, within each
fund's objectives; in most cases, research analysts manage a portion as well.
Over time, this method has contributed to consistency of results and continuity
of management.
EXPERIENCED INVESTMENT PROFESSIONALS: More than 75% of the portfolio counselors
who serve the American Funds were in the investment business before the sharp
stock market decline in October 1987. Long tenure and experience through a
variety of market conditions mean we aren't "practicing" with your money.
A COMMITMENT TO LOW OPERATING EXPENSES: You can't control market returns, but
you can control what you invest in and how much you pay to own it. American
Funds provide exceptional value for shareholders, with exceptionally low
operating expenses. Our portfolio turnover rates are low as well, keeping
transaction costs and tax consequences contained.
A PORTFOLIO FOR EVERY INVESTOR
Most financial advisers suggest that investors balance their portfolios by
investing across several types of investments. Which mix is right for you? That
depends on a number of things - including your risk tolerance, investment time
horizon and financial goals. The American Funds Group offers 29 funds with an
array of investment objectives to help you and your financial adviser build a
portfolio specifically tailored to your needs.
GROWTH FUNDS - Emphasis on long-term growth through stocks
AMCAP Fund(r)
EuroPacific Growth Fund(r)
The Growth Fund of America(r)
The New Economy Fund(r)
New Perspective Fund(r)
New World Fund(SM)
SMALLCAP World Fund(r)
GROWTH-AND-INCOME FUNDS - Emphasis on long-term growth and dividends through
stocks
American Mutual Fund(r)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(r)
Washington Mutual Investors Fund(SM)
EQUITY-INCOME FUNDS - Emphasis on above-average income and growth through
stocks and/or bonds
Capital Income Builder(r)
The Income Fund of America(r)
BALANCED FUND - Emphasis on long-term growth and current income through stocks
and bonds
American Balanced Fund(r)
INCOME FUNDS - Emphasis on current income through bonds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(r)
Intermediate Bond Fund of America(r)
U.S. Government Securities Fund(SM)
TAX-EXEMPT INCOME FUNDS - Emphasis on tax-free current income through municipal
bonds
American High-Income Municipal Bond Fund(r)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(r)
TAX-EXEMPT INCOME FUNDS - State-specific tax-exempt funds
The Tax-Exempt Fund of California(r)
The Tax-Exempt Fund of Maryland(r)
The Tax-Exempt Fund of Virginia(r)
MONEY MARKET FUNDS - Seek stable monthly income through money market
instruments
The Cash Management Trust of America(r)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
We also offer a full line of retirement plans and variable annuities.
For more complete information about any of the funds, including charges and
expenses, please obtain a prospectus from your financial adviser, download one
from our Web site at www.americanfunds.com, or phone the fund's transfer agent,
American Funds Service Company, at 800/421-0180. Please read the prospectus
carefully before you invest or send money. For more information, ask your
financial adviser for a copy of A Portfolio for Every Investor.
<TABLE>
Fundamental Investors, Inc.
Investment Portfolio, December 31, 1999
<S> <C> <C> <C>
Percent of Percent
LARGEST EQUITY HOLDINGS Net Asset Change/1/
As of 12/31/1999
Texas Instruments 3.46% +126.4
Dow Chemical 2.39 +46.9
Aloca 2.33 +122.6
Time Warner 2.29 +16.7
News Corp. 1.97 +40.2
Corning 1.94 +186.5
Viacom 1.90 +63.8
AstraZeneca 1.74 -6.2/2/
Seagram 1.67 +18.3
Ericsson 1.42 +174.4
/1/ Reflects change in market price for the
for the year ended 12/31/99. (Excludes dividends)
/2/ Not held for entire period; reflects change from
6/23/99-12/31/99.
