-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZetwYcEoBIk1aO4tzcKEQ6HwtBLrj2m7BWCw9JRL7nv8QfOm2/9uoPIIKLw6oxXZ QVGcm9xFamiGDeNXsBsVwA== 0000039473-95-000005.txt : 19950609 0000039473-95-000005.hdr.sgml : 19950609 ACCESSION NUMBER: 0000039473-95-000005 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950306 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTMENT CO OF AMERICA CENTRAL INDEX KEY: 0000051931 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 951426645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-10811 FILM NUMBER: 95518778 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 497 1 ICA DEFINITIVE PROSPECTUS for Eligible Retirement Plans THE INVESTMENT COMPANY OF AMERICA(R) AN OPPORTUNITY FOR LONG-TERM GROWTH OF CAPITAL AND INCOME [LOGO OF THE AMERICAN FUNDS GROUP(R)] February 28, 1995 THE INVESTMENT COMPANY OF AMERICA 333 South Hope Street Los Angeles, CA 90071 The company's investment objectives are long-term growth of capital and income. The company strives to accomplish these objectives through constant supervision, careful selection and broad diversification of a portfolio which ordinarily consists principally of common stocks. This prospectus relates only to shares of the company offered without a sales charge through eligible retirement plans. For a prospectus regarding shares of the company to be acquired otherwise, contact the Secretary of the company at the address indicated above. This prospectus presents information you should know before investing in the company. It should be retained for future reference. You may obtain the statement of additional information for the company dated February 28, 1995, which contains the company's financial statements, without charge, by writing to the Secretary of the company at the above address or telephoning 800/421-0180. These requests will be honored within three business days of receipt. SHARES OF THE COMPANY ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, GUARANTEED, OR ENDORSED BY THE U.S. GOVERNMENT, ANY BANK, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON. THE PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 04-010-0295 - ------------------------------------------------------------------------------- SUMMARY OF EXPENSES Average annual expenses paid over a 10-year period would be approximately $8 per year, assuming a $1,000 investment and a 5% annual return. TABLE OF CONTENTS Summary of Expenses.......... 2 Financial Highlights......... 3 Investment Objectives and Policies................... 3 Investment Techniques........ 4 Investment Results........... 7 Dividends, Distributions and Taxes.................. 7 Company Organization and Management................. 8 Purchasing Shares............ 9 Shareholder Services......... 11 Redeeming Shares............. 11
This table is designed to help you understand costs of investing in the company. These are historical ex- penses; your actual expenses may vary. SHAREHOLDER TRANSACTION EXPENSES Certain retirement plans may purchase shares of the company with no sales charge./1/ The company also has no sales charge on reinvested dividends, redemption fees or exchange fees. ANNUAL COMPANY OPERATING EXPENSES (as a percentage of average net assets) Management fees......................................... 0.26% 12b-1 expenses.......................................... 0.20%/2/ Other expenses (including audit, legal, shareholder services, transfer agent and custodian expenses)...... 0.14% Total company operating expenses........................ 0.60%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------- ------ ------- ------- -------- You would pay the following cumulative expenses on a $1,000 investment, assuming a 5% annual return./3/ $6 $19 $33 $75
/1/ Retirement plans of organizations with $100 million or more in collective retirement plan assets may purchase shares of the company with no sales charge. In addition, any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees or any other plan that invests at least $1 million in shares of the company (or in combination with shares of other funds in The American Funds Group other than the money market funds) may purchase shares at net asset value; however, a contingent deferred sales charge of 1% applies on certain redemptions within 12 months following such purchases. (See "Redeeming Shares--Contingent Deferred Sales Charge.") /2/ These expenses may not exceed 0.25% of the company's average net assets annually. (See "Company Organization and Management--Plan of Distribution.") Due to these distribution expenses, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the National Association of Securities Dealers. /3/ Use of this assumed 5% return is required by the Securities and Exchange Commission; it is not an illustration of past or future investment results. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. 2 - ------------------------------------------------------------------------------- FINANCIAL The following information has been audited by Price HIGHLIGHTS Waterhouse LLP, independent accountants, whose unquali- fied report relating to the most recent five years is (For a share included in the statement of additional information. outstanding This information should be read in conjunction with the throughout the financial statements and accompanying notes which are fiscal year) also included in the statement of additional informa- tion.
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Net Asset Value, Beginning of Year...... $ 18.72 $ 17.89 $ 17.48 $ 14.52 $15.24 $12.94 $12.61 $13.19 $13.51 $11.00 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income... .51 .54 .49 .51 .57 .61 .51 .46 .45 .45 Net realized and unrealized gain (loss) on investments......... (.48) 1.51 .71 3.27 (.48) 3.13 1.14 .23 2.12 2.99 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Total from Investment Operations........... .03 2.05 1.20 3.78 .09 3.74 1.65 .69 2.57 3.44 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net in- vestment income....... (.48) (.47) (.47) (.44) (.59) (.59) (.56) (.52) (.44) (.44) Distributions from net realized gains........ (.60) (.75) (.32) (.38) (.22) (.85) (.76) (.75) (2.45) (.49) ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Total Distributions... (1.08) (1.22) (.79) (.82) (.81) (1.44) (1.32) (1.27) (2.89) (.93) ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Net Asset Value, End of Year.............. $ 17.67 $ 18.72 $ 17.89 $ 17.48 $14.52 $15.24 $12.94 $12.61 $13.19 $13.51 ======= ======= ======= ======= ====== ====== ====== ====== ====== ====== Total Return/1/........ .16% 11.62% 6.99% 26.54% .68% 29.41% 13.34% 5.44% 21.74% 33.39% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Year (in millions)......... $19,280 $19,005 $15,428 $10,526 $5,923 $5,376 $4,119 $3,889 $3,730 $3,073 Ratios of Expenses to Average Net Assets.... .60% .59% .58% .59% .55% .52% .48% .42% .41% .43% Ratio of Net Income to Average Net Assets.... 2.83% 3.03% 3.06% 3.29% 3.95% 4.11% 3.78% 3.14% 3.47% 3.80% Portfolio Turnover Rate --common stocks...... 17.94% 19.57% 7.23% 5.79% 7.48% 14.47% 10.39% 10.76% 10.80% 17.15% --investment securi- ties............... 31.08% 17.57% 9.73% 6.21% 10.94% 18.22% 16.41% 11.47% 10.31% 17.51%
-------- /1/ Calculated with no sales charge. INVESTMENT The company's investment objectives are long-term OBJECTIVES growth of capital and income. The company strives to AND POLICIES accomplish these objectives through constant supervi- sion, careful selection and broad diversification. In The company aims the selection of securities for investment, the possi- to provide you bilities of appreciation and potential dividends are with long-term given more weight than current yield. The company ordi- growth of capital narily invests principally in common stocks. However, and income. assets may also be held in securities convertible into common stocks, straight debt securities (rated in the top three quality categories by Standard & Poor's Cor- poration or Moody's Investors Service, Inc. or deter- mined to be of equivalent quality by Capital Research and Management Company), cash or cash equivalents, U.S. Government securities, or nonconvertible preferred stocks. (See the statement of additional information for a description of cash equivalents.) 3 - ------------------------------------------------------------------------------- Additionally, the company may from time to time invest in common stocks and other securities of issuers domi- ciled outside the U.S. (See "Investment Techniques-- Risks of Investing in Various Countries.") The company's investments are limited to securities in- cluded on its eligible list, which consists of securi- ties deemed suitable investment media in light of the company's investment objectives and policies. Securi- ties are added to, or deleted from, the eligible list by the board of directors, reviewing and acting upon the recommendations of Capital Research and Management Company. The company's investment restrictions (which are de- scribed in the statement of additional information) and objectives cannot be changed without shareholder ap- proval. All other investment practices may be changed by the company's board. ACHIEVEMENT OF THE COMPANY'S INVESTMENT OBJECTIVES CAN- NOT, OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN SECURITIES. INVESTMENT RISKS OF INVESTING Because the company invests in TECHNIQUES stocks, the company is subject to market risks, includ- ing, for example, the possibility that stock prices in Investing in general may decline over short or even extended peri- stocks involves ods. The company may also invest in fixed-income secu- certain risks. rities, including bonds, which have market values which tend to vary inversely with the level of interest rates--when interest rates rise, their values will tend to decline and vice versa. Although under normal market conditions longer term securities yield more than shorter term securities of similar quality, they are subject to greater price fluctuations. These fluctua- tions in the value of the investments will be reflected in the company's net asset value per share. 4 - ------------------------------------------------------------------------------- RISKS OF INVESTING IN VARIOUS COUNTRIES Generally, the company will invest no more than approximately 10% of its assets in securities of issuers which are not included in the Standard & Poor's 500 Composite Index (a broad measure of the U.S. stock market) and which are domiciled outside the U.S. Of course, investing internationally involves special risks caused by, among other things: fluctuating currency values; different accounting, auditing, and financial reporting regulations and practices in some countries; changing local and regional economic, political, and social conditions; differing securities market structures; and occasional administrative difficulties such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. However, in the opinion of Capital Research and Management Company, global investing also can reduce certain portfolio risks due to greater diversification opportunities. Additional costs could be incurred in connection with the company's investment activities outside the U.S. Brokerage commissions are generally higher outside the U.S., and the company will bear certain expenses in connection with its currency transactions. The company may enter into currency exchange contracts for the purpose of fixing the dollar cost or proceeds for a transaction. Furthermore, increased custodian costs may be associated with the maintenance of assets in certain jurisdictions. MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic investment philosophy of Capital Research and Management Company is to seek fundamental values at reasonable prices, using a system of multiple portfolio counselors in managing mutual fund assets. Under this system the portfolio of the company is divided into segments which are managed by individual counselors. Each counselor decides how the segment will be invested (within the limits provided by the company's objectives and policies and by Capital Research and Management Company's investment committee). In addition, Capital Research and Management Company's research professionals make investment decisions with respect to a portion of the company's portfolio. The primary individual portfolio counselors for the company are listed on the next page. 5
- -------------------------------------------------------------------------------------------------------------------- - -- YEARS OF EXPERIENCE YEARS OF EXPERIENCE AS INVESTMENT AS PORTFOLIO PROFESSIONAL COUNSELOR (AND (APPROXIMATE) RESEARCH PROFESSIONAL IF WITH CAPITAL PORTFOLIO APPLICABLE) FOR RESEARCH AND COUNSELORS FOR THE THE INVESTMENT MANAGEMENT INVESTMENT COMPANY COMPANY OF AMERICA COMPANY OR ITS TOTAL OF AMERICA PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS - -------------------------------------------------------------------------------------------------------------------- - -- Jon B. Lovelace, Jr. Chairman of the Board of 37 years (plus 5 years as 43 years 43 years the Company. Vice Chairman of research professional prior the Board of Directors and to becoming a portfolio Chairman of the Executive counselor for the company) Committee, Capital Research and Management Company William C. Newton President and Director of the 33 years 36 years 42 years Company. Senior Partner, The Capital Group Partners L.P.* William R. Grimsley Senior Vice President of the 23 years 25 years 32 years Company. Senior Vice President and Director, Capital Research and Management Company R. Michael Shanahan Senior Vice President of the 4 years (plus 13 years as 30 years 30 years Company. Chairman of the investment professional prior Board and Principal to becoming a portfolio Executive Officer, Capital counselor for the company) Research and Management Company Gregg E. Ireland Vice President of the Company. 3 years (plus 10 years as 22 years 22 years Vice President, Capital Research research professional prior and Management Company to becoming a portfolio counselor for the company) James B. Lovelace Vice President of the Company. 3 years (plus 4 years as 13 years 13 years Vice President, Capital Research research professional; prior and Management Company to becoming a portfolio counselor for the company) Donald D. O'Neal Vice President of the Company. 3 years (plus 4 years as 10 years 10 years Vice President, Capital Research research professional prior and Management Company to becoming a portfolio counselor for the company) George A. Miller Senior Vice President and 4 years (plus 15 years as 20 years 34 years Director, Capital Research and research professional prior Management Company to becoming a portfolio counselor for the company)
* Company affiliated with Capital Research and Management Company 6 - ------------------------------------------------------------------------------- INVESTMENT RESULTS The company may from time to time compare its invest- ment results to various unmanaged indices or other mu- The company has tual funds in reports to shareholders, sales literature averaged a total and advertisements. The results may be calculated on a return (at no total return and/or yield basis for various periods, sales charge) of with or without sales charges. Results calculated with- 12.94% a year over out a sales charge will be higher. Total returns assume its lifetime the reinvestment of all dividends and capital gain dis- (January 1, 1934 tributions. through December 31, 1994). The company's yield and the average annual total returns are calculated in accordance with Securities and Exchange Commission requirements with no sales charge. The company's yield for the 30-day period ended December 31, 1994 was 3.32%. The company's total return over the past 12 months and average annual total returns over the past five-year and ten-year periods, as of December 31, 1994, were 0.16%, 8.79%, and 14.36%, respectively. Of course, past results are not an indication of future results. Further information regarding the company's investment results is contained in the company's annual report which may be obtained without charge by writing to the Secretary of the company at the address indicated on the cover of this prospectus. DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS Dividends are usually paid DISTRIBUTIONS AND in March, June, September and December. Capital gains, TAXES if any, are usually distributed in December. When a dividend or capital gain is distributed, the net asset Income value per share is reduced by the amount of the pay- distributions are ment. usually made in March, June, The terms of your plan will govern how your plan may September and receive distributions from the company. Generally, pe- December. riodic distributions from the company to your plan are reinvested in additional company shares, although your plan may permit company distributions from net invest- ment income to be received by you in cash while rein- vesting capital gains distributions in additional shares or all company distributions to be received in cash. Unless you select another option, all distribu- tion will be reinvested in additional company shares. FEDERAL TAXES The company intends to operate as a "regulated investment company" under the Internal Revenue Code. In any fiscal year in which the company so qualifies and distributes to shareholders all of its net investment income and net capital gains, the company itself is relieved of federal income tax. The tax treatment of redemptions from a retirement plan may differ from redemptions from an ordinary shareholder account. Please see the statement of additional information and your tax adviser for further information. 