Percent of
Largest Industry Holdings Net Assets
Broadcasting & Publishing 12.40%
Electronic Components 8.12
Energy Sources 6.82
Health & Personal Care 6.66
Data Processing & Reproduction 6.55
Shares or Market Percent
Equity Securitites Principal Value Of Net
Amount (000)Assets
BROADCASTING & PUBLISHING - 12.40%
Time Warner Inc. 5,254,800 $380,645 2.29%
News Corp. Ltd., preferred (ADR) (Australia) 6,200,000 207,313
News Corp. Ltd. (ADR) 3,150,000 120,48 1.97
Viacom Inc., Class B (1) 2,860,000 172,851
Viacom Inc., Class A (1) 2,351,200 142,10 1.90
CBS Corp. (1) 3,100,000 198,20 1.19
Tribune Co. 3,482,200 191,73 1.16
Dow Jones & Co., Inc. 2,415,200 164,23 .99
A. H. Belo Corp., Class A 4,935,000 94,07 .57
Comcast Corp., Class A, special stock 1,821,568 92,10 .55
Fox Entertainment Group, Inc., Class A (1) 3,650,000 91,02 .55
New York Times Co., Class A 1,000,000 49,12 .30
AT&T Corp. Liberty Media Group, Class A (1) 800,001 45,40 .27
Gannett Co., Inc. 500,000 40,78 .25
Knight-Ridder, Inc. 625,000 37,18 .22
E.W. Scripps Co., Class A 700,000 31,36 .19
ELECTRONIC COMPONENTS - 8.12%
Texas Instruments Inc. 5,936,512 575,10 3.46
Corning Inc. 2,500,000 322,34 1.94
Motorola, Inc. 1,213,700 178,71 1.08
SCI Systems, Inc. (1) 1,700,000 139,71 .84
Intel Corp. 1,600,000 131,70 .80
ENERGY SOURCES - 6.82%
Texaco Inc. 3,450,000 187,37 1.13
Suncor Energy Inc. (Canada) 4,390,000 183,37 1.11
Unocal Corp. 4,200,000 140,963
Unocal Capital Trust $3.125 convertible preferred 450,000 22,05 .98
Phillips Petroleum Co. 3,050,000 143,35 .86
Conoco Inc., Class A 4,400,000 108,90 .66
Murphy Oil Corp. 1,829,000 104,93 .63
USX-Marathon Group 3,000,000 74,06 .45
Shell Canada Ltd., Class A (Canada) 2,990,500 60,59 .36
Royal Dutch Petroleum Co. (New York Registered) 500,000 30,219
(Netherlands)
"Shell" Transport and Trading Co., PLC 450,000 22,16 .31
(New York Registered) (United Kingdom)
Imperial Oil Ltd. (Canada) 1,161,900 25,12 .15
Sunoco, Inc. 1,000,000 23,50 .14
Pogo Trust I, Series A, 6.50% convertible 130,000 6,40 .04
preferred 2029
HEALTH & PERSONAL CARE - 6.66%
AstraZeneca PLC (ADR) (United Kingdom) 3,256,266 135,949
AstraZeneca PLC 3,650,000 152,93 1.74
Pfizer Inc 5,900,000 191,38 1.15
Pharmacia & Upjohn, Inc. 3,930,000 176,85 1.07
Gillette Co. 3,100,000 127,68 .77
Becton, Dickinson and Co. 2,200,000 58,85 .35
Kimberly-Clark Corp. 800,000 52,20 .31
Warner-Lambert Co. 600,000 49,16 .30
Elan Corp., PLC (ADR) (Ireland) (1) 1,400,000 41,30 .25
Celera Genomics (1) 264,400 39,39 .24
Cardinal Health, Inc. 754,650 36,12 .22
Avon Products, Inc. 854,400 28,19 .17
Schering-Plough Corp. 360,000 15,18 .09
DATA PROCESSING & REPRODUCTION - 6.55%
Computer Associates International, Inc. 3,150,000 220,30 1.33
International Business Machines Corp. 2,002,700 216,29 1.30
Microsoft Corp. (1) 1,690,000 197,30 1.19
Hewlett-Packard Co. 1,100,000 125,33 .76
Fujitsu Ltd. (Japan) 2,200,000 100,33 .60
Oracle Corp. (1) 725,000 81,24 .49
Compaq Computer Corp. 2,945,100 79,70 .48
Gateway, Inc. (1) 488,700 35,21 .21
Cisco Systems, Inc. (1) 300,000 32,13 .19
CHEMICALS - 5.44%
Dow Chemical Co. 2,975,000 397,53 2.39
Monsanto Co. 5,846,700 208,289
Monsanto Co. 6.50% ACES convertible 200,000 6,62 1.30
preferred 2001, Units
Imperial Chemical Industries PLC (ADR) 3,500,000 148,96 .90
(United Kingdom)
Air Products and Chemicals, Inc. 1,800,000 60,41 .36
Bayer AG (Germany) 1,130,000 53,42 .32
International Flavors & Fragrances Inc. 581,800 21,96 .13
Witco Corp. 462,100 6,18 .04
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.39%
U S WEST, Inc. 3,196,800 230,17 1.39
AT&T Corp. 3,625,000 183,96 1.11
Sprint FON Group 2,643,700 177,95 1.07
Telefonos de Mexico, SA de CV, Class L (ADR) 600,000 67,50 .41
(Mexico)
SBC Communications Inc. 1,000,000 48,75 .29
GTE Corp. 200,000 14,11 .08
Bell Atlantic Financial Services, Inc. 4.25% $5,000,00 6,15 .04
senior exchangeable notes, 2005 (2)
ELECTRICAL & ELECTRONICS - 4.05%
Telefonaktiebolaget LM Ericsson, Class B (ADR) 3,600,000 236,47 1.42
(Sweden)
Siemens AG (Germany) 1,200,000 152,46 .92
Nortel Networks Corp. (Canada) 1,226,880 123,91 .75
NEC Corp. (Japan) 4,925,000 117,36 .71
Toshiba Corp. (Japan) 5,525,000 42,17 .25
FOOD & HOUSEHOLD PRODUCTS - 3.22%
Colgate-Palmolive Co. 3,300,000 214,50 1.29
Kellogg Co. 2,200,000 67,78 .41
H.J. Heinz Co. 1,500,000 59,71 .36
Sara Lee Corp. 2,500,000 55,15 .33
Unilever NV (New York Registered) (Netherlands) 1,000,000 54,43 .33
Archer Daniels Midland Co. 3,570,000 43,50 .26
Dole Food Co., Inc. 1,000,000 16,25 .10
General Mills, Inc. 404,200 14,45 .09
Tupperware Corp. 500,000 8,46 .05
MERCHANDISING - 3.11%
Limited Inc. 4,384,289 189,89 1.14
Ito-Yokado Co., Ltd. (Japan) 830,000 90,16 .54
Albertson's, Inc. 2,232,550 72,00 .44
May Department Stores Co. 2,200,000 70,95 .43
Lowe's Companies, Inc. 1,000,000 59,75 .36
Dillard's Inc., Class A 1,155,000 23,31 .14
J.C. Penney Co., Inc. 500,000 9,96 .06
BANKING - 2.98%
Fuji Bank, Ltd. (Japan) 8,550,000 83,09 .50
First Union Corp. 2,331,600 76,50 .46
BANK ONE CORP. 2,000,000 64,12 .39
Sumitomo Bank, Ltd. (Japan) 4,600,000 62,98 .38
Wells Fargo & Co. 1,400,000 56,61 .34
Bank of America Corp. 1,000,000 50,18 .30
National City Corp. 1,500,000 35,53 .21
Washington Mutual, Inc. 1,200,000 31,20 .19
Dai-Ichi Kangyo Bank, Ltd. (Japan) 2,000,000 18,69 .11
Fleet Boston Corp. 455,320 15,85 .10
METALS: NONFERROUS - 2.72%
Alcoa Inc. 4,650,000 385,95 2.33
Phelps Dodge Corp. 965,620 64,81 .39
INSURANCE - 2.23%
Marsh & Mclennan Companies, Inc. 1,300,000 124,39 .75
Chubb Corp. 1,400,000 78,83 .47
Allstate Corp. 2,500,000 60,00 .36
20th Century Industries 3,000,000 57,93 .35
American International Group, Inc. 212,500 22,97 .14