7 - ------------------------------------------------------------------------------- COMPANY COMPANY ORGANIZATION AND VOTING RIGHTS The company, an ORGANIZATION open-end, diversified management investment company, AND was organized as a Delaware corporation in 1933. The MANAGEMENT company's board supervises company operations and per- forms duties required by applicable state and federal The company is a law. Members of the board who are not employed by Capi- member of The tal Research and Management Company or its affiliates American Funds are paid certain fees for services rendered to the com- Group, which is pany as described in the statement of additional infor- managed by one of mation. They may elect to defer all or a portion of the largest and these fees through a deferred compensation plan in ef- most experienced fect for the company. All shareholders have one vote investment per share owned and, at the request of the holders of advisers. at least 10% of the shares, the company will hold a meeting at which any member of the board could be re- moved by a majority vote. THE INVESTMENT ADVISER Capital Research and Management Company, a large and experienced investment management organization founded in 1931, is the investment adviser to the company and other funds, including those in The American Funds Group. Capital Research and Management Company is located at 333 South Hope Street, Los Angeles, CA 90071 and at 135 South State College Boulevard, Brea, CA 92621. Capital Research and Management Company manages the investment portfolio and business affairs of the company and receives a fee at the annual rate of 0.39% on the first $1.0 billion of the company's net assets, plus 0.336% on net assets over $1 billion to $2 billion, plus 0.30% on net assets over $2 billion to $3 billion, plus 0.276% on net assets over $3 billion to $5 billion, plus 0.258% on net assets over $5 billion to $8 billion, plus 0.246% on net assets over $8 billion to $13 billion, plus 0.24% on net assets in excess of $13 billion. Capital Research and Management Company is a wholly owned subsidiary of The Capital Group Companies, Inc. (formerly "The Capital Group, Inc."), which is located at 333 South Hope Street, Los Angeles, CA 90071. The research activities of Capital Research and Management Company are conducted by affiliated companies which have offices in Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo. Capital Research and Management Company and its affiliated companies have adopted a personal investing policy that is consistent with the recommendations contained in the report dated May 9, 1994 issued by the Investment Company Institute's Advisory Group on Personal Investing. (See the statement of additional information.) PORTFOLIO TRANSACTIONS Orders for the company's portfolio securities transactions are placed by Capital Research and Management Company, which strives to obtain the best available prices, taking into account the costs and quality of executions. In the over-the- counter 8 - ------------------------------------------------------------------------------- market, purchases and sales are transacted directly with principal market-makers except in those circumstances where it appears better prices and executions are available elsewhere. Subject to the above policy, when two or more brokers are in a position to offer comparable prices and executions, preference may be given to brokers that have sold shares of the company or have provided investment research, statistical, and other related services for the benefit of the company and/or of other funds served by Capital Research and Management Company. PRINCIPAL UNDERWRITER American Funds Distributors, Inc., a wholly owned subsidiary of Capital Research and Management Company, is the principal underwriter of the company's shares. American Funds Distributors, Inc. is located at 333 South Hope Street, Los Angeles, CA 90071, 135 South State College Boulevard, Brea, CA 92621, 8000 IH-10 West, San Antonio, TX 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood Road, Norfolk, VA 23513. Telephone conversations with American Funds Distributors may be recorded or monitored for verification, recordkeeping and quality assurance purposes. PLAN OF DISTRIBUTION The company has a plan of distribution or "12b-1 Plan" under which it may finance activities primarily intended to sell shares, provided these expenses are approved in advance by the board and the expenses paid under the plan were incurred within the last 12 months and accrued while the plan is in effect. Expenditures by the company under the plan may not exceed 0.25% of its average net assets annually (all of which may be for service fees). TRANSFER AGENT American Funds Service Company, 800/421- 0180, a wholly owned subsidiary of Capital Research and Management Company, is the transfer agent and performs shareholder service functions. American Funds Service Company is located at 333 South Hope Street, Los Angeles, CA 90071, 135 South State College Boulevard, Brea, CA 92621, 8000 IH-10 West, San Antonio, TX 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood Road, Norfolk, VA 23513. It was paid a fee of $16,006,000 for the fiscal year ended December 31, 1994. Telephone conversations with American Funds Service Company may be recorded or monitored for verification, recordkeeping and quality assurance purposes. PURCHASING SHARES ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR RETIREMENT PLAN. FOR MORE INFORMATION ABOUT HOW TO PUR- CHASE SHARES OF THE COMPANY THROUGH YOUR EMPLOYER'S PLAN OR LIMITATIONS ON THE AMOUNT THAT MAY BE PUR- CHASED, PLEASE CONSULT WITH YOUR EMPLOYER. Shares are sold to eligible retirement plans at the net asset value per share next determined 9 - ------------------------------------------------------------------------------- after receipt of an order by the company or American Funds Service Company. Orders must be received before the close of regular trading on the New York Stock Ex- change in order to receive that day's net asset value. Plans of organizations with collective retirement plan assets of $100 million or more may purchase shares at net asset value. In addition, any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees or any other plan that invests at least $1 million in shares of the company (or in combi- nation with shares of other funds in The American Funds Group other than the money market funds) may purchase shares at net asset value; however, a contingent de- ferred sales charge of 1% is imposed on certain redemp- tions within one year of such purchase. (See "Redeeming Shares-- Contingent Deferred Sales Charge.") Plans may also qualify to purchase shares at net asset value by completing a statement of intention to purchase $1 mil- lion in fund shares subject to a commission over a max- imum of 13 consecutive months. Certain redemptions of such shares may also be subject to a contingent de- ferred sales charge as described above. (See the state- ment of additional information.) American Funds Distributors, at its expense (from a designated percentage of its income), will provide ad- ditional promotional incentives to dealers. Currently these incentives are limited to the top one hundred dealers who have sold shares of the company or other funds in The American Funds Group. These incentive pay- ments will be based on a pro rata share of a qualifying dealer's sales. Qualified dealers currently are paid a continuing serv- ice fee not to exceed 0.25% of average net assets (0.15% in the case of the money market funds) annually in order to promote selling efforts and to compensate them for providing certain services. (See "Fund Organi- zation and Management--Plan of Distribution.") These services include processing purchase and redemption transactions, establishing shareholder accounts and providing certain information and assistance with re- spect to the company. Shares of the company are offered to other shareholders pursuant to another prospectus at public offering prices that may include an initial sales charge. SHARE PRICE Shares are offered to eligible retirement plans at the net asset value after the order is received by the company or American Funds Service Company. In the case of orders sent directly to the company or American Funds Service Company, an investment dealer MUST be indicated. Dealers are responsible for promptly transmitting orders. (See the statement of additional information under "Purchase of Shares--Price of Shares.") The company's net asset value per share is determined as of the close of trading (currently 4:00 p.m., New York time) on each day the New York Stock Exchange is open. The current value of the company's total assets, less all liabilities, is divided by the total number of shares outstanding and the result, rounded to the nearer cent, is the net asset value per share. 10 - ------------------------------------------------------------------------------- SHAREHOLDER Subject to any restrictions contained in your plan, you SERVICES can exchange your shares for shares of other funds in The American Funds Group which are offered through the plan at net asset value. In addition, again depending on any restrictions in your plan, you may be able to exchange shares automatically or cross-reinvest dividends in shares of other funds. Contact your plan administrator/trustee regarding how to use these services. Also, see the company's statement of additional information for a description of these and other services that may be available through your plan. These services are available only in states where the fund to be purchased may be legally offered and may be terminated or modified at any time upon 60 days' written notice. REDEEMING Subject to any restrictions imposed by your plan, you SHARES can sell your shares through the plan to the company any day the New York Stock Exchange is open. For more information about how to sell shares of the company through your retirement plan, including any charges that may be imposed by the plan, please consult with your employer. -------------------------------------------------------- By contacting Your plan administrator/trustee must your plan send a letter of instruction administrator/ specifying the name of the company, trustee the number of shares or dollar amount to be sold, and, if applicable, your name and account number. For your protection, if you redeem more than $50,000, the signatures of the registered owners or their legal representatives must be guaranteed by a bank, savings association, credit union, or member firm of a domestic stock exchange or the National Association of Securities Dealers, Inc., that is an eligible guarantor institution. Your plan administrator/trustee should verify with the institution that it is an eligible guarantor prior to signing. Additional documentation may be required to redeem shares from certain accounts. Notarization by a Notary Public is not an acceptable signature guarantee. -------------------------------------------------------- By contacting Shares may also be redeemed through your an investment dealer; however you or investment your plan may be charged for this dealer service. SHARES HELD FOR YOU IN AN INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED THROUGH THE DEALER. THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND ALL REQUIRED DOCUMENTATION ARE RECEIVED BY THE COMPANY OR AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING SHARES--SHARE PRICE.") CONTINGENT DEFERRED SALES CHARGE A contingent deferred sales charge of 1% applies to certain redemptions within the first year on investments of $1 million or more and on any investment made with no initial sales charge by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees. The charge is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. Shares held for the longest period are assumed to be redeemed first for purposes of calculating this charge. The charge is waived for exchanges (except if 11 - ------------------------------------------------------------------------------- shares acquired by exchange were then redeemed within 12 months of the initial purchase); for distributions from qualified retirement plans and other employee benefit plans; and for redemptions in connection with loans made by qualified retirement plans. OTHER IMPORTANT THINGS TO REMEMBER The net asset value for redemptions is determined as indicated under "Purchasing Shares--Share Price." Because the company's net asset value fluctuates, reflecting the market value of the company's portfolio, the amount you receive for shares redeemed may be more or less than the amount paid for them. Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier's checks) for shares purchased have cleared (which may take up to 15 calendar days from the purchase date). Except for delays relating to clearance of checks for share purchases or in extraordinary circumstances (and as permissible under the Investment Company Act of 1940), redemption proceeds will be paid on or before the seventh day following receipt of a proper redemption request. [RECYCLE LOGO] This prospectus has been printed on recycled paper that meets the guidelines of the United States Environmental Protection Agency. THIS PROSPECTUS RELATES ONLY TO SHARES OF THE COMPANY OFFERED WITHOUT A SALES CHARGE TO ELIGIBLE RETIREMENT PLANS. FOR A PROSPECTUS REGARDING SHARES OF THE COMPANY TO BE ACQUIRED OTHERWISE, CONTACT THE SECRETARY OF THE COMPANY AT THE ADDRESS INDICATED ON THE FRONT. 12 PROSPECTUS THE INVESTMENT COMPANY OF AMERICA(R) AN OPPORTUNITY FOR LONG-TERM GROWTH OF CAPITAL AND INCOME [LOGO OF THE AMERICAN FUNDS GROUP(R)] February 28, 1995 THE INVESTMENT COMPANY OF AMERICA 333 South Hope Street Los Angeles, CA 90071 The company's investment objectives are long-term growth of capital and income. The company strives to accomplish these objectives through constant supervision, careful selection and broad diversification of a portfolio which ordinarily consists principally of common stocks. This prospectus presents information you should know before investing in the company. It should be retained for future reference. You may obtain the statement of additional information dated February 28, 1995, which contains the company's financial statements, without charge, by writing to the Secretary of the company at the above address or telephoning 800/421-0180. These requests will be honored within three business days of receipt. SHARES OF THE COMPANY ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, GUARANTEED, OR ENDORSED BY, THE U.S. GOVERNMENT, ANY BANK, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON. THE PURCHASE OF COMPANY SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 04-010-0295 - ------------------------------------------------------------------------------- SUMMARY OF EXPENSES Average annual expenses paid over a 10-year period would be approximately $13 per year, assuming a $1,000 investment and a 5% annual return. TABLE OF CONTENTS Summary of Expenses.......................... 2 Financial Highlights......................... 3 Investment Objective and Policies............ 3 Investment Techniques........................ 5 Investment Results........................... 7 Dividends, Distributions and Taxes........... 7 Company Organization and Management.......... 8 The American Funds Shareholder Guide......... 11-20 Purchasing Shares......................... 11 Reducing Your Sales Charge................ 14 Shareholder Services...................... 16 Redeeming Shares.......................... 18 Retirement Plans.......................... 20
IMPORTANT PHONE NUMBERS Shareholder Services: 800/421-0180 ext. 1 Dealer Services: 800/421-9900 ext. 11 American FundsLine(R): 800/325-3590 (24-hour information) This table is designed to help you understand costs of investing in the company. These are historical ex- penses; your actual expenses may vary. SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge on purchases (as a percentage of offering price)................... 5.75%/1/
The company has no sales charge on reinvested dividends, deferred sales charge,/2/ redemption fees or exchange fees. ANNUAL COMPANY OPERATING EXPENSES (as a percentage of average net assets) Management fees......................................... 0.26% 12b-1 expenses.......................................... 0.20%/3/ Other expenses (including audit, legal, shareholder services, transfer agent and custodian expenses)...... 0.14% Total company operating expenses........................ 0.60%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------- ------ ------- ------- -------- You would pay the following cumulative expenses on a $1,000 investment, assuming a 5% annual return./4/ $63 $76 $89 $128
/1/ Sales charges are reduced for certain large purchases. (See "The American Funds Shareholder Guide: Purchasing Shares--Sales Charges.") /2/ Any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees or any other purchaser investing at least $1 million in shares of the company (or in combination with shares of other funds in The American Funds Group other than the money market funds) may purchase shares at net asset value; however, a contingent deferred sales charge of 1% applies on certain redemptions within 12 months following such purchases. (See "The American Funds Shareholder Guide: Redeeming Shares--Contingent Deferred Sales Charge.") /3/ These expenses may not exceed 0.25% of the company's average net assets annually. (See "Company Organization and Management--Plan of Distribution.") Due to these distribution expenses, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the National Association of Securities Dealers. /4/ Use of this assumed 5% return is required by the Securities and Exchange Commission; it is not an illustration of past or future investment results. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. 2 - ------------------------------------------------------------------------------- FINANCIAL The following information has been audited by Price HIGHLIGHTS Waterhouse LLP, independent accountants, whose unquali- fied report relating to the most recent five years is (For a share included in the statement of additional information. outstanding This information should be read in conjunction with the throughout the financial statements and accompanying notes which are fiscal year) also included in the statement of additional informa- tion.
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Net Asset Value, Beginning of Year...... $ 18.72 $ 17.89 $ 17.48 $ 14.52 $15.24 $12.94 $12.61 $13.19 $13.51 $11.00 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income... .51 .54 .49 .51 .57 .61 .51 .46 .45 .45 Net realized and unrealized gain (loss) on investments......... (.48) 1.51 .71 3.27 (.48) 3.13 1.14 .23 2.12 2.99 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Total from Investment Operations........... .03 2.05 1.20 3.78 .09 3.74 1.65 .69 2.57 3.44 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income..... (.48) (.47) (.47) (.44) (.59) (.59) (.56) (.52) (.44) (.44) Distributions from net realized gains........ (.60) (.75) (.32) (.38) (.22) (.85) (.76) (.75) (2.45) (.49) ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Total Distributions... (1.08) (1.22) (.79) (.82) (.81) (1.44) (1.32) (1.27) (2.89) (.93) ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Net Asset Value, End of Year.............. $ 17.67 $ 18.72 $ 17.89 $ 17.48 $14.52 $15.24 $12.94 $12.61 $13.19 $13.51 ======= ======= ======= ======= ====== ====== ====== ====== ====== ====== Total Return/1/........ .16% 11.62% 6.99% 26.54% .68% 29.41% 13.34% 5.44% 21.74% 33.39% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Year (in millions)......... $19,280 $19,005 $15,428 $10,526 $5,923 $5,376 $4,119 $3,889 $3,730 $3,073 Ratios of Expenses to Average Net Assets.... .60% .59% .58% .59% .55% .52% .48% .42% .41% .43% Ratio of Net Income to Average Net Assets.... 2.83% 3.03% 3.06% 3.29% 3.95% 4.11% 3.78% 3.14% 3.47% 3.80% Portfolio Turnover Rate --common stocks...... 17.94% 19.57% 7.23% 5.79% 7.48% 14.47% 10.39% 10.76% 10.80% 17.15% --investment securities......... 31.08% 17.57% 9.73% 6.21% 10.94% 18.22% 16.41% 11.47% 10.31% 17.51%
-------- /1/ This was calculated without deducting a sales charge. The maximum sales charge is 5.75% of the company's offering price. INVESTMENT The company's investment objectives are long-term OBJECTIVES growth of capital and income. The company strives to AND POLICIES accomplish these objectives through constant supervi- sion, careful selection and broad diversification. In the selection of securities for investment, the possi- The company aims bilities of appreciation and potential dividends are to provide you given more weight than current yield. The company ordi- with long-term narily invests principally in common stocks. However, growth of capital assets may also be held in securities convertible into and income. common stocks, straight debt securities (rated in the top three quality categories by Standard & Poor's Cor- poration or Moody's Investors Service, Inc. or deter- mined to be of equivalent quality by Capital Research and Management Company), cash or cash equivalents, U.S. Government securities, or nonconvertible preferred stocks. (See the statement of additional information for a description of cash equivalents.) 3 - ------------------------------------------------------------------------------- Additionally, the company may from time to time invest in common stocks and other securities of issuers domi- ciled outside the U.S. (See "Investment Techniques-- Risks of Investing in Various Countries.") The company's investments are limited to securities in- cluded on its eligible list, which consists of securi- ties deemed suitable investment media in light of the company's investment objectives and policies. Securi- ties are added to, or deleted from, the eligible list by the board of directors, reviewing and acting upon the recommendations of Capital Research and Management Company. The company's investment restrictions (which are de- scribed in the statement of additional information) and objectives cannot be changed without shareholder ap- proval. All other investment practices may be changed by the company's board. ACHIEVEMENT OF THE COMPANY'S INVESTMENT OBJECTIVES CAN- NOT, OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN SECURITIES. 4 - -------------------------------------------------------------------------------- INVESTMENT RISKS OF INVESTING Because the company invests in TECHNIQUES stocks, the company is subject to market risks includ- ing, for example, the possibility that stock prices in Investing in general may decline over short or even extended periods. stocks involves The company may also invest in fixed-income securities, certain risks. including bonds, which have market values which tend to vary inversely with the level of interest rates--when interest rates rise, their values will tend to decline and vice versa. Although under normal market conditions longer term securities yield more than shorter term se- curities of similar quality, they are subject to greater price fluctuations. These fluctuations in the value of the investments will be reflected in the company's net asset value per share. RISKS OF INVESTING IN VARIOUS COUNTRIES Generally, the company will invest no more than approximately 10% of its assets in securities of issuers which are not included in the Standard & Poor's 500 Composite Index (a broad measure of the U.S. stock market) and which are domiciled outside the U.S. Of course, investing internationally involves special risks caused by, among other things: fluctuating currency values; different accounting, auditing, and financial reporting regulations and practices in some countries; changing local and regional economic, political, and social conditions; differing securities market structures; and occasional administrative difficulties such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. However, in the opinion of Capital Research and Management Company, global investing also can reduce certain portfolio risks due to greater diversification opportunities. Additional costs could be incurred in connection with the company's investment activities outside the U.S. Brokerage commissions are generally higher outside the U.S., and the company will bear certain expenses in connection with its currency transactions. The company may enter into currency exchange contracts for the purpose of fixing the dollar cost or proceeds for a transaction. Furthermore, increased custodian costs may be associated with the maintenance of assets in certain jurisdictions. MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic investment philosophy of Capital Research and Management Company is to seek fundamental values at reasonable prices, using a system of multiple portfolio counselors in managing mutual fund assets. Under this system the portfolio of the company is divided into segments which are managed by individual counselors. Each counselor decides how the segment will be invested (within the limits provided by the company's objectives and policies and by Capital Research and Management Company's investment committee). In addition, Capital Research and Management Company's research professionals make investment decisions with respect to a portion of the company's portfolio. The primary individual portfolio counselors for the company are listed on the next page. 5