Royal & Sun Alliance Insurance Group PLC 2,723,873 19,69 .12
(United Kingdom)
XL Capital Ltd., Class A 127,900 6,63 .04
FOREST PRODUCTS & PAPER - 2.09%
International Paper Co. 2,313,720 130,58 .78
Weyerhaeuser Co. 1,225,000 87,97 .53
Bowater Inc. 700,000 38,01 .23
Georgia-Pacific Corp., Georgia-Pacific Group 500,000 25,375
Georgia-Pacific Corp., Timber Group 150,000 3,69 .17
Chesapeake Corp. 859,100 26,20 .16
Willamette Industries, Inc. 420,300 19,51 .12
Fort James Corp. 600,000 16,42 .10
UTILITIES: ELECTRIC & GAS - 2.02%
Constellation Energy Group, Inc. 2,000,000 58,00 .35
Questar Corp. 3,000,000 45,00 .27
KeySpan Corp. 1,584,000 36,72 .22
DTE Energy Co. 1,050,000 32,94 .20
Williams Companies, Inc. 1,000,000 30,56 .18
Florida Progress Corp. 700,000 29,61 .18
Consolidated Natural Gas Co. 400,000 25,97 .16
Western Resources, Inc. 1,300,000 22,10 .13
Southern Co. 482,400 11,33 .07
Duke Energy Corp. 205,200 10,28 .06
Coastal Corp., convertible preferred 6.625% 2049 400,000 9,32 .06
MDU Resources Group, Inc. 400,000 8,00 .05
TransCanada PipeLines Ltd. (Canada) 800,000 7,00 .04
Texas Utilities Co. 120,800 4,29 .03
Entergy Corp. 150,000 3,86 .02
LEISURE & TOURISM - 1.91%
Seagram Co. Ltd. (Canada) 6,175,000 277,48 1.67
McDonald's Corp. 1,000,000 40,31 .24
BUSINESS SERVICES - 1.88%
Cendant Corp. (1) 2,700,000 71,719
Cendant Corp. 7.50% PRIDES convertible 1,242,100 46,423
preferred 2049
Cendant Corp. 3.00% convertible debentures $7,900,00 7,94 .76
2002 (2)
FDX Corp. (1) 2,600,000 106,43 .64
Galileo International, Inc. 900,000 26,94 .16
United Parcel Service, Inc., Class B 359,400 24,79 .15
Waste Management, Inc. 4.00% convertibile $11,000,0 9,35 .06
debentures 2002
Budget Group, Inc. 6.25% TIDES convertible 300,000 9,15 .06
preferred 2005
Interpublic Group of Companies, Inc. 1.87% $8,168,00 9,05 .05
convertible debentures 2006 (2)
TRANSPORTATION: AIRLINES - 1.77%
Delta Air Lines, Inc. 3,206,600 159,72 .96
AMR Corp. (1) 2,000,000 134,00 .81
RECREATION OTHER CONSUMER PRODUCTS - 1.44%
EMI Group PLC (United Kingdom) 13,699,50 132,78 .80
Eastman Kodak Co. 1,100,000 72,87 .44
American Greetings Corp., Class A 1,000,000 23,62 .14
Hasbro, Inc. 525,000 10,00 .06
MACHINERY & ENGINEERING - 1.41%
Deere & Co. 2,400,000 104,10 .63
Parker Hannifin Corp. 1,600,000 82,10 .50
Caterpillar Inc. 1,000,000 47,06 .28
BEVERAGES & TOBACCO - 1.23%
PepsiCo, Inc. 3,600,000 126,90 .76
Nabisco Group Holdings Corp. 7,300,000 77,56 .47
ELECTRONIC INSTRUMENTS - 1.20%
PE Biosystems Group 1,657,600 199,43 1.20
AUTOMOBILES - 1.09%
Honda Motor Co., Ltd. (Japan) 1,954,000 72,66 .44
General Motors Corp. 700,000 50,88 .31
Ford Motor Co. 700,000 37,40 .22
Nissan Motor Co., Ltd. (Japan) (1) 5,185,000 20,39 .12
MULTI-INDUSTRY - 1.08%
Honeywell International Inc. (formerly 2,200,000 126,91 .76
AlliedSignal Inc.)
Canadian Pacific Ltd. (Canada) 1,925,000 41,50 .25
Textron Inc. 150,000 11,50 .07
AEROSPACE & MILITARY TECHNOLOGY - 0.94%
Boeing Co. 1,900,000 78,96 .47
Northrop Grumman Corp. 800,000 43,25 .26
Raytheon Co., Class B 662,500 17,598
Raytheon Co., Class A 670,232 16,63 .21
FINANCIAL SERVICES - 0.75%
Household International, Inc. 1,700,000 63,32 .38
MBNA Corp. 810,000 22,07 .14
Capital One Financial Corp. 450,000 21,68 .13
SLM Holding Corp. 400,000 16,90 .10
TEXTILES & APPAREL - 0.66%
NIKE, Inc., Class B 2,200,000 109,03 .66
WIRELESS TELECOMMUNICATION SERVICES - 0.56%
MediaOne Group, Inc. 6.25% PIES convertible 750,000 81,000
preferred 2001
MediaOne Group, Inc. 7.00% PIES convertible 240,000 11,52 .56
preferred 2002
INDUSTRIAL COMPONENTS - 0.55%
Dana Corp. 1,100,000 32,93 .20
Illinois Tool Works, Inc. 400,000 27,02 .16
Delphi Automotive Systems Corp. 1,165,518 18,35 .11
Federal-Mogul Corp. 600,000 12,07 .07
IT CONSULTING & SERVICES - 0.48%
Electronic Data Systems Corp. 1,200,000 80,32 .48
HEALTH CARE PROVIDERS & SERVICES - 0.21%
Columbia/HCA Healthcare Corp. 1,178,700 34,55 .21
ENERGY EQUIPMENT - 0.19%
Baker Hughes Inc. 1,200,000 25,27 .15
Diamond Offshore Drilling, Inc. 3.75% $6,500,00 6,42 .04
convertible debentures 2007
APPLIANCES & HOUSEHOLD DURABLES - 0.09%
Newell Financial Trust I 5.25% QUIPS 254,000 9,573
convertible preferred 2027
Newell Co. 200,000 5,80 .09
TRANSPORTATION: RAIL & ROAD - 0.06%
Union Pacific Capital Trust 6.25% TIDES 260,000 10,59 .06
convertible preferred 2028 (2)
MISCELLANEOUS MATERIALS & COMMODITIES - 0.04%
Owens-Illinois, Inc. 4.75% convertible 220,000 6,87 .04
preferred 2049
MISCELLANEOUS - 2.61%
Other equity securities in initial period of 433,77 2.62
acquisition
TOTAL EQUITY SECURITIES
(cost: $11,064,135,000) 15,432,51 92.95
Principal Market Percent
Amount Value Of Net
Bonds & Notes (000) (000)Assets
INDUSTRIALS - 0.60%
Charter Communications Holdings, LLC 8.25% 2007 $ 50,000 46,50 .28
Ziff-Davis Inc. 8.50% 2008 35,000 36,44 .22
CSC Holdings, Inc. 9.875% 2013 10,000 10,55 .06
Time Warner Inc. 10.15% 2012 6,000 7,02 .04
TRANSPORTATION: AIRLINES - 0.08%
Delta Air Lines, Inc., Series 1993-A2, 10.50% 11,500 13,08 .08
2016 (3)
TOTAL BONDS & NOTES (cost: $112,742,000) 113,61 .68
Principal Market Percent
Amount Value Of Net
Short-Term Securities (000) (000)Assets
Corporate Short-Term Notes - 5.73%
American Express Credit Corp. 5.72%-6.38% 86,100 85,74 .52
due 1/4-2/17/2000
General Electric Capital Corp. 5.74%-5.97% 82,500 82,01 .49
due 1/20-2/14/2000
Equilon Enterprises LLC 5.75%-6.55% due 70,000 69,49 .42