- -------------------------------------------------------------------------------------------------------------------- - -- YEARS OF EXPERIENCE YEARS OF EXPERIENCE AS INVESTMENT AS PORTFOLIO PROFESSIONAL COUNSELOR (AND (APPROXIMATE) RESEARCH PROFESSIONAL IF WITH CAPITAL PORTFOLIO APPLICABLE) FOR RESEARCH AND COUNSELORS FOR THE THE INVESTMENT MANAGEMENT INVESTMENT COMPANY COMPANY OF AMERICA COMPANY OR ITS TOTAL OF AMERICA PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS - -------------------------------------------------------------------------------------------------------------------- - -- Jon B. Lovelace, Jr. Chairman of the Board of 37 years (plus 5 years as 43 years 43 years the Company. Vice Chairman of research professional prior the Board of Directors and to becoming a portfolio Chairman of the Executive counselor for the company) Committee, Capital Research and Management Company William C. Newton President and Director of the 33 years 36 years 42 years Company. Senior Partner, The Capital Group Partners L.P.* William R. Grimsley Senior Vice President of the 23 years 25 years 32 years Company. Senior Vice President and Director, Capital Research and Management Company R. Michael Shanahan Senior Vice President of the 4 years (plus 13 years as 30 years 30 years Company. Chairman of the investment professional prior Board and Principal to becoming a portfolio Executive Officer, Capital counselor for the company) Research and Management Company Gregg E. Ireland Vice President of the Company. 3 years (plus 10 years as 22 years 22 years Vice President, Capital Research research professional prior and Management Company to becoming a portfolio counselor for the company) James B. Lovelace Vice President of the Company. 3 years (plus 4 years as 13 years 13 years Vice President, Capital Research research professional; prior and Management Company to becoming a portfolio counselor for the company) Donald D. O'Neal Vice President of the Company. 3 years (plus 4 years as 10 years 10 years Vice President, Capital Research research professional prior and Management Company to becoming a portfolio counselor for the company) George A. Miller Senior Vice President and 4 years (plus 15 years as 20 years 34 years Director, Capital Research and research professional prior Management Company to becoming a portfolio counselor for the company)
* Company affiliated with Capital Research and Management Company 6 - ------------------------------------------------------------------------------- INVESTMENT RESULTS The company may from time to time compare its invest- ment results to various unmanaged indices or other mu- The company has tual funds in reports to shareholders, sales literature averaged a total and advertisements. The results may be calculated on a return of 12.83% a yield and/or total return basis for various periods, year (assuming the with or without sales charges. Results calculated with- maximum sales out a sales charge will be higher. Total returns assume charge was paid) the reinvestment of all dividends and capital gain dis- over its lifetime tributions. (January 1, 1934 through December The company's yield and the average annual total 31, 1994). returns are calculated in accordance with Securities and Exchange Commission rules which require that the maximum sales charge be deducted. The company's yield for the 30-day period ended December 31, 1994 was 3.13%. The company's total return over the past year and average annual total returns over the past five- and ten-year periods, as of December 31, 1994, were -5.60%, 7.51%, and 13.69%, respectively. Of course, past results are not an indication of future results. Further information regarding the company's investment results is contained in the company's annual report which may be obtained without charge by writing to the Secretary of the company at the address indicated on the cover of this prospectus. DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS Dividends are usually paid DISTRIBUTIONS AND in March, June, September and December. Capital gains, TAXES if any, are usually distributed in December. When a dividend or capital gain is distributed, the net asset Income value per share is reduced by the amount of the pay- distributions are ment. usually made in March, June, FEDERAL TAXES The company intends to operate as a September and "regulated investment company" under the Internal December. Revenue Code. In any fiscal year in which the company so qualifies and distributes to shareholders all of its net investment income and net capital gains, the company itself is relieved of federal income tax. All dividends and capital gains are taxable whether they are reinvested or received in cash--unless you are exempt from taxation or entitled to tax deferral. Early each year, you will be notified as to the amount and federal tax status of all dividends and capital gains paid during the prior year. Such dividends and capital gains may also be subject to state or local taxes. IF YOU HAVE NOT FURNISHED A CERTIFIED CORRECT TAXPAYER IDENTIFICATION NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND HAVE NOT CERTIFIED THAT WITHHOLDING DOES NOT APPLY, OR IF THE INTERNAL REVENUE SERVICE HAS NOTIFIED THE COMPANY THAT THE TAXPAYER IDENTIFICATION NUMBER LISTED ON YOUR ACCOUNT IS INCORRECT ACCORDING TO THEIR RECORDS OR THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING, FEDERAL LAW GENERALLY REQUIRES THE COMPANY TO WITHHOLD 31% FROM ANY DIVIDENDS AND/OR REDEMPTIONS (INCLUDING EXCHANGE REDEMPTIONS). Amounts withheld are applied to your federal tax liability; a refund may be obtained from the Service if withholding results in overpayment of taxes. Federal law also requires the 7 - ------------------------------------------------------------------------------- company to withhold 30% or the applicable tax treaty rate from dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. This is a brief summary of some of the tax laws that affect your investment in the company. Please see the statement of additional information and your tax ad- viser for further information. COMPANY COMPANY ORGANIZATION AND VOTING RIGHTS The company, an ORGANIZATION open-end, diversified management investment company, AND was organized as a Delaware corporation in 1933. The MANAGEMENT company's board supervises company operations and per- forms duties required by applicable state and federal The company is a law. Members of the board who are not employed by Capi- member of The tal Research and Management Company or its affiliates American Funds are paid certain fees for services rendered to the com- Group, which is pany as described in the statement of additional infor- managed by one of mation. They may elect to defer all or a portion of the largest and these fees through a deferred compensation plan in ef- most experienced fect for the company. All shareholders have one vote investment per share owned and, at the request of the holders of advisers. at least 10% of the shares, the company will hold a meeting at which any member of the board could be re- moved by a majority vote. THE INVESTMENT ADVISER Capital Research and Management Company, a large and experienced investment management organization founded in 1931, is the investment adviser to the company and other funds, including those in The American Funds Group. Capital Research and Management Company is located at 333 South Hope Street, Los Angeles, CA 90071 and at 135 South State College Boulevard, Brea, CA 92621. (See "The American Funds Shareholder Guide: Purchasing Shares--Investment Minimums and Fund Numbers" for a listing of funds in The American Funds Group.) Capital Research and Management Company manages the investment portfolio and business affairs of the company and receives a fee at the annual rate of 0.39% on the first $1.0 billion of the company's net assets, plus 0.336% on net assets over $1.0 billion to $2.0 billion, plus 0.30% on net assets over $2.0 billion to $3.0 billion, plus 0.276% on net assets over $3.0 billion to $5.0 billion, plus 0.258% on net assets over $5 billion to $8 billion, plus 0.246% on net assets over $8 billion to $13 billion, plus 0.24% on net assets in excess of $13 billion. Capital Research and Management Company is a wholly owned subsidiary of The Capital Group Companies, Inc. (formerly "The Capital Group, Inc."), which is located at 333 South Hope Street, Los Angeles, CA 90071. The research activities of Capital Research and Management Company are conducted by affiliated companies which have offices in Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo. 8 - ------------------------------------------------------------------------------- Capital Research and Management Company and its affiliated companies have adopted a personal investing policy that is consistent with the recommendations contained in the report dated May 9, 1994 issued by the Investment Company Institute's Advisory Group on Personal Investing. (See the statement of additional information.) PORTFOLIO TRANSACTIONS Orders for the company's portfo- lio securities transactions are placed by Capital Re- search and Management Company, which strives to obtain the best available prices, taking into account the costs and quality of executions. In the over-the- counter market, purchases and sales are transacted di- rectly with principal market-makers except in those circumstances where it appears better prices and execu- tions are available elsewhere. Subject to the above policy, when two or more brokers are in a position to offer comparable prices and executions, preference may be given to brokers that have sold shares of the company or have provided investment research, statistical, and other related services for the benefit of the company and/or of other funds served by Capital Research and Management Company. PRINCIPAL UNDERWRITER American Funds Distributors, Inc., a wholly owned subsidiary of Capital Research and Management Company, is the principal underwriter of the company's shares. American Funds Distributors, Inc. is located at 333 South Hope Street, Los Angeles, CA 90071, 135 South State College Boulevard, Brea, CA 92621, 8000 IH-10 West, San Antonio, TX 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood Road, Norfolk, VA 23513. Telephone conversations with American Funds Distributors may be recorded or monitored for verification, recordkeeping and quality assurance purposes. PLAN OF DISTRIBUTION The company has a plan of distribution or "12b-1 Plan" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the board and the expenses paid under the plan were incurred within the last 12 months and accrued while the plan is in effect. Expenditures by the company under the plan may not exceed 0.25% of its average net assets annually (all of which may be for service fees). (See "Purchasing Shares--Sales Charges" below.) TRANSFER AGENT American Funds Service Company, a wholly owned subsidiary of Capital Research and Management Company, is the transfer agent and performs shareholder service functions. It was paid a fee of $16,006,000 for the year ended December 31, 1994. Telephone conversations with American Funds Service Company may be recorded or monitored for verification, recordkeeping and quality assurance purposes. 9 - -------------------------------------------------------------------------------- AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS SERVICE ADDRESS AREAS SERVED AREA ----------------------------------------------------------- WEST P.O. Box 2205 AK, AZ, CA, HI, ID, Brea, CA 92622-2205 MT, NV, OR, UT, WA Fax: 714/671-7080 and outside the U.S. ----------------------------------------------------------- CENTRAL- P.O. Box 659522 AR, CO, IA, KS, LA, WEST San Antonio, TX 78265-9522 MN, MO, ND, NE, NM, Fax: 210/530-4050 OK, SD, TX and WY ----------------------------------------------------------- CENTRAL- P.O. Box 6007 AL, IL, IN, KY, MI, EAST Indianapolis, IN 46206-6007 MS, OH, TN and WI Fax: 317/735-6620 ----------------------------------------------------------- EAST P.O. Box 2280 CT, DE, FL, GA, MA, Norfolk, VA 23501-2280 MD, ME, NC, NH, NJ, Fax: 804/670-4773 NY, PA, RI, SC, VA, VT, WV and Washington, D.C. ----------------------------------------------------------- ALL SHAREHOLDERS MAY CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 FOR SERVICE. ----------------------------------------------------------- [MAP OF THE UNITED STATES] ----------------------------------------------------------- West (light grey); Central-West (white); Central-East (dark grey), East (orange) 10 THE AMERICAN FUNDS SHAREHOLDER GUIDE PURCHASING SHARES METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS --------------------------------------------------------- Your investment See "Investment $50 minimum (except dealer can help Minimums and Fund where a lower you establish your Numbers" for minimum is noted account--and help initial under "Investment you add to it investment Minimums and Fund whenever you like. minimums. Numbers"). --------------------------------------------------------- By Visit any Mail directly to contacting investment dealer your investment your who is registered dealer's address investment in the state printed on your dealer where the account statement. purchase is made and who has a sales agreement with American Funds Distributors. --------------------------------------------------------- By mail Make your check Fill out the account payable to the additions form at the fund and mail to bottom of a recent the address account statement, indicated on the make your check account payable to the fund, application. write your account Please indicate number on your check, an investment and mail the check dealer on the and form in the account envelope provided application. with your account statement. --------------------------------------------------------- By wire Call 800/421-0180 Your bank should wire to obtain your your additional account number(s), investments in the if necessary. same manner as Please indicate described under an investment "Initial Investment." dealer on the account. Instruct your bank to wire funds to: Wells Fargo Bank 155 Fifth Street Sixth Floor San Francisco, CA 94106 (ABA #121000248) For credit to the account of: American Funds Service Company a/c #4600-076178 (fund name) (your fund acct. no.) --------------------------------------------------------- THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER. SHARE PRICE Shares are purchased at the next offering price after the order is received by the company or American Funds Service Company. In the case of orders sent directly to the company or American Funds Service Company, an investment dealer MUST be indicated. This price is the net asset value plus a sales charge, if applicable. Dealers are responsible for promptly transmitting orders. (See the statement of additional information under "Purchase of Shares--Price of Shares.") The net asset value per share is determined as of the close of trading (currently 4:00 p.m., New York time) on each day the New York Stock Exchange is open. The current value of the company's total assets, less all liabilities, is divided by the total number of shares outstanding and the result, rounded to the nearer cent, is the net asset value per share. The net asset value per share of the money market funds normally will remain constant at $1.00 based on the funds' current practice of valuing their shares on the basis of the penny-rounding method in accordance with rules of the Securities and Exchange Commission. 11 - ------------------------------------------------------------------------------- SHARE CERTIFICATES Shares are credited to your account and certificates are not issued unless specifically requested. This eliminates the costly problem of lost or destroyed certificates. If you would like certificates issued, please request them by writing to American Funds Service Company. There is usually no charge for issuing certificates in reasonable denominations. CERTIFICATES ARE NOT AVAILABLE FOR THE MONEY MARKET FUNDS. INVESTMENT MINIMUMS AND FUND NUMBERS Here are the minimum initial investments required by the funds in The American Funds Group along with fund numbers for use with our automated phone line, American FundsLine(R) (see description below):
MINIMUM INITIAL FUND FUND INVESTMENT NUMBER - ---- ---------- ------ STOCK AND STOCK/BOND FUNDS AMCAP Fund(R).......................... $1,000 02 American Balanced Fund(R).............. 500 11 American Mutual Fund(R)................ 250 03 Capital Income Builder(R).............. 1,000 12 Capital World Growth and Income Fund(SM)............................. 1,000 33 EuroPacific Growth Fund(R)............. 250 16 Fundamental Investors(SM).............. 250 10 The Growth Fund of America(R).......... 1,000 05 The Income Fund of America(R).......... 1,000 06 The Investment Company of America(R)... 250 04 The New Economy Fund(R)................ 1,000 14 New Perspective Fund(R)................ 250 07 SMALLCAP World Fund(SM)................ 1,000 35 Washington Mutual Investors Fund(SM)... 250 01
MINIMUM INITIAL FUND FUND INVESTMENT NUMBER - ---- ---------- ------ BOND FUNDS American High-Income Municipal Bond Fund(SM)............................. $1,000 40 American High-Income Trust(R).......... 1,000 21 The Bond Fund of America(SM)........... 1,000 08 Capital World Bond Fund(R)............. 1,000 31 Intermediate Bond Fund of America(R)... 1,000 23 Limited Term Tax-Exempt Bond Fund of America(SM).......................... 1,000 43 The Tax-Exempt Bond Fund of America(SM).......................... 1,000 19 The Tax-Exempt Fund of California(R)*.. 1,000 20 The Tax-Exempt Fund of Maryland(R)*.... 1,000 24 The Tax-Exempt Fund of Virginia(R)*.... 1,000 25 U.S. Government Securities Fund(SM).... 1,000 22 MONEY MARKET FUNDS The Cash Management Trust of America(R)........................... 2,500 09 The Tax-Exempt Money Fund of America(SM).......................... 2,500 39 The U.S. Treasury Money Fund of America(SM).......................... 2,500 49
-------- * Available only in certain states. For retirement plan investments, the minimum is $250, except that the money market funds have a minimum of $1,000 for individual retirement accounts (IRAs). Minimums are reduced to $50 for purchases through "Automatic Investment Plans" (except for the money market funds) or to $25 for purchases by retirement plans through payroll deductions and may be reduced or waived for shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for additional investments (except as noted above). 12 - ------------------------------------------------------------------------------- SALES CHARGES The sales charges you pay when purchasing the stock, stock/bond, and bond funds of The American Funds Group are set forth below. The money market funds of The American Funds Group are offered at net asset value. (See "Investment Minimums and Fund Numbers" for a listing of the funds.)