1/10-3/10/2000
USAA Capital Corp. 5.93%-6.15% due 64,200 63,75 .38
2/1-3/1/2000
Associates First Capital Corp. 4.00%-6.07% 58,220 57,97 .35
due 1/3-2/16/2000
Pfizer Inc. 5.66%-5.85% due 1/24-3/31/2000 (2) 56,200 55,70 .33
Gannett Co., Inc. 5.85% due 1/14/2000 (2) 50,000 49,88 .30
International Business Machines Corp. 50,000 49,53 .30
5.90% due 2/25/2000
National Rural Utilities Cooperative Finance Corp. 50,000 49,47 .30
5.86% due 3/6/2000
Bell Atlantic Financial Services, Inc. 47,000 46,83 .28
5.90%-6.43% due 1/14-1/25/2000
Corporate Asset Funding Co. 5.90%-6.03% due 46,000 45,79 .28
1/27/2000 (2)
Walt Disney Co. 5.84%-5.89% due 1/21-1/24/2000 45,000 44,83 .27
H.J. Heinz Co. 5.83%-5.85% due 1/25-1/31/2000 41,500 41,31 .25
Proctor & Gamble Co. 5.13%-5.90% due 41,200 41,03 .25
1/10-1/31/2000
BellSouth Telecommunications, Inc. 39,500 39,21 .24
5.91%-6.05% due 2/9-2/22/2000
Household Finance Corp. 5.94%-5.95% due 1/12/2000 32,000 31,93 .19
A.I. Credit Corp. 5.80%-5.83% due 1/18/2000 28,800 28,71 .17
Monsanto Co. 5.88% due 2/17/2000 25,000 24,80 .15
AT&T Corp. 5.84%-6.35% due 1/11-2/15/2000 23,600 23,46 .14
Duke Energy Corp. 5.85% due 2/11/2000 20,000 19,86 .12
Federal Agency Discount Notes - 0.46%
Fannie Mae 5.80%-5.82% due 6/22/2000 78,300 76,13 .46
TOTAL SHORT-TERM SECURITIES 1,027,54 6.19
(cost: $1,027,526,000)
TOTAL INVESTMENT SECURITIES 16,573,67 99.82
(cost: $12,204,403,000)
Excess of cash and receivables over payables 29,42 .18
NET ASSETS $16,603,09100.00%
/1/ Non-income-producing security.
/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 Depositary Receipts
See Notes to Financial Statements
EQUITY SECURITIES ADDED
SINCE JUNE 30, 1999
Allstate
American Greetings
Avon Products
BANK ONE
Becton, Dickinson and Co.
Cisco Systems
Coastal
Dai-Ichi Kangyo Bank
Fleet Boston
Ford Motor
Gillette
H.J. Heinz
Illinois Tool Works
McDonald's
MDU Resources
National City
Royal Sun Alliance Insurance
Sara Lee
Schering-Plough
SLM Holding
TransCanada PipeLines
United Parcel Services
Willamette Industries
EQUITY SECURITIES ELIMINATED
SINCE JUNE 30, 1999
Aetna
Allegheny Teledyne
American Homes Products
Amgen
Atlantic Richfield
Avery Dennison
Axa
Bell Atlantic
BOC Group
Cadence Design Systems
Chase Manhatten
Cheveron
Cyprus Amax Minerals
Eli Lilly
First Data
Genuine Parts
J.P. Morgan
Koninklijke Ahold
Lexmark International
Lifepoint Hospitals
Nabisco
Pacific Century Financial
Safeco
Schlumburger
Tech Data
Telecomunicacoes Brasileiras
Triad Hospitals
Volvo
Western Digital
</TABLE>
<TABLE>
Fundamental Investors, Inc.
Financial Statements
<S> <C> <C>
Statement of Assets and Liabilities (dollars in thousands)
at December 31, 1999
- ------------------------------------------------------------
Assets:
Investment securities at market
(cost: $12,204,403) $16,573,670
Cash 64
Receivables for-
Sales of investments $ 0
Sales of fund's shares 33,829
Dividends and interest 18,330 52,159
------------------------
16,625,893
Liabilities:
Payables for-
Purchases of investments 0
Repurchases of fund's shares 15,610
Management services 3,775
Other expenses 3,411 22,796
------------------------
Net Assets at December 31, 1999-
Equivalent to $32.59 per share on
509,475,719 shares of $1 par value
capital stock outstanding (authorized
capital stock-1,000,000,000 shares) $16,603,097
============
Statement of Operations
for the year ended December 31, 1999(dollars in thousands)
------------------------
Investment Income:
Income:
Dividends $ 227,083
Interest 57,173 $ 284,256
------------
Expenses:
Management services fee 40,589
Distribution expenses 35,761
Transfer agent fee 11,354
Reports to shareholders 372
Registration statement and prospect 814
Postage, stationery and supplies 1,751
Directors' fees 166
Auditing and legal fees 56
Custodian fee 530
Taxes other than federal income tax 1
Other expenses 250 91,644
------------------------
Net investment income 192,612
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,393,331
Net increase in unrealized
appreciation on investments:
Beginning of year 2,778,798
End of year 4,369,267
Net unrealized appreciation ------------
on investments 1,590,469
Net realized gain and unrealized ------------
appreciation on investments 2,983,800
Net Increase in Net Assets Resulting ------------
from Operations $3,176,412
============
Statement of Changes in Net Assets (dollars in thousands)
- -------------------------------------------------------------
Year ended December 31
1999 1998
Operations: -------------------------
Net investment income $ 192,612 $ 171,916
Net realized gain on investments 1,393,331 1,319,973
Net unrealized appreciation
on investments 1,590,469 292,575
-------------------------
Net increase in net assets
resulting from operations 3,176,412 1,784,464
-------------------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (182,671) (159,781)
Distributions from net realized
gain on investments (1,298,803) (1,046,680)
-------------------------
Total dividends and distributions (1,481,474) (1,206,461)
-------------------------
Capital Share Transactions:
Proceeds from shares sold:
82,752,634 and 74,101,353
shares, respectively 2,627,090 2,164,869
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
45,448,355 and 39,927,149 shares,
respectively 1,404,953 1,142,562
Cost of shares repurchased:
58,299,290 and 56,364,713
shares, respectively (1,836,795) (1,637,083)
Net increase in net assets resultin-------------------------
from capital share transactions 2,195,248 1,670,348
-------------------------
Total Increase in Net Assets 3,890,186 2,248,351
Net Assets:
Beginning of year 12,712,911 10,464,560
End of year(including undistributed -------------------------
net investment income: $31,348 and
$21,310, respectively) $16,603,097 $12,712,911
========================
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. NON-U.S. INVESTMENTS
INVESTMENT RISK - Investment in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluations of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the security markets.
TAXATION - Dividend and Interest income is recorded net of non-U.S. taxes
paid. For the year ended December 31, 1999, such non-U.S. taxes were
$5,201,000.
CURRENCY GAINS AND LOSSES - Net realized currency gains on dividends,
interest, sales of non-U.S. bonds and notes, and other receivables and
payables, on a book basis, were $97,000 for the year ended December 31, 1999.