DEALER SALES CHARGE AS CONCESSION PERCENTAGE OF THE: AS PERCENTAGE ------------------ OF THE AMOUNT OF PURCHASE NET AMOUNT OFFERING OFFERING AT THE OFFERING PRICE INVESTED PRICE PRICE --------------------- ---------- -------- ------------- STOCK AND STOCK/BOND FUNDS Less than $50,000................. 6.10% 5.75% 5.00% $50,000 but less than $100,000.... 4.71 4.50 3.75 BOND FUNDS Less than $25,000................. 4.99 4.75 4.00 $25,000 but less than $50,000..... 4.71 4.50 3.75 $50,000 but less than $100,000.... 4.17 4.00 3.25 STOCK, STOCK/BOND, AND BOND FUNDS $100,000 but less than $250,000... 3.63 3.50 2.75 $250,000 but less than $500,000... 2.56 2.50 2.00 $500,000 but less than $1,000,000. 2.04 2.00 1.60 $1,000,000 or more................ none none (see below)
Commissions of up to 1% will be paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees (paid pursuant to the company's plan of distribution), and for purchases made at net asset value by certain retirement plans of organizations with collective retirement plan assets of $100 million or more as set forth in the statement of additional information (paid by American Funds Distributors). American Funds Distributors, at its expense (from a designated percentage of its income), will provide additional promotional incentives to dealers. Currently these incentives are limited to the top one hundred dealers who have sold shares of the company or other funds in The American Funds Group. These incentive payments will be based on a pro rata share of a qualifying dealer's sales. Any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees or any other purchaser investing at least $1 million in shares of the company (or in combination with shares of other funds in The American Funds Group other than the money market funds) may purchase shares at net asset value; however, a contingent deferred sales 13 - ------------------------------------------------------------------------------- charge of 1% is imposed on certain redemptions within one year of the purchase. (See "Redeeming Shares-- Contingent Deferred Sales Charge.") Qualified dealers currently are paid a continuing service fee not to exceed 0.25% of average net assets (0.15% in the case of the money market funds) annually in order to promote selling efforts and to compensate them for providing certain services. (See "Fund Organization and Management--Plan of Distribution"). These services include processing purchase and redemption transactions, establishing shareholder accounts and providing certain information and assistance with respect to the company. NET ASSET VALUE PURCHASES The stock, stock/bond and bond funds may sell shares at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of the funds managed by Capital Research and Management Company, employees of Washington Management Corporation, employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members of the above persons, and trusts or plans primarily for such persons; (2) current or retired registered representatives or full-time employees and their spouses and minor children of dealers having sales agreements with American Funds Distributors and plans for such persons; (3) companies exchanging securities with the company through a merger, acquisition or exchange offer; (4) trustees or other fiduciaries purchasing shares for certain retirement plans of organizations with retirement plan assets of $100 million or more; (5) insurance company separate accounts; (6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. REDUCING AGGREGATION Sales charge discounts are available for YOUR SALES certain aggregated investments. Qualifying investments CHARGE include those by you, your spouse and your children under the age of 21, if all parties are purchasing You and your shares for their own account(s), which may include immediate family purchases through employee benefit plan(s) such as an may combine IRA, individual-type 403(b) plan or single-participant investments to Keogh-type plan or by a business solely controlled by reduce your costs. these individuals (for example, the individuals own the entire business) or by a trust (or other fiduciary arrangement) solely for the benefit of these individuals. Individual purchases by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are (1) for a single trust estate or fiduciary account, including an employee benefit plan other than those described above or (2) made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the Investment Company Act of 1940, again excluding employee benefit plans described above, or (3) for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating 14 - ------------------------------------------------------------------------------- fund shares. Purchases made for nominee or street name accounts (securities held in the name of an investment dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above. CONCURRENT PURCHASES To qualify for a reduced sales charge, you may combine concurrent purchases of two or more funds in The American Funds Group, except direct purchases of the money market funds. (Shares of the money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge do qualify.) For example, if you concurrently invest $25,000 in one fund and $25,000 in another, the sales charge would be reduced to reflect a $50,000 purchase. RIGHT OF ACCUMULATION The sales charge for your invest- ment may also be reduced by taking into account the current value of your existing holdings in The American Funds Group. Direct purchases of the money market funds are excluded. (See account application.) STATEMENT OF INTENTION You may reduce sales charges on all investments by meeting the terms of a statement of intention, a non-binding commitment to invest a certain amount in fund shares subject to a commission within a 13-month period. Five percent of the statement amount will be held in escrow to cover additional sales charges which may be due if your total investments over the statement period are insufficient to qualify for a sales charge reduction. (See account application.) YOU MUST LET YOUR INVESTMENT DEALER OR AMERICAN FUNDS SERVICE COMPANY KNOW IF YOU QUALIFY FOR A REDUCTION IN YOUR SALES CHARGE USING ONE OR ANY COMBINATION OF THE METHODS DESCRIBED ABOVE. 15 - ------------------------------------------------------------------------------- SHAREHOLDER AUTOMATIC INVESTMENT PLAN You may make regular monthly SERVICES or quarterly investments through automatic charges to your bank account. Once a plan is established, your ac- The company offers count will normally be charged by the 10th day of the you a valuable month during which an investment is made (or by the array of services 15th day of the month in the case of any retirement designed to plan for which Capital Guardian Trust Company--another increase the affiliate of The Capital Group Companies, Inc.--acts as convenience and trustee or custodian). flexibility of your investment-- AUTOMATIC REINVESTMENT Dividends and capital gain dis- services you can tributions are reinvested in additional shares at no use to alter your sales charge unless you indicate otherwise on the investment program account application. You also may elect to have divi- as your needs and dends and/or capital gain distributions paid in cash by circumstances informing the company, American Funds Service Company change. or your investment dealer. CROSS-REINVESTMENT You may cross-reinvest dividends or dividends and capital gain distributions paid by one fund into another fund in The American Funds Group, subject to conditions outlined in the statement of ad- ditional information. Generally, to use this service the value of your account in the paying fund must equal at least $5,000. EXCHANGE PRIVILEGE You may exchange shares into other funds in The American Funds Group. Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of shares from the money market funds are subject to applicable sales charges on the fund being purchased, unless the money market fund shares were acquired by an exchange from a fund having a sales charge, or by reinvestment or cross- reinvestment of dividends or capital gain distributions. You may exchange shares by writing to American Funds Service Company (see "Redeeming Shares"), by contacting your investment dealer, by using American FundsLine(R) (see "Shareholder Services--American FundsLine(R)" be- low), or by telephoning 800/421-0180 toll-free, faxing (see "Transfer Agent" above for the appropriate fax numbers) or telegraphing American Funds Service Compa- ny. (See "Redeeming Shares--Telephone Redemptions and Exchanges" below.) Shares held in corporate-type re- tirement plans for which Capital Guardian Trust Company serves as trustee may not be exchanged by telephone, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "Purchasing Shares--Share Price.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. AUTOMATIC EXCHANGES You may automatically exchange shares (in amounts of $50 or more) among any of the funds in The American Funds Group on any day (or pre- ceding business day if the day falls on a non-business day) of each month you designate. You must either meet the 16 - ------------------------------------------------------------------------------- minimum initial investment requirement for the receiv- ing fund OR the originating fund's balance must be at least $5,000 and the receiving fund's minimum must be met within one year. AUTOMATIC WITHDRAWALS You may make automatic withdraw- als of $50 or more as follows: five or more times per year if you have an account of $10,000 or more, or four or fewer times per year if you have an account of $5,000 or more. Withdrawals are made on or about the 15th day of each month you designate, and checks will be sent within seven days. (See "Other Important Things to Remember.") Additional investments in a withdrawal account must not be less than one year's scheduled withdrawals or $1,200, whichever is greater. However, additional investments in a withdrawal account may be inadvisable due to sales charges and tax liabilities. THESE SERVICES ARE AVAILABLE ONLY IN STATES WHERE THE FUND TO BE PURCHASED MAY BE LEGALLY OFFERED AND MAY BE TERMINATED OR MODIFIED AT ANY TIME UPON 60 DAYS' WRITTEN NOTICE. ACCOUNT STATEMENTS Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments and dividend reinvestments, will be reflected on regular confirmation statements from American Funds Service Company. AMERICAN FUNDSLINE(R) You may check your share balance, the price of your shares, or your most recent account transaction, redeem shares (up to $10,000 per fund, per account each day), or exchange shares around the clock with American FundsLine(R). To use this service, call 800/325-3590 from a TouchTone(TM) telephone. Redemptions and exchanges through American FundsLine(R) are subject to the conditions noted above and in "Redeeming Shares--Telephone Redemptions and Exchanges" below. You will need your fund number (see the list of funds in The American Funds Group under "Purchasing Shares--Investment Minimums and Fund Numbers"), personal identification number (the last four digits of your Social Security number or other tax identification number associated with your account) and account number. 17 - ------------------------------------------------------------------------------- REDEEMING By writing to Send a letter of instruction SHARES American specifying the name of the company, Funds Service the number of shares or dollar amount You may take money Company (at to be sold, your name and account out of your the number. You should also enclose any account whenever appropriate certificate shares you wish to you please. address redeem. For redemptions over $50,000 indicated and for certain redemptions of under $50,000 or less (see below), your "Company signature must be guaranteed by a Organization bank, savings association, credit and union, or member firm of a domestic Management-- stock exchange or the National Transfer Association of Securities Dealers, Agent") Inc., that is an eligible guarantor institution. You should verify with the institution that it is an eligible guarantor prior to signing. Additional documentation may be required for redemption of shares held in corporate, partnership or fiduciary accounts. Notarization by a Notary Public is not an acceptable signature guarantee. -------------------------------------------------------- By contacting If you redeem shares through your your investment dealer, you may be charged investment for this service. SHARES HELD FOR YOU dealer IN YOUR INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED THROUGH THE DEALER. -------------------------------------------------------- You may have You may use this option, provided the a redemption account is registered in the name of check sent to an individual(s), a UGMA/UTMA you by using custodian, or a non-retirement plan American trust. These redemptions may not FundsLine(R) exceed $10,000 per day, per fund or by account and the check must be made telephoning, payable to the shareholder(s) of faxing, or record and be sent to the address of telegraphing record provided the address has been American used with the account for at least 10 Funds Service days. See "Transfer Agent" and Company "Exchange Privilege" above for the (subject to appropriate telephone or fax number. the conditions noted in this section and in "Telephone Redemptions and Exchanges" below) -------------------------------------------------------- In the case Upon request (use the account of the money application for the money market market funds, funds) you may establish telephone you may have redemption privileges (which will redemptions enable you to have a redemption sent wired to your to your bank account) and/or check bank by writing privileges. If you request telephoning check writing privileges, you will be American provided with checks that you may use Funds Service to draw against your account. These Company checks may be made payable to anyone ($1,000 or you designate and must be signed by more) or by the authorized number of registered writing a shareholders exactly as indicated on check ($250 your checking account signature card. or more) -------------------------------------------------------- A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000 OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS. THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND ALL REQUIRED DOCUMENTATION ARE RECEIVED BY THE COMPANY OR AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING SHARES--SHARE PRICE.") TELEPHONE REDEMPTIONS AND EXCHANGES By using the telephone (including American FundsLine(R)), telex, fax or telegraph redemption and/or exchange options, you agree to hold the company, American Funds Service Company, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, 18 - ------------------------------------------------------------------------------- officers, employees and agents harmless from any losses, expenses, costs or liability (including attorney fees) which may be incurred in connection with the exercise of these privileges. Generally, all shareholders are automatically eligible to use these options. However, you may elect to opt out of these options by writing American Funds Service Company (you may reinstate them at any time also by writing American Funds Service Company). If American Funds Service Company does not employ reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine, the company may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the company by telephone because of technical difficulties, market conditions, or a natural disaster, redemption and exchange requests may be made in writing only. CONTINGENT DEFERRED SALES CHARGE A contingent deferred sales charge of 1% applies to certain redemptions within the first year on investments of $1 million or more and on any investment made with no initial sales charge by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200 or more eligible employees. The charge is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. Shares held for the longest period are assumed to be redeemed first for purposes of calculating this charge. The charge is waived for exchanges (except if shares acquired by exchange were then redeemed within 12 months of the initial purchase); for distributions from qualified retirement plans and other employee benefit plans; for distributions from 403(b) plans or IRAs due to death, disability or attainment of age 59 1/2; for tax-free returns of excess contributions to IRAs; for redemptions through certain automatic withdrawals not exceeding 10% of the amount that would otherwise be subject to the charge; and for redemptions in connection with loans made by qualified retirement plans. REINSTATEMENT PRIVILEGE You may reinvest proceeds from a redemption or a dividend or capital gain distribution without sales charge (any contingent deferred sales charge paid will be credited to your account) in any fund in The American Funds Group. Send a written request and a check to American Funds Service Company within 90 days after the date of the redemption or distribution. Reinvestment will be at the next calculated net asset value after receipt. The tax status of a gain realized on a redemption will not be affected by exercise of the reinstatement privilege, but a loss may be nullified if you reinvest in the same fund within 30 days. If you redeem your shares within 90 days after purchase and the sales charge on the purchase of other shares is waived under the reinstatement privilege, the sales charge you previously paid for 19 - ------------------------------------------------------------------------------- the shares may not be taken into account when you calculate your gain or loss on that redemption. OTHER IMPORTANT THINGS TO REMEMBER The net asset value for redemptions is determined as indicated under "Purchasing Shares--Share Price." Because each stock, stock/bond and bond fund's net asset value fluctuates, reflecting the market value of the fund's portfolio, the amount a shareholder receives for shares redeemed may be more or less than the amount paid for them. Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier's checks) for shares purchased have cleared (which may take up to 15 calendar days from the purchase date). Except for delays relating to clearance of checks for share purchases or in extraordinary circumstances (and as permissible under the Investment Company Act of 1940), redemption proceeds will be paid on or before the seventh day following receipt of a proper redemption request. A fund may, with 60 days' written notice, close your account if, due to a redemption, the account has a value of less than the minimum required initial investment. (For example, a fund may close an account if a redemption is made shortly after a minimum initial investment is made.) RETIREMENT You may invest in the company through various PLANS retirement plans including the following plans for which Capital Guardian Trust Company acts as trustee or custodian: IRAs, Simplified Employee Pension plans, 403(b) plans and Keogh- and corporate-type business retirement plans. For further information about any of the plans, agreements, applications and annual fees, contact American Funds Distributors or your investment dealer. To determine which retirement plan is appropriate for you, please consult your tax adviser. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS INVESTMENTS FOR RETIREMENT PLANS. FOR MORE INFORMATION, PLEASE REFER TO THE ACCOUNT APPLICATION OR THE STATEMENT OF ADDITIONAL INFORMATION. IF YOU HAVE ANY QUESTIONS ABOUT ANY OF THE SHAREHOLDER SERVICES DESCRIBED HEREIN OR YOUR ACCOUNT, PLEASE CONTACT YOUR INVESTMENT DEALER OR AMERICAN FUNDS SERVICE COMPANY. [RECYCLE LOGO] This prospectus has been printed on recycled paper that meets the guidelines of the United States Environmental Protection Agency 20 THE INVESTMENT COMPANY OF AMERICA PART B STATEMENT OF ADDITIONAL INFORMATION FEBRUARY 28, 1995 This document is not a prospectus but should be read in conjunction with the current Prospectus of The Investment Company of America (the company or ICA) dated February 28, 1995. The Prospectus may be obtained from your investment dealer or financial planner or by writing to the company at the following address: THE INVESTMENT COMPANY OF AMERICA ATTENTION: SECRETARY 333 SOUTH HOPE STREET LOS ANGELES, CA 90071 (213) 486-9200 The fund has two forms of prospectuses. Each reference to the prospectus in this Statement of Additional Information includes both of the company's prospectuses. Shareholders who purchase shares at net asset value through eligible retirement plans should note that not all of the services or features described below may be available to them, and they should contact their employer for details.
TABLE OF CONTENTS ITEM PAGE NO. INVESTMENT POLICIES 1 DESCRIPTION OF CERTAIN SECURITIES 2 INVESTMENT RESTRICTIONS 4 COMPANY DIRECTORS AND OFFICERS 6 ADVISORY BOARD 12 MANAGEMENT 16 DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 18 PURCHASE OF SHARES 21 SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 23 REDEMPTION OF SHARES 24 EXECUTION OF PORTFOLIO TRANSACTIONS 24 GENERAL INFORMATION 25 INVESTMENT RESULTS 27 FINANCIAL STATEMENTS 35
INVESTMENT POLICIES FIXED-INCOME SECURITIES -- The company may invest in intermediate- and long-term debt securities. If market interest rates increase, such fixed-income securities generally decline in value and vice versa. If the currency in which the security is denominated declines against the U.S. dollar, the dollar value of the security will decline and vice versa. DESCRIPTION OF CERTAIN SECURITIES BOND RATINGS - The company may invest in debt securities which are rated in the top three quality categories by Standard & Poor's Corporation or Moody's Investors Service, Inc. or determined to be equivalent by Capital Research and Management Company (the Investment Adviser). The top three rating categories for Standard & Poor's and Moody's are described below: STANDARD & POOR'S CORPORATION: "Debt rated 'AAA' has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong." "Debt rated 'AA' has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree." "Debt rated 'A' has a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of change in circumstances and economic conditions, than debt in higher categories." MOODY'S INVESTORS SERVICE, INC.: "Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as 'gilt edge.' Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." "Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities." "Bonds rated A are judged to be of upper medium grade obligations. These bonds possess many favorable investment attributes. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal agency obligations guaranteed as to principal and interest by the U.S. Treasury. In these securities, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. Such securities are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity, will be paid in full. Certain securities issued by U.S. Government instrumentalities and certain federal agencies are neither direct obligations of, nor guaranteed by, the Treasury. However, they generally involve federal sponsorship in one way or another; some are backed by specific types of collateral; some are supported by the issuer's right to borrow from the Treasury; some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer; and others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank Cooperatives, and Federal Intermediate Credit Banks. CASH EQUIVALENTS - These securities include (1) commercial paper (short-term notes up to 9 months in maturity issued by corporations or governmental bodies), (2) commercial bank obligations (E.G., certificates of deposit (interest-bearing time deposits), bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity) and documented discount notes (corporate promissory discount notes accompanied by a commercial bank guarantee to pay at maturity), (3) savings association and savings bank obligations (e.g., certificates of deposit issued by savings banks or savings and loan associations), (4) securities of the U.S. Government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (5) corporate bonds and notes that mature, or that may be redeemed, in one year or less. CURRENCY TRANSACTIONS -- For the purpose of hedging currency exchange rate risks, the company may enter into forward currency contracts. The company does not have any current intention of entering into forward currency contracts other than currency exchange contracts which will be entered into only during the period between the trade date and the settlement date of a security transaction to fix the dollar cost or proceeds for the transaction. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks). At the maturity of a forward contract, the company may either accept or make delivery of the currency specified in the contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original contract. INVESTMENT RESTRICTIONS The company has adopted certain investment restrictions, which are fundamental policies and cannot be changed without a majority vote of its outstanding shares. Such majority is defined within the Investment Company Act of 1940 (the 1940 Act) as the vote of the lesser of (i) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (ii) more than 50% of the outstanding voting securities. These restrictions (which do not apply to the purchase of securities issued or guaranteed by the U.S. Government) provide that the company shall make no investment: Which involves promotion or business management by the company; In any security about which reliable information is not available with respect to the history, management, assets, earnings, and income of the issuer; If the investment would cause more than 5% of the value of the total assets of the company, as they exist at the time of investment, to be invested in the securities of any one issuer; If the investment would cause more than 20% of the value of the total assets of the company to be invested in the securities in any one industry; If the investment would cause the company to own more than 10% of the outstanding voting securities of any one issuer, provided that this restriction shall apply as to 75% of the company's total assets; or In any security which has not been placed on the company's Eligible List. (See the Prospectus) The company is not permitted to buy securities on margin, sell securities short, borrow money, or to invest in real estate. (Although it has not been the practice of the company to make such investments (and it has no current intention of doing so at least for the next 12 months), the company may invest in the securities of real estate investment trusts.) The company has also adopted other fundamental policies which require the company not to: Concentrate its investment in any particular industry or group of industries. Some degree of concentration may occur from time to time (within the 20% limitation of the Certificate of Incorporation) as certain industries appear to present desirable fields for investment. Engage generally in the making of loans. Although the company has reserved the right to make loans to unaffiliated persons subject to certain restrictions, including requirements concerning collateral and amount of any loan, no loans have been made since adoption of this fundamental policy more than 50 years ago. Act as underwriter of securities issued by others, engage in distribution of securities for others, engage in the purchase and sale of commodities or commodity contracts, borrow money, invest in real estate, or make investments in other companies for the purpose of exercising control or management. Pledge, encumber or assign all or any part of its property and assets as security for a debt. Invest in the securities of other investment companies. Notwithstanding the restriction on investing in the securities of other investment companies, the company may invest in securities of other investment companies if deemed advisable by its officers in connection with the administration of a deferred compensation plan adopted by Directors pursuant to an exemptive order granted by the Securities and Exchange Commission. Additional investment restrictions adopted by the company and which may be changed by the Board of Directors without shareholder approval, provide that the company may not: Purchase and sell securities for short-term profits; however, securities will be sold without regard to the time that they have been held whenever investment judgement makes such action seem advisable. Purchase or retain the securities of any issuer if those officers and directors of the company or the Investment Adviser who own beneficially more than one half of 1% of such issuer together own more than 5% of the securities of such issuer. Invest in securities of companies which, with their predecessors, have a record of less than three years' continuous operations. Invest in puts, calls, straddles, spreads or any combination thereof. Purchase partnership interests in oil, gas or mineral exploration, drilling or mining ventures. Invest in excess of 10% of the market value of its total assets in securities which may require registration under the Securities Act of 1933 prior to sale by the company (restricted securities), or other securities that are not readily marketable. COMPANY DIRECTORS AND OFFICERS Directors and Director Compensation (with their principal occupations during the past five years)#