3. 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 December 31, 1999, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $4,369,267,000, of which
$5,008,226,000 related to appreciated securities and $638,959,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended December 31, 1999. Net
gains related to non-U.S. currency transactions of $97,000 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
$12,204,403,000 at December 31, 1999.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $40,589,000 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 year ended
December 31, 1999, distribution expenses under the Plan were $35,761,000. As
of December 31, 1999, accrued and unpaid distribution expenses were $2,584,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $7,987,000 (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 $11,354,000.
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 December 31, 1999, aggregate deferred amounts and earnings
thereon since the deferred compensation plan's adoption (1993), net of any
payments to Directors, were $788,000.
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.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $6,689,524,000 and $6,197,494,000, respectively,
during the year ended December 31, 1999.
As of December 31, 1999, accumulated undistributed net realized gain on
investments was $265,237,000 and additional
paid-in capital was $11,427,769,000. The fund reclassified $88,508,000 from
undistributed net realized losses to additional paid-in capital during the year
ended December 31, 1999, as a result of permanent differences between book and
tax. Additionally, the fund reclassified $97,000 of currency gains to
undistributed net investment income for the year ended December 31, 1999.
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 $530,000 includes $40,000 that was paid by these credits
rather than in cash.
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year EndedDecember 31
1999 1998 1997 1996 1995
Net Asset Value, Beginning of Year $28.92 $27.40 $24.54 $22.29 $17.50
------------------------------------------------
Income From Investment Operations:
Net investment income .41 .42 .41 .41 .41
Net gains on securities (both
realized and unrealized) 6.45 4.09 6.00 4.00 5.46
------------------------------------------------
Total from investment operations 6.86 4.51 6.41 4.41 5.87
-------------------------------------------------
Less Distributions:
Dividends (from net investment income (.40) (.40) (.42) (.40) (.40)
Distributions (from capital gains) (2.79) (2.59) (3.13) (1.76) (.68)
-------------------------------------------------
Total distributions (3.19) (2.99) (3.55) (2.16) (1.08)
------------------------------------------------
Net Asset Value, End of Year $32.59 $28.92 $27.40 $24.54 $22.29
==============================================
Total Return (*) 24.58% 16.72% 26.67% 19.99% 34.21%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $16,603 $12,713 $10,465 $7,165 $4,754
Ratio of expenses to average net asset .63% .63% .63% .66% .70%
Ratio of net income to average net ass 1.33% 1.47% 1.54% 1.78% 2.08%
Portfolio turnover rate 45.50% 52.57% 45.09% 39.07% 25.47%
(*) Excludes maximum sales charge of 5.75%.
</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, 1999, 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 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, 1999 by correspondence with the custodian. 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, 1999, 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, 2000
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>
<S> <C>
Dividends and Distributions per Share
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To Shareholders Payment Date From Net From Net From Net
of Record Investment Realized Short- Realized Long-
Income term Gains term Gains
February 19, 1999 February 22,1999 $0.10 -- $0.60
May 21, 1999 May 22, 1999 -- $0.10 --
August 13, 1999 August 16, 1999 $0.10 -- --
December 14, 1999 December 17,1999 $0.10 -- $2.185
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 94% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2000 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1999 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
DIRECTORS AND OTHER OFFICERS
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
President of the fund
Senior Vice President,
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
Management consultant; 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
Princeton, New Jersey
Private investor; corporate director;
lecturer, Department of Molecular Biology,
Princeton University
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
MICHAEL T. KERR
Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research Company
DINA N. PERRY
Washington, D.C.
Senior Vice President of the fund
Senior Vice President, Capital Research and Management Company
MARTIN ROMO
San Francisco, California
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
DAVID A. PRITCHETT
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
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 92821-5823
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
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. If used as sales material after
March 31, 2000, 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 KBD/GRS/4466
Lit. No. FI-011-0300