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION FROM ALL FUNDS OF FUND ORGANIZATIONS LISTED MAY HAVE (INCLUDING MANAGED BY CAPITAL BOARDS ON CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED RESEARCH AND WHICH COMPENSATION/1/) FROM MANAGEMENT COMPANY/2/ DIRECTOR THE COMPANY DURING SERVES FISCAL YEAR ENDED 12/31/94 Charles H. Black Director Private investor and consultant; $54,200 $102,300 4 525 Alma Real Drive KaiserSteel Corporation, former Pacific Palisades, CA Executive Vice President and 90272 Director Age: 68 John F. Bookout Director Royal Dutch Petroleum, former $49,600 $49,600 1 One Shell Plaza Supervisory Director; Shell Oil P.O. Box 2463 Company, former President and Houston, TX 77252 Chief Executive Officer Age: 72 Ann S. Bowers Director Enterprise 2000, Human resources $51,600 $51,600 1 1570 Emerson consultant Palo Alto, CA 94301 Age: 57 Malcolm R. Currie Director Hughes Aircraft Company, $47,800 $47,800 1 Bldg. C-1 Chairman Emeritus Mail Station A-100 P.O. Box 80028 Los Angeles, CA 90080-0028 Age: 68 + Jon B. Lovelace, Jr. Chairman of Capital Research and Management None/3/ None/3/ 4 333 South Hope Street the Board and Company, Vice Chairman of the Los Angeles, CA Director Board and Chairman of the 90071-1443 Executive Committee Age: 68 John G. McDonald Director The IBJ Professor of Finance, $55,400/4/ $124,600 6 Graduate School of Graduate School of Business, Finance Stanford University Stanford University Stanford, CA 94305 Age: 57 Bailey U. Morris Director THE INDEPENDENT OF LONDON, $47,800 $47,800 1 International Economic Consultant Insights, Editor Institute for International Economics 11 Dupont Circle NW Suite 620 Washington, D.C. 20036-1207 Senior Fellow Age: 50 + William C. Newton President and The Capital Group Partners, L.P., None/3/ None/3/ 1 333 South Hope Street Director Senior Partner Los Angeles, CA 90071-1443 Age: 64 + James W. Ratzlaff Executive Vice Capital Research and Management None/3/ None/3/ 8 P.O. Box 7650 President and Company, Vice Chairman of the San Francisco, CA Director Board; American Funds Service 94120-7650 Company, Director; The Capital Age: 58 Group Partners, L.P., Senior Partner Olin C. Robison Director President of the Salzburg Seminar; $49,000 $72,400 2 The Painter House Middlebury College, Professor and Middlebury College former President Middlebury, VT 05753 Age: 58
# Positions within the organizations may have changed during this period. + Directors who are considered "interested persons as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company. ++ May be deemed an "interested person" of the fund due to membership on the board of directors of the parent company of a registered broker-dealer. /1/ Amounts may be deferred by eligible directors under a non-qualified deferred compensation plan adopted by the company in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more funds in The American Funds Group as designated by the Director. /2/ Capital Research and Management Company manages The American Funds Group consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of America, Capital Income Builder, Inc., Capital World Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., Intermediate Bond Fund of America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of America, The U.S. Treasury Money Fund of America, U.S. Government Securities Fund and Washington Mutual Investors Fund Inc. American Variable Insurance Series is another fund managed by Capital Research and Management Company that serves as the underling investment vehicle for certain variable insurance contracts. /3/ Jon B. Lovelace, Jr., William C. Newton, and James W. Ratzlaff are affiliated with the Investment Adviser and, accordingly, receive no compensation from the company. /4/ Since the plan's adoption, the total amount of deferred compensation accrued by the company (plus earnings thereon) for participating Directors is as follows: John B. McDonald ($57,184). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the company until paid to the Director. Each unaffiliated Director is paid a director's fee of $32,000 per annum, plus $2,000 for each Board of Directors meeting attended, plus $600 for each meeting attended as a member of a committee of the Board of Directors. No pension or retirement benefits are accrued as part of company expenses. The Directors and Advisory Board members may elect, on a voluntary basis, to defer all or a portion of their fees through a deferred compensation plan in effect for the company. All of the officers listed are officers of the Investment Adviser and officers and/or directors/trustees of some of the other mutual funds served by the Investment Adviser. No compensation is paid by the company to any officer or director who is a director or officer of the Investment Adviser or affiliated companies. As of January 31, 1995 the officers and Directors and their families as a group, owned beneficially or of record less than 1% of the outstanding shares of the company. OFFICERS JON B. LOVELACE, JR., Chairman of the Board WILLIAM C. NEWTON, President JAMES W. RATZLAFF, Executive Vice President Company officers whose other positions are not described above are: WILLIAM R. GRIMSLEY***, Senior Vice President. Capital Research and Management Company, Senior Vice President and Director R. MICHAEL SHANAHAN*, Senior Vice President. Capital Research and Management Company, Chairman of the Board and Principal Executive Officer GREGG E. IRELAND****, Vice President. Capital Research and Management Company, Vice President ANNE M. LLEWELLYN*, Vice President. Capital Research and Management Company, Associate JAMES B. LOVELACE****, Vice President. Capital Research and Management Company, Vice President DONALD D. O'NEAL***, Vice President. Capital Research and Management Company, Vice President VINCENT P. CORTI*, Secretary. Capital Research and Management Company, Vice President, Fund Business Management Group STEVEN N. KEARSLEY**, Treasurer. Capital Research and Management Company, Vice President and Treasurer; American Funds Service Company, Director JULIE F. WILLIAMS*, Assistant Secretary. Capital Research and Management Company, Vice President, Fund Business Management Group MARY C. CREMIN**, Assistant Treasurer. Capital Research and Management Company, Senior Vice President, Fund Business Management Group R. MARCIA GOULD**, Assistant Treasurer. Capital Research and Management Company, Vice President, Fund Business Management Group # Positions within the organizations may have changed during this period. + Considered "interested persons" of the company as defined in the 1940 Act, on the basis of their affiliation with the Investment Adviser. * Address is 333 South Hope Street, Los Angeles, CA 90071. ** Address is 135 South State College Boulevard, Brea, CA 92621. *** Address is Four Embarcadero Center, Suite 1800, San Francisco, CA 94111 **** Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025 ADVISORY BOARD The Board of Directors has established an Advisory Board whose members are, in the judgement of the Directors, highly knowledgeable about political and economic matters. In addition to holding meetings with the Board of Directors, members of the Advisory Board, while not participating in specific investment decisions, consult from time to time with the Investment Adviser, primarily with respect to trade and business conditions. Members of the Advisory Board, however, possess no authority or responsibility with respect to the Company's investments or management. The members of the Advisory Board and their current or former principal occupations are listed on the next page: ADVISORY BOARD MEMBERS Advisory Board Member Compensation (with their principal occupations during the past five years)#
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION FROM ALL FUNDS OF FUND ORGANIZATIONS LISTED MAY HAVE (INCLUDING MANAGED BY CAPITAL BOARDS ON CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED RESEARCH AND WHICH COMPENSATION/1/) FROM MANAGEMENT COMPANY/2/ DIRECTOR THE COMPANY DURING SERVES FISCAL YEAR ENDED 12/31/94 Malcolm Fraser Advisory Former Prime Minister of Australia $5,500 $5,500 1 44th Floor Board member ANZ Tower 55 Collins Street Melbourne, Victoria 3000 Australia Age: 64 Allan E. Gotlieb Advisory Former Canadian Ambassador to $5,500 $5,500 1 P.O. Box 85 Board member the United States Toronto, Ontario M5L 1B9 Age: 67 William H. Kling Advisory Minnesota Public Radio, President; $7,500/3/ $59,333 5 45 East Seventh Street Board member Greenspring Co., President; St. Paul, MN 55101 American Public Radio (now Public Age: 52 Radio International), former President Herbert L. Lucas, Jr. Advisory Private investor $7,500 $7,500 1 12011 San Vincente Blvd Board member Suite 708 Los Angeles, CA 90049 Age: 68 Robert J. O'Neill Advisory Chichele Professor of the History of $7,500 $35,000 3 St. Mary's Close Board member War and Fellow of All Souls 27 Church Green College Whitney, OXON OX8 6AZ Age: 58 Norman R. Weldon Advisory Corvita Corporation, President and $6,500 $29,133 3 8210 N.W. 27th Street Board member Director; Cordis Corporation, Miami, FL 33122 former President and Director Age: 60
# Positions within the organizations may have changed during this period. /1/ Amounts may be deferred by eligible directors under a non-qualified deferred compensation plan adopted by the company in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more funds in The American Funds Group as designated by the Director. /2/ Capital Research and Management Company manages The American Funds Group consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of America, Capital Income Builder, Inc., Capital World Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., Intermediate Bond Fund of America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of America, The U.S. Treasury Money Fund of America, U.S. Government Securities Fund and Washington Mutual Investors Fund Inc. American Variable Insurance Series is another fund managed by Capital Research and Management Company that serves as the underling investment vehicle for certain variable insurance contracts. /3/ Since the plan's adoption, the total amount of deferred compensation accrued by the company (plus earnings thereon) for participating Directors is as follows: William H. Kling ($6,699). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the company until paid to the Director. MANAGEMENT INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research facilities in the U.S. and abroad, with a staff of professionals, many of whom have a number of years of investment experience. The Investment Adviser's professionals travel several million miles a year, making more than 5,000 research visits in more than 50 countries around the world. The Investment Adviser believes that it is able to attract and retain quality personnel. An affiliate of the Investment Adviser compiles indices for major stock markets around the world and compiles and edits the Morgan Stanley Capital International Perspective, providing financial and market information about more than 2,400 companies around the world. The Investment Adviser is responsible for more than $100 billion of stocks, bonds and money market instruments and serves over five million investors of all types. These investors include privately owned business and large corporations as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the Agreement) between the company and the Investment Adviser will continue until April 30, 1995, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by (i) the Board of Directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities, and (ii) the vote of a majority of directors who are not parties to the Agreement or interested persons (as defined in the Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the Investment Adviser has no liability to the company for its acts or omissions in performance of its obligations to the company not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written notice to the other party and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform executive, administrative, clerical and bookkeeping functions of the company; provides suitable office space and utilities; necessary small office equipment and general purpose accounting forms, supplies, and postage used at the offices of the company. The company will pay all expenses not expressly assumed by the Investment Adviser, including, but not limited to, custodian, transfer and dividend disbursing agency fees and expenses; costs of the designing, printing and mailing of reports, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares (including registration and qualification expenses); expenses pursuant to the company's Plan of Distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to Directors and members of the Advisory Board who are not affiliated with the Investment Adviser; association dues; and costs of stationery and forms prepared exclusively for the company. As compensation for its services, the Investment Adviser receives a monthly fee which is accrued daily, calculated at the annual rate of 0.39% on the first $1.0 billion of net assets, plus 0.336% on net assets over $1 billion to $2.0 billion, plus 0.30% on net assets over $2.0 billion to $3.0 billion, plus 0.276% on net assets over $3 billion to $5.0 billion, plus 0.258% on net assets over $5.0 billion to $8.0 billion, plus 0.246% on net assets over $8.0 billion to $13.0 billion, plus 0.24% on net assets over $13.0 billion. The Agreement provides that the Investment Adviser shall pay the company amount by which normal operating expenses, with the exception of interest, taxes, brokerage costs, distribution expenses pursuant to the Plan of Distribution, and extraordinary expenses, if any, as may be incurred in connection with any merger, reorganization, or recapitalization, exceed the lesser of (i) 1-1/2% of the average value of the company's net assets for the fiscal year up to $30 million, plus 1% of the average value of the company's net assets for the fiscal year in excess of $30 million, or (ii) 25% of the gross investment income of the company. Only one state (California) continues to impose expense limitations on funds registered for sale therein. The California provision currently limits annual expenses to the sum of 2-1/2% of the first $30 million of average net assets, 2% of the next $70 million and 1-1/2% of the remaining average net assets. Rule 12b-1 distribution plan expenses would be excluded from this limit. Other expenses which are not subject to this limitation are interest, taxes, and extraordinary items such as litigation. Expenditures, including costs incurred in connection with the purchase or sale of portfolio securities, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, are accounted for as capital items and not as expenses. During the years ended December 31, 1994, 1993, and 1992, Investment Adviser's total fees amounted to $50,698,000, $47,340,000, and $35,742,000, respectively. PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal Underwriter) is the principal underwriter of the company's shares. The company has adopted a Plan of Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act (see "Company Organization and Management - Principal Underwriter" in the Prospectus). The Principal Underwriter receives amounts payable pursuant to the Plan (see below) and commissions consisting of that portion of the sales charge remaining after the discounts which it allows to investment dealers. Commissions retained by the Principal Underwriter on sales of company shares during the year ended December 31, 1994 amounted to $13,495,000 after allowance of $73,910,000 to dealers. During the years ended December 31, 1993 and 1992 the Principal Underwriter retained $21,581,000 and $31,074,000, respectively. As required by rule 12b-1, the Plan (together with the Principal Underwriting Agreement) has been approved by the full Board of Directors, and separately by a majority of the Directors who are not interested persons of the company and who have no direct or indirect financial interest in the operation of the Plan or the Principal Underwriting Agreement, and the Plan has been approved by the vote of a majority of the outstanding voting securities of the company. The officers and directors who are "interested persons" of the company may be considered to have a direct or indirect financial interest in the operation of the Plan due to present or past affiliations with the investment adviser and related companies. Potential benefits of the Plan to the company are improved shareholder services, savings to the company in transfer agency costs, savings to the company in advisory fees and other expenses, benefits to the investment process from growth or stability of assets and maintenance of a financially healthy management organization. The selection and nomination of Directors who are not "interested persons" of the company is committed to the discretion of the Directors who are not "interested persons" during the existence of the Plan. The Plan is reviewed quarterly and must be approved annually by the Board of Directors. Under the Plan the company may expend up to 0.25% of its average net assets annually to finance any activity which is primarily intended to result in the sale of company shares, provided the company's Board of Directors has approved the category of expenses for which payment is being made. These include service fees for qualified dealers and dealer commissions and wholesaler compensation on sales of shares exceeding $1 million (including purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k) plan with 200 or more eligible employees). Only expenses incurred during the preceding 12 months and accrued while the Plan is in effect may be paid by the company. During the year ended December 31, 1994, the company paid or accrued $38,084,000 under the Plan as compensation to dealers. The Glass-Steagall Act and other applicable laws, among other things, generally prohibit commercial banks from engaging in the business of underwriting, selling or distributing securities, but permit banks to make shares of mutual funds available to their customers and to perform administrative and shareholder servicing functions. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either federal or state statutes or regulations relating to the permissible activities of banks or their subsidiaries or affiliates, could prevent a bank from continuing to perform all or a part of its servicing activities. If a bank were prohibited from so acting, shareholder clients of such bank would be permitted to remain shareholders of the company and alternate means for continuing the servicing of such shareholders would be sought. In such event, changes in the operation of the company might occur and shareholders serviced by such bank might no longer be able to avail themselves of any automatic investment or other services then being provided by such bank. It is not expected that shareholders would suffer adverse financial consequences as a result of any of these occurrences. In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein and certain banks and financial institutions may be required to be registered as dealers pursuant to state law. DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES The company intends to meet all the requirements and has elected the tax status of a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the company distributes within specified times at least 90% of its investment company taxable income, it will be taxed only on that portion of such investment company taxable income which it retains. To qualify, the company must (a) derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans and gains from the sale or other disposition of stock, securities, currencies or other income derived with respect to its business of investing in such stock, securities or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of stock or securities held for less than three months; and (c) diversify its holdings so that at the end of each fiscal quarter, (i) at least 50% of the market value of the company's assets is represented by cash, cash items, U.S. Government securities and other securities, but such other securities must be limited, in respect of any one issuer to an amount not greater than 5% of the company's assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or in two or more issuers which the company controls and which are engaged in the same or similar trades or businesses or related trades or businesses. Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year ending within the regulated investment company's taxable year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gains (both long-term and short-term) for the one-year period ending on October 31 (as though the one-year period ending on October 31 were the regulated investment company's taxable year), and (iii) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (i) amounts actually distributed by the company from its current year's ordinary income and net capital gain income and (ii) any amount on which the company pays income tax during the periods described above. The company intends, to the extent practicable, to meet these distribution requirements to minimize or avoid the excise tax liability. The company also intends to continue distributing to shareholders all of the excess of net long-term capital gain over net short-term capital loss on sales of securities. If the net asset value of shares of the company should, by reason of a distribution of realized capital gains, be reduced below a shareholder's cost, such distribution would to that extent be a return of capital to that shareholder even though taxable to the shareholder, and a sale of shares by a shareholder at net asset value at that time would establish a capital loss for federal tax purposes. Dividends generally are taxable to shareholders at the time they are paid. However, dividends declared in October, November and December and made payable to shareholders of record in such a month are treated as paid and are thereby taxable as of December 31, provided that the Company pays the dividend no later than the end of January of the following year. If a shareholder exchanges or otherwise disposes of shares of the company within 90 days of having acquired such shares, and if, as a result of having acquired those shares, the shareholder subsequently pays a reduced sales charge for shares of the company, or of a different fund, the sales charge previously incurred in acquiring the company's shares shall not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purpose of determining the amount of gain or loss on the exchange, but will be treated as having been incurred in the acquisition of such other shares. Also, any loss realized on a redemption or exchange of shares of a fund will be disallowed to the extent shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. Under the Code, distributions of net investment income by the company to a shareholder who, as to the U.S., is a nonresident alien individual, nonresident alien fiduciary of a trust or estate, foreign corporation or foreign partnership (a foreign shareholder) will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will not apply if a dividend paid by the Company to a foreign shareholder is "effectively connected" with a U.S. trade or business, in which case the reporting and withholding requirements applicable to U.S. citizens or domestic corporations will apply. Distributions of net long-term capital gains not effectively connected with a U.S. trade or business are not subject to tax withholding, but in the case of a foreign shareholder who is a nonresident alien individual, such distributions ordinarily will be subject to U.S. income tax at a rate of 30% if the individual is physically present in the U.S. for more than 182 days during the taxable year. As of the date of this statement of additional information, the maximum federal individual stated tax rate applicable to ordinary income is 39.6% (effective tax rates may be higher for some individuals due to phase out of exemptions and elimination of deductions); the maximum individual tax rate applicable to net capital gain is 28%; and the maximum corporate tax applicable to ordinary income and net capital gain is 35% (except that corporations which have taxable income in excess of $100,000 for a taxable year will be required to pay an additional amount of tax of up to $11,750 and corporations which have taxable income in excess of $15,000,000 for a taxable year will be required to pay an additional amount of tax of up to $100,000). Naturally, the amount of tax payable by a shareholder with respect to either distributions from the company or disposition of company shares will be affected by a combination of tax law rules covering, E.G., deductions, credits, deferrals, exemptions, sources of income and other matters. Under the Code, an individual is entitled to establish and contribute to an IRA each year (prior to the tax return filing deadline for that year) whereby earnings on investments are tax-deferred. In addition, in some cases, the IRA contribution itself may be deductible. The foregoing is limited to a summary of federal taxation and should not be viewed as a comprehensive discussion of all provisions of the Code relevant to investors. Dividends and distributions may also be subject to state or local taxes. Shareholders should consult their own tax advisers for additional details as to their particular tax status. PURCHASE OF SHARES PRICE OF SHARES - Purchases of shares are made at the offering price next determined after the purchase order is received by the company or American Funds Service Company (the Transfer Agent); this offering price is effective for orders received prior to the time of determination of the net asset value and, in the case of orders placed with dealers, accepted by the Principal Underwriter prior to its close of business. The dealer is responsible for promptly transmitting purchase orders to the Principal Underwriter. Orders received by the investment dealer, the Transfer Agent, or the company after the time of the determination of the net asset value will be entered at the next calculated offering price. Prices which appear in the newspaper are not always indicative of prices at which you will be purchasing and redeeming shares of the company since such prices generally reflect the previous day's closing price whereas purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share which is calculated once daily at the close of trading (currently 4:00 p.m., New York Time) each day the New York Stock Exchange is open. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net asset value per share is determined as follows: 1. Stocks, and convertible bonds and debentures, traded on the New York Stock Exchange are valued at the last sale price on such exchange on the day of valuation, or if there is no sale on the day of valuation, at the last-reported bid price. Non-convertible bonds and debentures, and other long-term debt securities normally are valued at prices obtained for the day of valuation from a bond pricing service, when such prices are available; however, in circumstances where the Investment Adviser deems it appropriate to do so, an over-the-counter or exchange quotation may be used. U.S. Treasury bills, and other short-term obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, certificates of deposit issued by banks, corporate short-term notes and other short-term investments with original or remaining maturities in excess of 60 days are valued at the mean of representative quoted bid and asked prices for such securities or, if such prices are not available, for securities of comparable maturity, quality and type. Short-term securities with 60 days or less to maturity are amortized to maturity based on their cost to the company if acquired within 60 days of maturity or, if already held by the company on the 60th day, based on the value determined on the 61st day. Other securities are valued on the basis of last sale or bid prices in what is, in the opinion of the Investment Advisor, the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Where quotations are not readily available, securities are valued at fair value as determined in good faith by the Board of Directors. The fair value of all other assets is added to the value of securities to arrive at the total assets; 2. There are deducted from the total assets, thus determined, the liabilities, including accruals of taxes and other expense items; and 3. The net assets so obtained are then divided by the total number of shares outstanding (excluding treasury shares), and the result, rounded to the nearer cent, is the net asset value per share. Any purchase order may be rejected by the Principal Underwriter or by the company. The Principal Underwriter will not knowingly sell shares of the company directly or indirectly to any person or entity, where, after the sale, such person, or entity would own beneficially directly or indirectly more than 3% of the outstanding shares of the company without the consent of a majority of the company's Directors. STATEMENT OF INTENTION - The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $50,000 or more made within a 13-month period pursuant to the terms of a written Statement of Intention (the Statement) in the form provided by the Principal Underwriter and signed by the purchaser. The Statement is not a binding obligation to purchase the indicated amount. When a shareholder signs a Statement in order to qualify for a reduced sales charge, shares equal to 5% of the dollar amount specified in the Statement will be held in escrow in the shareholder's account out of the initial purchase (or subsequent purchases, if necessary) by the Transfer Agent. All dividends and any capital gain distributions on shares held in escrow will be credited to the shareholder's account in shares (or paid in cash, if requested). If the intended investment is not completed within the specified 13-month period, the purchaser will be required to remit to the Principal Underwriter the difference between the sales charge actually paid and the sales charge which would have been paid if the total purchases had been made at a single time. If the difference is not paid within 20 days after written request by the Principal Underwriter or the securities dealer, the appropriate number of shares will be redeemed to pay such difference. If the proceeds from this redemption are inadequate, the purchaser will be liable to the Principal Underwriter for the balance still outstanding. The Statement may be revised upward at any time during the 13-month period, and such a revision will be treated as a new Statement, except that the 13-month period during which the purchase must be made will remain unchanged and there will be no retroactive reduction of the sales charges paid on prior purchases. In the case of purchase orders by the trustees of certain retirement plans by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: The investment made the first month of the 13-month period will be multiplied by 13 and then multiplied by 1.5. On the first investment and all other investments made pursuant to the Statement, a sales charge will be assessed according to the sales charge breakpoint thus determined. There will be no retroactive adjustments in sales charges on investments previously made during the 13-month period. DEALER COMMISSIONS - The following commissions will be paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k) plan with 200 or more eligible employees, and for purchases made at net asset value by certain retirement plans of organizations with collective retirement plan assets of $100 million or more: 1.00% on amounts of $1 million to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts over $3 million to $50 million, 0.25% on amounts over $50 million to $100 million, and 0.15% on amounts over $100 million. The level of dealer commissions will be determined based on sales made over a 12-month period commencing from the date of the first sale at net asset value. See "The American Funds Shareholder Guide" in the company's prospectus for more information. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders to make regular monthly or quarterly investments in shares through automatic charges to their bank accounts. With shareholder authorization and bank approval, the Transfer Agent will automatically charge the bank account for the amount specified ($50 minimum), which will be automatically invested in shares at the offering price on or about the 10th day of the month (or on or about the 15th day of the month in the case of accounts for retirement plans for which Capital Guardian Trust Company serves as trustee or custodian.) Bank accounts will be charged on the day or a few days before investments are credited, depending on the bank's capabilities, and shareholders will receive a confirmation statement showing the current transaction. Participation in the plan will begin within 30 days after receipt of the account application. If the shareholder's bank account cannot be charged due to insufficient funds, a stop-payment order or closing of the account, the plan may be terminated and the related investment reversed. The shareholder may change the amount of the investment or discontinue the plan at any time by writing to the Transfer Agent. AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as dividends, yield or income. Automatic investments may not be made into a shareholder account from which there are automatic withdrawals. Withdrawals of amounts exceeding reinvested dividends and distributions and increases in share value would reduce the aggregate value of the shareholder's account. The Transfer Agent arranges for the redemption by the company of sufficient shares, deposited by the shareholder with the Transfer Agent, to provide the withdrawal payment specified. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund may elect to cross-reinvest dividends or dividends and capital gain distributions paid by that fund (the "paying fund") into any other fund in The American Funds Group (the "receiving fund") subject to the following conditions: (i) the aggregate value of the shareholder's account(s) in the paying fund(s) must equal or exceed $5,000 (this condition is waived if the value of the account in the receiving fund equals or exceeds that fund's minimum initial investment requirement), (ii) as long as the value of the account in the receiving fund is below that fund's minimum initial investment requirement, dividends and capital gain distributions paid by the receiving fund must be automatically reinvested in the receiving fund, and (iii) if this privilege is discontinued with respect to a particular receiving fund, the value of the account in that fund must equal or exceed the fund's minimum initial investment requirement or the fund shall have the right, if the shareholder fails to increase the value of the account to such minimum within 90 days after being notified of the deficiency, automatically to redeem the account and send the proceeds to the shareholder. The cross-reinvestment of dividends and capital gain distributions will be at net asset value (without sales charge). REDEMPTION OF SHARES REDEMPTIONS - The company's Certificate of Incorporation permits the company to direct the Transfer Agent to redeem the Common shares owned by any holder of capital stock of the company if the value of such shares in the account of such holder is less than the required minimum initial investment amount applicable to that account as set forth in the company's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Directors of the company may from time to time adopt. Prior notice of at least 60 days will be given to a shareholder before the involuntary redemption provision is made effective with respect to the shareholder's account. The shareholder will have not less than 30 days from the date of such notice within which to bring the account up to the minimum determined as set forth above. EXECUTION OF PORTFOLIO TRANSACTIONS There are occasions on which portfolio transactions for the company may be executed as part of concurrent authorizations to purchase or sell the same security for other funds served by the Investment Adviser, or for trusts or other accounts served by affiliated companies of the Investment Adviser. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the company, they are effected only when the Investment Adviser believes that to do so is in the interest of the company. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The company will not pay a mark-up for research in principal transactions. As of the end of the company's most recent fiscal year, amounts held in certain equity and debt securities of some of its regular brokers and dealers were as follows: American Express Co., $73,145,000 (equity); General Electric Co., $113,858,000 (equity); and J.P. Morgan & Co. Inc., $106,400,000 (equity). Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, for the years ended December 31, 1994, 1993, and 1992 amounted to $8,999,000, $11,089,000, and $9,347,000, respectively. GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the company, including proceeds from the sale of shares of the company and of securities in the company's portfolio, are held by The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New York, NY 10081, as Custodian. Non-U.S. securities may be held by the Custodian, pursuant to sub-custodial arrangements, in non-U.S. banks or non-U.S. branches of U.S. banks. INDEPENDENT ACCOUNTANT - Price Waterhouse LLP, 400 South Hope Street, Los Angeles, CA 90071, has served as the company's independent accountant since its inception, providing audit services, preparation of tax returns and review of certain documents to be filed with the Securities and Exchange Commission. The financial statements included in this Statement of Additional Information have been so included in reliance on the report of the independent accountants given on the authority of said firm as experts in auditing and accounting. The selection of the company's independent accountant is reviewed and determined annually by the Board of Directors. REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly called and at which a quorum is present, the shareholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. The company has made an undertaking, at the request of the staff of the Securities and Exchange Commission, to apply the provisions of section 16(c) of the 1940 Act with respect to the removal of directors as though the company were a common-law trust. Accordingly, the Directors of the company shall promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any director when requested in writing to do so by the record holders of not less than 10% of the outstanding shares. REPORTS TO SHAREHOLDERS - The company's fiscal year ends on December 31. Shareholders are provided at least semi-annually with reports showing the investment portfolio and financial statements audited annually by the company's independent accountants, Price Waterhouse LLP. PERSONAL INVESTING POLICY - Capital Research and Management Company and its affiliated companies have adopted a personal investing policy consistent with Investment Company Institute guidelines. This policy includes: a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; pre-clearance and reporting requirements; review of duplicate confirmation statements; annual recertification of compliance with codes of ethics; disclosure of personal holdings by certain investment personnel prior to recommendation for purchase for the fund; blackout periods on personal investing for certain investment personnel; ban on short-term trading profits for investment personnel; limitations on service as a director of publicly traded companies; and disclosure of personal securities transactions. THE WARRANTS OF THE COMPANY - On December 31, 1994, there were outstanding 38,378 option warrants, unlimited in time, to purchase shares of the company. As originally issued in 1933 in exchange for shares of a predecessor trust, each warrant permitted the purchase of one share of the company at $115 per share. By reason of adjustments for stock dividends and stock splits, each outstanding warrant now represents an option to purchase approximately 21.940 shares at approximately $5.242 per share, and, if all warrants were exercised, approximately 842,013 shares would be issued. Whenever the offering price of the company's shares exceeds the price at which shares may be purchased by the exercise of warrants, the holders of such warrants may, by exercising their options, purchase shares at a price lower than the offering price of shares. No warrants are currently owned by officers or directors of the company. The financial statements, including the investment portfolio and the report of Independent Auditors, contained in the Annual Report are included in this Statement of Additional Information. The following information is not included in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE -- DECEMBER 31, 1994 Net asset value and redemption price per share $17.67 (Net assets divided by shares outstanding) Maximum offering price per share $18.75 (100/94.25 of net asset value per share, which takes into account the company's current maximum sales charge)
INVESTMENT RESULTS The company's yield is 3.13% based on a 30-day (or one month) period ended December 31, 1994, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2[( a-b/cd + 1)/6/ -1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The company's total return over the past year and average annual total returns for the five- and ten-year periods ending on December 31, 1994 were -5.60%, 7.51% and 13.69%, respectively. The average annual total return (T) is computed by equating the value at the end of the period (ERV) with a hypothetical initial investment of $1,000 (P) over a period of years (n) according to the following formula as required by the Securities and Exchange Commission: P(1+T)/n/ = ERV. To calculate total return, an initial investment is divided by the offering price (which includes the sales charge) as of the first day of the period in order to determine the initial number of shares purchased. Subsequent dividends and capital gain distributions are reinvested at net asset value on the reinvestment date determined by the Board of Directors. The sum of the initial shares purchased and shares acquired through reinvestment is multiplied by the net asset value per share as of the end of the period in order to determine ending value. The difference between the ending value and the initial investment divided by the initial investment converted to a percentage equals total return. The resulting percentage indicates the positive or negative investment results that an investor would have experienced from reinvested dividends and capital gain distributions and changes in share price during the periods. Total return may be calculated for the one-, five-, ten-year and for other periods. The average annual total return over periods greater than one year may also be computed by utilizing ending values as determined above. The company may also, at times, calculate total return based on net asset value per share (rather than the offering price), in which case the figure would not reflect the effect of any sales charges which would have been paid if shares were purchased during the period reflected in the computation. Consequently, total return calculated in this manner will be higher. Total return for the unmanaged indices will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for advisory fees, brokerage costs or administrative expenses. The following assumptions will be reflected in computations made in accordance with the formulas stated above: (1) deduction of the maximum sales load of 5.75% from the $1,000 initial investment; (2) reinvestment of dividends and distributions at net asset value on the reinvestment date determined by the Board; and (3) a complete redemption at the end of any period illustrated. In addition, the company will provide lifetime average total return figures. The company may include information on its investment results and/or comparisons of its investment results to various unmanaged indices (such as The Dow Jones Average of 30 Industrial Stocks and The Standard & Poor's 500 Stock Composite Index) or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present or prospective shareholders. The company may also refer to results compiled by organizations such as CDA Investment Technologies, Ibbotson Associates, Lipper Analytical Services, Morningstar, Inc., Wiesenberger Investment Companies Services and the U.S. Department of Commerce. Additionally, the company may, from time to time, refer to results published in various newspapers or periodicals, including BARRON'S, FORBES, FORTUNE, INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY, U.S. NEWS AND WORLD REPORT and THE WALL STREET JOURNAL. The company may from time to time compare its investment results with the following: (1) Average of Savings Institution deposits, which is a measure of all kinds of savings deposits, including longer-term certificates (based on figures supplied by the U.S. League of Savings Institutions). Savings deposits offer a guaranteed rate of return on principal, but no opportunity for capital growth. The period shown may include periods during which the maximum rates paid on some savings deposits were fixed by law. (2) The Consumer Price Index, which is a measure of the average change in prices over time in a fixed market basket of goods and services (E.G. food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, prescription medicines, and other goods and services that people buy for day-to-day living). The company may also from time to time illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans. EXPERIENCE OF THE INVESTMENT ADVISER - Capital Research and Management Company manages nine common stock funds that are at least 10 years old. In the rolling 10-year periods since 1964 (115 in all), those funds have had better total returns than the Standard & Poor's 500 Composite Stock Index in 94 of the 115 periods. Note that past results are not an indication of future investment results. Also, the company has different investment policies than some of the funds mentioned above. These results are included solely for the purpose of informing investors about the experience and history of Capital Research and Management Company. The investment results set forth below were calculated as described in the company's prospectus. The company's results will vary from time to time depending upon market conditions, the composition of the company's portfolio and operating expenses of the company, so that any investment results reported by the company should not be considered representative of what an investment in the company may earn in any future period. These factors and possible differences in calculation methods should be considered when comparing the company's investment results with those published for other mutual funds, other investment vehicles and unmanaged indices. The company's results also should be considered relative to the risks associated with the company's investment objective and policies. SELECTED SIGNIFICANT EVENTS DURING THE COMPANY'S LIFETIME - The company has compiled the investment results that follow notwithstanding the numerous economic, political and/or historical events that have occurred throughout the company's existence, including the depression, the 1935 civil war in Spain, a struggling economy in 1936, a recession in 1937, indications of war in 1938, a war in Europe in 1939, the fall of France in 1940, the attack on Pearl Harbor in 1941, wartime price controls in 1942, industry mobilizing in 1943, consumer goods shortages in 1944, the prediction of a post-war depression in 1945, the Dow Jones Average exceeding 200 in 1946, the beginning of the Cold War in 1947, the Berlin blockade in 1948, Russia exploding an atomic bomb in 1949, the Korean War in 1950, excess profits tax in 1951, the U.S. seizure of steel mills in 1952, Russia exploding a hydrogen bomb in 1953, the Dow Jones Average exceeding 300 in 1954, President Eisenhower's illness in 1955, the Suez crisis in 1956, Russia launching Sputnik in 1957, a recession in 1958, Castro seizing power in Cuba in 1959, Russia shooting down a U-2 plane in 1960, the building of the Berlin Wall in 1961, the Cuban missile crisis in 1962, President Kennedy's assassination in 1963, the Gulf of Tonkin in 1964, civil rights marches in 1965, escalation of the Vietnam war in 1966, Newark race riots in 1967, seizure of the USS Pueblo in 1968, a substantial market decline in 1969, invasion of Cambodia in 1970, wage-price freezes in 1971, the largest U.S. trade deficit in history in 1972, an energy crisis in 1973, the steepest market drop in 40 years in 1974, clouded economic prospects in 1975, slowing economic recovery in 1976, a market slump in 1977, escalation of interest rates in 1978, steep oil price increases in 1979, interest rates reaching all-time highs in 1980, the beginning of a steep recession in 1981, the worst recession in 40 years in 1982, the stock market reaching new highs in 1983, a record federal deficit in 1984, economic growth slowing in 1985, the Dow Jones Average nearing 2000 in 1986, a record-setting stock market decline in 1987, the fear of recession in 1988, the "junk" bond debacle in 1989, the Middle East Crisis in 1990 and a recession in 1991. The investment results set forth below were calculated as described in the company's prospectus. ICA VS. VARIOUS UNMANAGED INDICES
10-Year ICA DJIA/1/ S&P 500/2/ Average Periods Savings 1/1 -12/31 Account/3/ 1985 - 1994 + 261% + 349% + 282% + 77% 1984 - 1993 + 284 + 333 + 301 + 88 1983 - 1992 + 314 + 367 + 346 + 99 1982 - 1991 + 417 + 452 + 404 + 112 1981 - 1990 + 312 + 328 + 267 + 122 1980 - 1989 + 396 + 426 + 402 + 125 1979 - 1988 + 357 + 340 + 352 + 125 1978 - 1987 + 362 + 289 + 313 + 125 1977 - 1986 + 327 + 221 + 264 + 125 1976 - 1985 + 355 + 211 + 281 + 123 1975 - 1984 + 362 + 237 + 297 + 119 1974 - 1983 + 255 + 154 + 175 + 113 1973 - 1982 + 146 + 75 + 91 + 106 1972 - 1981 + 113 + 63 + 87 + 95 1971 - 1980 + 147 + 86 + 125 + 85 1970 - 1979 + 109 + 66 + 77 + 79 1969 - 1978 + 57 + 32 + 36 + 75 1968 - 1977 + 60 + 39 + 42 + 72 1967 - 1976 + 111 + 90 + 90 + 69 1966 - 1975 + 65 + 30 + 38 + 67 1965 - 1974 + 55 + 3 + 13 + 63 1964 - 1973 + 119 + 60 + 79 + 60 1963 - 1972 + 223 + 123 + 158 + 57 1962 - 1971 + 142 + 74 + 98 + 55 1961 - 1970 + 155 + 94 + 119 + 52 1960 - 1969 + 160 + 67 + 112 + 50
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial companies such as General Motors and General Electric. /2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial, transportation, public utilities and financial stocks and represents a large portion of the value of issues traded on the New York Stock Exchange. Selected issues traded on the American Stock Exchange are also included. /3/ 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. Savings accounts offer a guaranteed return of principal, but no opportunity for capital growth. During a portion of the period, the maximum rates paid on some savings deposits were fixed by law. THE BENEFITS OF SYSTEMATIC INVESTING IN ICA..........
An initial investment of $1,000 in ICA on January 1 would have grown to these amounts over the past 10, 20, 30, and 40 years: 10 years 20 years 30 years 40 years (1/1/85 - (1/1/75 - (1/1/65 - (1/1/55 - 12/31/94) 12/31/94) 12/31/94) 12/31/94) $ 3,607 $ 17,678 $ 28,973 $ 93,448 *****
$1,000 invested in ICA followed by annual $500 investments (all investments made on January 1) would have grown to these amounts over the past 10, 20, 30, 40 years: 10 years 20 years 30 years 40 years (1/1/85 - (1/1/75 - (1/1/65 - (1/1/55 - 12/31/94) 12/31/94) 12/31/94) 12/31/94) $ 11,046 $ 62,399 $ 158,444 $ 473,895 *****
$2,000 invested in ICA on January 1 of each year would have grown to these amounts over the past 5, 10, 20 and 30 years: 5 years 10 years 20 years 30 years (1/1/90 - (1/1/85 - (1/1/75 - (1/1/65 - 12/31/94) 12/31/94) 12/31/94) 12/31/94) $ 11,974 $ 36,969 $ 214,715 $ 577,599 SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM...
If you had invested Periods ... and taken all $10,000 in ICA 1/1-12/31 distributions in shares, this many years ago... your investment would Number have been worth this of Years much at December 31, 1994 Value 1 1994 $ 9,441 2 1993 - 1994 10,537 3 1992 - 1994 11,270 4 1991 - 1994 14,261 5 1990 - 1994 14,361 6 1989 - 1994 18,584 7 1988 - 1994 21,062 8 1987 - 1994 22,216 9 1986 - 1994 27,044 10 1985 - 1994 36,067 11 1984 - 1994 38,459 12 1983 - 1994 46,234 13 1982 - 1994 61,819 14 1981 - 1994 62,374 15 1980 - 1994 75,615 16 1979 - 1994 90,147 17 1978 - 1994 103,337 18 1977 - 1994 100,683 19 1976 - 1994 130,478 20 1975 - 1994 176,785 21 1974 - 1994 145,008 22 1973 - 1994 120,639 23 1972 - 1994 139,759 24 1971 - 1994 163,575 25 1970 - 1994 167,759 26 1969 - 1994 149,884 27 1968 - 1994 175,303 28 1967 - 1994 225,947 29 1966 - 1994 228,194 30 1965 - 1994 289,725
Results of a $10,000 investment in ICA/a/ with capital gain distributions taken in shares (For the lifetime of the company January 1, 1934 through December 31, 1994)
TOTAL VALUE ASSUMING CAPITAL VALUE ASSUMING DIVIDENDS REINVESTED DIVIDENDS IN CASH Year Dividends Value of Dividends Value of Ended Reinvested Investment Taken in Investment 12/31 During Year at Year-End Cash at Year-End 1934 --- $11,822 --- $11,822 1935 --- 21,643 --- 21,643 1936 $398 31,560 $398 31,042 1937 1,006 19,424 976 18,339 1938 181 24,776 170 23,174 1939 536 24,986 498 22,860 1940 891 24,384 806 21,460 1941 1,262 22,590 1,089 18,816 1942 1,186 26,376 969 20,893 1943 1,101 35,019 861 26,861 1944 1,242 43,193 942 32,130 1945 1,191 59,091 878 42,948 1946 1,775 57,692 1,277 40,686 1947 2,409 58,217 1,672 39,332 1948 2,685 58,430 1,785 37,714 1949 2,661 63,941 1,689 39,436 1950 3,152 76,618 1,911 45,185 1951 3,391 90,274 1,970 51,159 1952 3,535 101,293 1,974 55,305 1953 3,927 101,747 2,113 53,362 1954 4,104 158,859 2,127 80,780 1955 5,124 199,215 2,579 98,530 1956 5,608 220,648 2,748 106,303 1957 6,228 194,432 2,969 90,911 1958 6,546 281,479 3,028 128,040 1959 7,013 321,419 3,161 142,882 1960 8,139 335,998 3,582 145,597 1961 8,383 413,552 3,603 175,370 1962 9,122 358,800 3,831 148,178 1963 9,620 440,900 3,936 177,833 1964 10,708 512,591 4,285 202,346 1965 12,112 650,689 4,742 251,553 1966 15,516 657,093 5,946 248,034 1967 18,359 846,941 6,869 312,473 1968 22,628 990,640 8,270 356,572 1969 25,318 884,824 9,024 309,611 1970 27,305 908,018 9,438 307,421 1971 28,565 1,062,651 9,569 349,727 1972 29,917 1,231,087 9,750 394,701 1973 33,353 1,024,067 10,569 317,911
Results of a $10,000 investment in ICA (cont.)
TOTAL VALUE ASSUMING CAPITAL VALUE ASSUMING DIVIDENDS REINVESTED DIVIDENDS IN CASH Year Dividends Value of Dividends Value of Ended Reinvested Investment Taken in Investment 12/31 During Year at Year-End Cash at Year-End 1974 52,187 840,310 15,908 245,526 1975 49,800 1,137,660 14,318 317,655 1976 46,441 1,474,369 12,804 398,099 1977 49,838 1,436,402 13,279 374,307 1978 55,969 1,647,483 14,386 414,421 1979 69,960 1,963,310 17,347 475,669 1980 91,302 2,380,187 21,746 552,242 1981 115,901 2,401,091 26,420 530,864 1982 146,105 3,211,997 31,589 670,590 1983 147,156 3,859,712 30,264 774,518 1984 160,449 4,117,187 31,680 791,971 1985 174,890 5,491,890 33,152 1,017,904 1986 203,830 6,685,657 37,328 1,200,518 1987 267,489 7,049,178 47,452 1,220,928 1988 318,747 7,989,285 54,382 1,327,375 1989 370,835 10,338,589 60,741 1,652,751 1990 406,318 10,409,027 64,056 1,598,821 1991 320,422 13,171,892 48,721 1,969,876 1992 357,779 14,092,236 52,965 2,052,162 1993 374,395 15,729,365 54,005 2,234,153 1994 407,211 15,753,834/b/ 57,286 2,180,610/c/
/a/ Results reflect payment of a sales charge of 5.75% on the $10,000 investment. Thus, the net amount invested was $9,425. There is no sales charge on dividends reinvested or capital gain distributions taken in shares. Results do not take into account income and capital gain taxes. /b/ The total "cost" of this investment ($10,000 plus $4,513,221 in reinvested dividends) was $4,523,221. Total value includes reinvested dividends and capital gain distributions totaling $5,715,772 taken in shares in the years 1936-1994. /c/ Capital Value includes capital gain distributions taken in shares (total $1,117,858) but does not include the amount of dividends received in cash ($871,833). INVESTMENT COMPANY OF AMERICA December 31, 1994 INVESTMENT COMPANY OF AMERICA INVESTMENT PORTFOLIO-December 31, 1994
- ------------------------------------------ ---------- Percent of LARGEST INVESTMENT CATEGORIES Net Assets - ------------------------------------------ ---------- Services 19.88% Capital Equipment 15.06 Finance 13.81 LARGEST INDUSTRY HOLDINGS - ------------------------------------------ ---------- Banking 7.83% Telecommunications 7.07 Energy Sources 5.97 Data Processing & Reproduction 5.3 Broadcasting & Publishing 5.28 LARGEST INDIVIDUAL HOLDINGS - ------------------------------------------ ---------- Federal National Mortgage 2.14% Royal Dutch Petroleum 2.11 Philip Morris 2.09 International Business Machines 1.77 Caterpillar 1.71 Time Warner 1.65 Tele-Communications 1.38 BankAmerica 1.2 DuPont 1.2 WMX Technologies 1.12
- ----------------------------- ----- ------------------------------- ----- COMPANIES WHOSE EQUITY-TYPE SECURITIES WERE ADDED TO OR ELIMINATED FROM THE PORTFOLIO Companies Companies appearing in the portfolio eliminated from the portfolio since June 30, 1994 since June 30, 1994 - ----------------------------- ----- ------------------------------- ----- Alcan Aluminium Alcatel Alsthom Apple Computer American Cyanamid Archer Daniels Midland Anheuser-Busch Companies Canadian Pacific Broken Hill Proprietary Chemical Banking Commonwealth Edison Comerica Dow Chemical CS Holding Group ITT Dana Kimberly-Clark Georgia Pacific Loews Ingersoll-Rand Nissan Motor Limited Rohm and Haas National City Siemens Norfolk Southern Sun Microsystems Northrop Grumman Tektronix Parker Hannifin Woolworth Rockwell International Societe Nationale Elf Aquitaine Unicom United HealthCare Wachovia
INVESTMENT COMPANY OF AMERICA INVESTMENT PORTFOLIO, December 31, 1994
- ------------------------------------------ --------- --------- ------ Market Percent Number of Value of Net Equity-Type Securities Shares (millions) Assets - ------------------------------------------ --------- --------- ------ Energy - ------------------------------------------ --------- --------- ------ Energy Sources-5.97% Amoco Corp. 2,955,000 174.714 0.91 Atlantic Richfield Co. 175,000 17.806 0.09 British Petroleum Co. PLC (American Depositary Receipts) 250,000 19.969 0.1 Chevron Corp. 900,000 40.163 0.21 Mobil Corp. 400,000 33.7 0.17 Murphy Oil Corp. 750,000 31.875 0.17 Phillips Petroleum Co. 5,073,700 166.164 0.86 Royal Dutch Petroleum Co. (New York Registered Shares) 3,780,000 406.35 2.11 Societe Nationale Elf Aquitaine (American Depositary Receipts) 464,265 16.365 0.08 Texaco Inc. 1,180,000 70.652 0.37 TOTAL, Class B 1,200,000 69.76 0.36 Unocal Corp. 600,000 16.35 0.19 Unocal Corp., $3.50 convertible preferred/1/ 415,000 20.335 USX-Marathon Group 4,100,000 67.138 0.35 Utilities: Electric & Gas-1.76% Entergy Corp. 5,500,000 120.312 0.62 Houston Industries Inc. 1,100,000 39.188 0.2 Long Island Lighting Co. 5,240,000 80.565 0.42 Pacific Gas and Electric Co. 1,339,100 32.641 0.17 Texas Utilities Co. 283,692 9.078 0.05 Unicom Corp. 2,395,000 57.48 0.3 --------- ------ 1490.605 7.73 --------- ------ - ------------------------------------------ --------- --------- ------ Materials - ------------------------------------------ --------- --------- ------ Chemicals-1.45% E.I. du Pont de Nemours and Co. 4,100,000 230.625 1.2 Eastman Chemical Co. 400,000 20.2 0.1 Imperial Chemical Industries PLC (American Depositary Receipts) 100,000 4.65 0.02 Monsanto Co. 354,300 24.978 0.13 Forest Products & Paper-0.51% Georgia Pacific 950,000 67.925 0.35 International Paper Co. 400,000 30.15 0.16 Metals: Nonferrous-1.50% Alcan Aluminium Ltd. 1,000,000 25.375 0.13 Aluminum Co. of America 1,620,000 140.332 0.73 Inco Ltd. 1,964,300 56.228 0.29 Phelps Dodge Corp. 600,000 37.125 0.19 Western Mining Corp. Holdings Ltd. 5,205,894 30.11 0.16 Metals: Steel-0.74% Bethlehem Steel Corp./2/ 4,000,000 72 0.37 USX-U.S. Steel Group 2,000,000 71 0.37 Miscellaneous Materials-0.21% Freeport-McMoRan Inc. 1,000,000 17.75 Freeport-McMoRan Inc., $4.375 convertible 0.21 exchangeable preferred stock/1/ 500,000 23.5 --------- ------ 851.948 4.41 --------- ------ - ------------------------------------------ --------- --------- ------ Capital Equipment - ------------------------------------------ --------- --------- ------ Aerospace & Military Technology-1.79% Boeing Co. 2,100,000 98.175 0.51 Litton Industries, Inc./2/ 1,333,000 49.321 0.25 Northrop Grumman Corp. 900,000 37.8 0.2 Raytheon Co. 1,200,000 76.65 0.4 United Technologies Corp. 1,318,800 82.919 0.43 Data Processing & Reproduction-5.30% Apple Computer, Inc. 500,000 19.375 0.1 Compaq Computer Corp./2/ 5,250,000 207.375 1.07 Hewlett-Packard Co. 1,298,000 129.638 0.67 International Business Machines Corp. 4,645,000 341.408 1.77 Microsoft Corp./2/ 1,975,000 120.722 0.63 Novell, Inc./2/ 900,000 15.3 0.08 Tandem Computers Inc./2/ 1,225,000 20.978 0.11 Unisys Corp., $3.75 convertible preferred, Series A 350,000 11.112 0.06 Xerox Corp. 1,570,000 155.43 0.81 Electrical & Electronic-1.09% General Electric Co. 2,232,500 113.858 0.59 Honeywell Inc. 3,034,800 95.596 0.5 Electronic Components-1.89% Intel Corp. 1,850,000 117.706 0.61 Motorola, Inc. 1,600,000 92.6 0.48 Texas Instruments Inc. 2,050,000 153.494 0.8 Energy Equipment-1.10% Schlumberger Ltd. 3,350,000 168.756 0.88 Western Atlas Inc./2/ 1,133,000 42.629 0.22 Industrial Components-0.35% Dana Corp. 1,352,200 31.608 0.16 Rockwell International Corp. 1,000,000 35.75 0.19 Machinery & Engineering-3.54% Caterpillar Inc. 5,980,000 329.648 1.71 Cummins Engine Co., Inc. 1,041,800 47.141 0.25 Deere & Co. 1,500,000 99.375 0.52 Ingersoll-Rand Co. 500,000 15.75 0.08 Mannesmann AG 420,000 114.511 0.59 Parker Hannifin Corp. 400,000 18.2 0.09 Sundstrand Corp. 1,275,000 58.012 0.3 --------- ------ 2900.837 15.06 --------- ------ - ------------------------------------------ --------- --------- ------ Consumer Goods - ------------------------------------------ --------- --------- ------ Automobiles-1.95% Chrysler Corp., $4.625 convertible preferred, Series A/1/ 100,000 13.687 0.07 Daimler-Benz AG 110,000 54.154 0.37 Daimler-Benz AG (American Depositary Receipts) 330,000 16.253 Ford Motor Co., Class A 2,090,000 58.52 Ford Motor Co., $4.20 cumulative convertible 0.73 preferred, Series A 900,000 82.8 General Motors Corp. 2,700,000 114.075 0.59 Toyota Motor Corp. 1,760,000 37.071 0.19 Beverages & Tobacco-2.87% American Brands, Inc. 488,500 18.319 0.09 PepsiCo, Inc. 2,450,000 88.813 0.46 Philip Morris Companies Inc. 7,000,000 402.5 2.09 RJR Nabisco Holdings Corp./2/ 8,000,000 44 0.23 Food & Household Products-1.45% Archer Daniels Midland Co. 2,317,500 47.798 0.25 ConAgra, Inc. 1,400,000 43.75 0.23 CPC International Inc. 980,000 52.185 0.27 Nestle SA 90,000 85.803 0.44 Procter & Gamble Co. 800,000 49.6 0.26 Health & Personal Care-5.27% Abbott Laboratories 1,750,000 57.094 0.3 American Home Products Corp. 1,175,000 73.731 0.38 Bausch & Lomb Inc. 117,800 3.99 0.02 Baxter International Inc. 900,000 25.425 0.13 Bristol-Myers Squibb Co. 1,755,000 101.571 0.53 Johnson & Johnson 1,040,000 56.94 0.29 Eli Lilly & Co. 1,680,000 110.25 0.57 Merck & Co., Inc. 5,600,000 213.5 1.11 Pfizer Inc. 1,545,000 119.351 0.62 Schering-Plough Corp. 923,000 68.302 0.35 Upjohn Co. 1,550,000 47.663 0.25 Warner-Lambert Co. 1,800,000 138.6 0.72 Recreation & Other Consumer Products-0.45% Duracell International Inc. 1,554,300 67.418 0.35 Eastman Kodak Co. 400,000 19.1 0.1 Textiles & Apparel-0.13% VF Corp. 500,000 24.312 0.13 --------- ------ 2336.575 12.12 --------- ------ - ------------------------------------------ --------- --------- ------ Services - ------------------------------------------ --------- --------- ------ Broadcasting & Publishing-5.28% Capital Cities/ABC, Inc. 1,400,000 119.35 0.62 CBS Inc. 1,145,000 63.404 0.33 Gannett Co., Inc. 1,155,200 61.514 0.32 New York Times Co., Class A 3,350,000 74.119 0.38 Tele-Communications, Inc., Class A/2/ 12,240,900 266.24 1.38 Time Warner Inc. 9,081,000 318.97 1.65 Times Mirror Co., Series A 1,500,000 47.063 0.24 Tribune Co. 1,250,000 68.437 0.36 Business & Public Services-3.20% Browning-Ferris Industries, Inc. 500,000 14.188 0.08 Dun & Bradstreet Corp. 1,350,000 74.25 0.39 Federal Express Corp./2/ 1,250,000 75.312 0.39 Interpublic Group of Companies, Inc. 2,546,500 81.806 0.42 Pitney Bowes Inc. 2,020,000 64.135 0.33 United HealthCare Corp. 2,000,000 90.25 0.47 WMX Technologies, Inc. 8,250,000 216.563 1.12 Leisure & Tourism-1.28% Walt Disney Co. 4,254,600 196.243 1.02 McDonald's Corp. 1,700,000 49.725 0.26 Merchandising-1.22% American Stores Co. 2,100,000 56.438 0.29 Limited Inc. 1,400,000 25.375 0.13 May Department Stores Co. 900,000 30.375 0.16 Melville Corp. 1,400,000 43.225 0.22 Tandy Corp., $2.14 preferred equity redemption cumulative stock, Series C 1,100,000 41.525 0.22 Toys 'R' Us, Inc./2/ 1,250,000 38.125 0.2 Telecommunications-7.07% AirTouch Communications/2/ 2,250,000 65.531 0.34 Ameritech Corp. 1,900,000 76.712 0.4 AT&T Corp. 3,895,000 195.724 1.01 GTE Corp. 5,325,000 161.747 0.84 Hong Kong Telecommunications Ltd. (American Depositary Receipts) 1,500,000 28.688 0.15 LIN Broadcasting Corp./2/ 1,409,600 188.182 0.98 MCI Communications Corp. 9,225,000 169.509 0.88 Pacific Telesis Group 2,424,220 69.09 0.36 Southwestern Bell Corp. 300,000 12.113 0.06 Sprint Corp. 250,000 6.906 0.04 Telefonos de Mexico, SA de CV, Class L (American Depositary Receipts) 3,457,400 141.753 0.74 U S WEST, Inc. 1,750,000 62.344 0.32 Vodafone Group PLC (American Depositary 5,472,000 183.996 0.95 Receipts) Transportation: Airlines-0.65% AMR Corp./2/ 1,275,000 67.894 0.35 Delta Air Lines, Inc. 895,000 45.198 Delta Air Lines, Inc., $3.50 convertible 0.3 preferred, Class C 300,000 13.125 Transportation: Rail & Road-1.18% Burlington Northern Inc. 650,000 31.281 0.16 Conrail, Inc. 750,000 37.875 0.2 CSX Corp. 850,000 59.181 0.31 Norfolk Southern Corp. 300,000 18.188 0.09 Union Pacific Corp. 1,775,000 80.984 0.42 --------- ------ 3832.653 19.88 --------- ------ - ------------------------------------------ --------- --------- ------ Finance - ------------------------------------------ --------- --------- ------ Banking-7.83% H.F. Ahmanson & Co. 3,000,000 48.375 0.25 Banc One Corp. 8,272,500 209.915 1.09 BankAmerica Corp. 5,850,000 231.075 1.2 Bankers Trust New York Corp. 1,385,000 76.694 0.4 Chemical Banking Corp. 1,000,000 35.875 0.18 Citicorp 1,200,000 49.65 Citicorp, $5.375 convertible preferred, 0.51 Series 13 420,000 47.985 Comerica Inc. 1,000,000 24.375 0.13 CS Holding Group 60,000 25.688 0.13 Deutsche Bank AG 49,765 23.15 0.12 First Chicago Corp. 1,300,000 62.075 0.32 First Fidelity Bancorporation 700,000 31.412 0.16 First Interstate Bancorp 2,175,000 147.084 0.76 First Union Corp. 2,150,000 88.956 0.46 Great Western Financial Corp. 3,701,500 59.224 0.31 J.P. Morgan & Co. Inc. 1,900,000 106.4 0.55 National City Corp. 800,000 20.7 0.11 NBD Bancorp, Inc. 1,802,800 49.352 0.25 PNC Bank Corp. 4,592,000 97.006 0.5 SunTrust Banks, Inc. 800,000 38.2 0.2 U.S. Bancorp 400,000 8.95 0.05 Wachovia Corp. 882,700 28.467 0.15 Financial Services-2.93% American Express Co. 2,479,500 73.145 0.38 Federal National Mortgage Assn. 5,660,000 412.473 2.14 Student Loan Marketing Assn. 2,450,000 79.625 0.41 Insurance-3.05% Allstate Corp. 2,583,000 61.023 0.32 American General Corp. 1,210,000 34.183 0.18 American International Group, Inc. 1,215,000 119.07 0.62 CIGNA Corp. 200,000 12.65 0.07 CKAG Colonia Konzern AG 34,000 27.898 0.15 CKAG Colonia Konzern AG, preferred shares 3,627 1.851 General Re Corp. 950,000 117.562 0.61 Lincoln National Corp. 1,050,000 36.75 0.19 SAFECO Corp. 1,340,000 69.68 0.36 St. Paul Companies, Inc. 2,390,000 106.953 0.55 --------- ------ 2663.471 13.81 --------- ------ - ------------------------------------------ --------- --------- ------ Multi-Industry, Gold Mines & Miscellaneous - ------------------------------------------ --------- --------- ------ Multi-Industry-2.19% Canadian Pacific Ltd. 1,000,000 15 0.08 Hanson PLC 3,500,000 12.661 0.71 Hanson PLC (American Depositary Receipts) 6,850,000 123.3 Minnesota Mining and Manufacturing Co. 2,745,000 146.514 0.76 Tenneco Inc. 1,825,000 77.563 0.4 Textron Inc. 925,000 46.597 0.24 Gold Mines -0.32% Newmont Mining Corp. 1,700,000 61.2 0.32 Miscellaneous-1.75% Equity-type securities in initial period of acquisition 337.568 1.75 --------- ------ 820.403 4.26 --------- ------ - ------------------------------------------- --------- --------- ------ TOTAL EQUITY-TYPE SECURITIES (cost: $11,586.700 million) 14896.492 77.27 --------- --------- ------ Principal - ------------------------------------------ Amount Bonds & Notes (millions) - ------------------------------------------ --------- --------- ------ U.S. Treasuries-12.48% 7.50% January 1996 25 25.047 0.13 4.375% August 1996 400 380.564 1.97 4.375% November 1996 400 377.248 1.96 8.00% January 1997 175 175.903 0.91 6.875% April 1997 170 166.865 0.87 6.375% June 1997 230 222.921 1.16 5.75% October 1997 300 284.391 1.48 8.875% November 1997 25 25.66 0.13 4.75% August 1998 300 270.843 1.4 5.125% November 1998 300 272.907 1.42 8.875% November 1998 25 25.836 0.13 11.625% November 2004 30 37.575 0.19 7.125% February 2023 151.5 137.865 0.72 - ------------------------------------------ --------- ------ TOTAL BONDS & NOTES (cost: $2,532.848 million) 2403.625 12.47 - ------------------------------------------ --------- ------ TOTAL INVESTMENT SECURITIES (cost: $14,119.548 million) 17300.117 89.74 --------- ------ - ------------------------------------------ Short-Term Securities - ------------------------------------------ --------- --------- ------ U.S. Treasury Short-Term Securities-9.73% 4.25%-8.50% due 2/9-8/15/95 1,907.65 1877.73 9.73 --------- ------ TOTAL SHORT-TERM SECURITIES (cost: $1,884.691 million) 1877.73 9.73 Excess of cash and receivables over payables 101.746 0.53 --------- ------ TOTAL SHORT-TERM SECURITIES, CASH AND 1979.476 10.26 RECEIVABLES, NET OF PAYABLES --------- ------ NET ASSETS 19279.593 100 ========= ====== - ------------------------------------------ --------- --------- ------
Investment Company of America
- ----------------------------------------- ------------- ------------- Statement of Assets and Liabilities (dollars in at December 31, 1994 millions) - ---------------------------------------- ------------- ------------- Assets: Investment securities at market (cost: $14,119.548) $17,300.117 Short-term securities at market (cost: $1,884.691) 1,877.73 Cash 5.306 Receivables for- Sales of investments $36.065 Sales of fund's shares 51.84 Dividends and accrued interest 90.444 178.349 ------------- ------------- 19,361.502 Liabilities: Payables for- Purchases of investments 54.95 Repurchases of fund's shares 19.33 Management services 4.241 Accrued expenses 3.388 81.909 ------------- ------------- Net Assets at December 31, 1994- Equivalent to $17.67 per share on 1,090,856,938 shares of $1 par value capital stock outstanding (authorized capital stock--2,000,000,000 shares) $19,279.593 ============= Statement of Operations (dollars in for the year ended December 31, 1994 millions) - ----------------------------------------- ------------- ------------- Investment Income: Income: Dividends $425.346 Interest 232.625 $657.971 ------------- Expenses: Management services fee 50.698 Distribution expenses 38.084 Transfer agent fee 16.006 Reports to shareholders 2.074 Registration statement and prospectus 1.4 Postage, stationery and supplies 5.024 Directors' fees 0.408 Auditing and legal fees 0.098 Custodian fee 0.771 Taxes (other than federal income tax) 0.296 Other expenses 0.225 115.084 ------------- ------------- Net investment income 542.887 ------------- Realized Gain and Change in Unrealized Appreciation on Investments: Net realized gain 628.471 Net change in unrealized appreciation on investments: Beginning of year 4,314.584 End of year ........ 3,173.701 (1,140.883) ------------- ------------- Net realized gain and change in unrealized appreciation on investments (512.412) ------------- Net Increase in Net Assets Resulting from Operations $30.475 ============= - ---------------------------------------- ------------- ------------- Statement of Changes in Net Assets (dollars in millions) Year ended December 31 1994 1993 - ----------------------------------------- ------------- ------------- Operations: Net investment income $542.887 $531.116 Net realized gain on investments 628.471 692.804 Net change in unrealized appreciation on investments (1,140.883) 718.467 ------------- ------------- Net increase in net assets resulting from operations 30.475 1,942.387 ------------- ------------- Dividends and Distributions Paid to Shareholders: Dividends from net investment income (496.411) (445.535) Distributions from net realized gain on investments (628.912) (726.078) ------------- ------------- Total dividends and distributions (1,125.323) (1,171.613) ------------- ------------- Capital Share Transactions: Proceeds from shares sold: 149,158,039 and 212,849,472 shares, respectively 2,761.027 3,926.672 Proceeds from shares issued in reinvestment of net investment income dividends and distributions of net realized gain on investments: 56,628,397 and 55,417,050 shares, respectively 1,014.931 1,030.191 Cost of shares repurchased: 130,005,029 and 115,511,426 shares, respectively (2,406.547) (2,151.043) ------------- ------------- Net increase in net assets resulting from capital share transactions 1,369.411 2,805.82 ------------- ------------- Total Increase in Net Assets 274.563 3,576.594 Net Assets: Beginning of year 19,005.03 15,428.436 ------------- ------------- End of year (including undistributed net investment income: $227.698 and $181.222, respectively) $19,279.593 $19,005.03 ============= ============= See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS 1. The Investment Company of America (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The following paragraphs summarize the significant accounting policies consistently followed by the fund in the preparation of its financial statements: Equity-type securities are stated at market value based upon closing sales prices reported on recognized securities exchanges on the last business day of the year or, for listed securities having no sales reported and for unlisted securities, upon last-reported bid prices on that date. Non-convertible bonds and other long-term debt securities are valued at prices obtained from a bond-pricing service provided by a major dealer in bonds, when such prices are available; however, in circumstances where the investment adviser deems it appropriate to do so, such securities will be valued at the mean of their representative quoted bid and asked prices or, if such prices are not available, at the mean of such prices for securities of comparable maturity, quality and type. Short-term securities with original or remaining maturities in excess of 60 days are valued at the mean of their quoted bid and asked prices. Short-term securities with 60 days or less to maturity are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by the Valuation Committee of the Board of Directors. As is customary in the mutual fund industry, securities transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses from securities transactions are reported on an identified cost basis. Dividend and interest income is reported on the accrual basis. Discounts on securities purchased are amortized over the life of the respective securities. The fund does not amortize premiums on securities purchased. Dividends and distributions paid to shareholders are recorded on the ex-dividend date. Investment securities and other assets and liabilities denominated in non-U.S. currencies are recorded in the financial statements after translation into U.S. dollars utilizing rates of exchange on the last business day of the year. Purchases and sales of investment securities, income, and expenses are calculated using the prevailing exchange rate as accrued. The fund does not identify the portion of each amount shown in the fund's Statement of Operations under the caption "Realized Gain and Change in Unrealized Appreciation on Investments" that arises from changes in non-U.S. currency exchange rates. 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 $771,000 includes $128,000 that was paid by these credits rather than cash. 2. It is the fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net taxable income, including any net realized gain on investments, to its shareholders. Therefore, no federal income tax provision is required. As of December 31, 1994, net unrealized appreciation on investments for federal income tax purposes aggregated $3,190,524,000, of which $3,874,702,000 related to appreciated securities and $684,178,000 related to depreciated securities. During the year ended December 31, 1994, the fund realized, on a tax basis, a net capital gain of $628,399,000 on securities transactions. The cost of portfolio securities for federal income tax purposes was $15,987,323,000 at December 31, 1994. 3. The fee of $50,698,000 for management services was paid pursuant to an agreement with Capital Research and Management Company (CRMC), with which certain officers and directors of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees, accrued daily, based on an annual rate of 0.39% of the first $1 billion of 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; 0.258% of such assets in excess of $5 billion but not exceeding $8 billion; 0.246% of such assets in excess of $8 billion but not exceeding $13 billion; and 0.24% of such assets in excess of $13 billion. Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its average net assets annually for any activities primarily intended to result in sales of fund shares, provided the categories of expenses for which reimbursement is made are approved by the fund's Board of Directors. Fund expenses under the Plan include payments to dealers to compensate them for their selling and servicing efforts. During the year ended December 31, 1994, distribution expenses under the Plan were $38,084,000. As of December 31, 1994, accrued and unpaid distribution expenses were $3,206,000. American Funds Service Company (AFS), the transfer agent for the fund, was paid a fee of $16,006,000. American Funds Distributors, Inc. (AFD), the principal underwriter of the fund's shares, received $13,495,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's shares. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying statement of operations. Directors and Advisory Board members of the fund 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, 1994, aggregate amounts deferred were $61,900. 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/or AFD. No affiliated officers, directors or employees of CRMC, AFS or AFD received any remuneration directly from the fund. 4. Option warrants are outstanding, which may be exercised at any time for the purchase of 842,013 shares of the fund at approximately $5.242 per share. If all warrants had been exercised on December 31, 1994, the net assets of the fund would have been $19,284,006,000; the shares outstanding would have been 1,091,699,000; and the net asset value would have been equivalent to $17.66 per share. During the year ended December 31, 1994, 150 warrants were exercised for the purchase of 3,291 shares. 5. As of December 31, 1994, accumulated undistributed net realized gain on investments was $28,000 and additional paid-in capital was $14,787,309,000. The fund made purchases and sales of investment securities, excluding short-term securities, of $5,652,350,000 and $5,991,308,000, respectively, during the year ended December 31, 1994. Dividend income is recorded net of foreign taxes paid. For the year ended December 31, 1994, such foreign taxes amounted to $5,479,000. Net realized currency gains on dividends, interest, and withholding taxes reclaimable were $72,000 for the year ended December 31, 1994. INVESTMENT COMPANY OF AMERICA December 31, 1994
Per-Share Data and Ratios Year ended December 31 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- Net Asset Value, Beginning of Year $18.72 $17.89 $17.48 $14.52 $15.24 ------- ------- ------- ------- ------- Income from Investment Operations: Net investment income 0.51 0.54 0.49 0.51 0.57 Net realized and unrealized gain (loss) on investments -0.48 1.51 0.71 3.27 -0.48 ------- ------- ------- ------- ------- Total income from investment operations 0.03 2.05 1.2 3.78 0.09 ------- ------- ------- ------- ------- Less Distributions: Dividends from net investment income -0.48 -0.47 -0.47 -0.44 - -0.59 Distributions from net realized gains -0.6 -0.75 -0.32 -0.38 - -0.22 ------- ------- ------- ------- ------- Total distributions -1.08 -1.22 -0.79 -0.82 - -0.81 ------- ------- ------- ------- ------- Net Asset Value, End of Year $17.67 $18.72 $17.89 $17.48 $14.52 ======= ======= ======= ======= ======= Total Return* 0.0016 11.62% 6.99% 26.54% 0.0068 Ratios/Supplemental Data: Net assets, end of year (in millions) $19,280 $19,005 $15,428 $10,526 $5,923 Ratio of expenses to average net assets 0.006 0.0059 0.0058 0.0059 0.0055 Ratio of net income to average net assets 0.0283 0.0303 0.0306 0.0329 0.0395 Portfolio turnover - common stocks 17.94% 19.57% 7.23% 5.79% 7.48% Portfolio turnover - investment securities 31.08% 17.57% 9.73% 6.21% 10.94% *This was calculated without deducting a sales charge. The maximum sales charge is 5.75% of the fund's offering price.
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The Investment Company of America, Inc. In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the per-share data and ratios present fairly, in all material respects, the financial position of The Investment Company of America (the "Fund") at December 31, 1994, the results of its operations and the changes in its net assets and the per-share data and ratios for the periods indicated in conformity with generally accepted accounting principles. These financial statements and per-share data and ratios (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1994, by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. Los Angeles, California January 31, 1995 TAX INFORMATION (UNAUDITED) During the fiscal year ended December 31, 1994, 69% of the dividends paid by the fund from investment income earned qualified for the corporate dividends-received deduction. Of those dividends, 32% was derived from interest on direct U.S. Treasury obligations. This information is given to meet certain requirements of the Internal Revenue Code. OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND MANAGEMENT COMPANY 333 South Hope Street Los Angeles, California 90071-1443 135 South State College Boulevard Brea, California 92621-5804 TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS American Funds Service Company P.O. Box 2205 Brea, California 92622-2205 P.O. Box 659522 San Antonio, TX 78265-9522 P.O. Box 6007 Indianapolis, Indiana 46206-6007 P.O. Box 2280 Norfolk, Virginia 23501-2280 CUSTODIAN OF ASSETS The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, New York 10081-0001 COUNSEL O'Melveny & Myers 400 South Hope Street Los Angeles, California 90071-2899 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 400 South Hope Street Los Angeles, California 90071-2889 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 securities dealer or financial planner, or call the fund's transfer agent, toll free, at 800/421-0180. This report is for the information of shareholders of The Investment Company of America, 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, 1995, this report must be accompanied by an American Funds Group Statistical Update for the most recently completed calendar quarter. Litho in USA BDA/GRS Lit. No. ICA-011-0295 -----END PRIVACY-ENHANCED MESSAGE-----