N-30D 1 ica.txt [logo - American Funds(SM)] The right choice for the long term(SM) ICA THE INVESTMENT COMPANY OF AMERICA [color photograph of a hand writing on a note pad] Semi-annual report for the six months ended June 30, 2002 ICA(SM) The Investment Company of America(R) is one of the 29 American Funds,(SM) the nation's third-largest mutual fund family. For seven decades, Capital Research and Management Company,(SM) the American Funds adviser, has invested with a long-term focus based on thorough research and attention to risk. ICA seeks long-term growth of capital and income, placing greater emphasis on future dividends than on current income. 2002 RESULTS AT A GLANCE For the six months ended June 30 (with dividends and capital gain distributions reinvested)
ICA Standard & Poor's Lipper Inc. Growth & Income 500 Composite Index Funds Average* Income return 0.92% 0.79% n/a Capital return -8.15% -13.93% n/a Total return -7.23% -13.14% -10.31%
* Average of 1,144 growth-and-income funds. Lipper averages do not reflect the effects of sales charges. Fund results in this report were calculated for Class A shares at net asset value (without a sales charge) unless otherwise indicated. Here are the returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2002:
1 YEAR 5 YEARS 10 YEARS CLASS A SHARES Reflecting 5.75% maximum sales charge Total return -15.38% +36.48% +201.12% Average annual compound return - +6.42% +11.65%
The fund's 30-day yield for Class A shares as of July 31, 2002, calculated in accordance with the Securities and Exchange Commission formula, was 2.11%. Results for other share classes can be found on page 3. Please see the back cover for important information about other share classes. For the most current investment results, please refer to americanfunds.com. FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. INVESTING OUTSIDE THE UNITED STATES IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS AND POLITICAL INSTABILITY, WHICH ARE DETAILED IN THE FUND'S PROSPECTUS. FELLOW SHAREHOLDERS: ICA lost ground in the first half of 2002 but fared better than the overall U.S. stock market, now into its third year of generally declining prices. For the six months ended June 30, the fund had a negative return of 7.2%, assuming reinvestment of the 11-cents-a-share capital gain distribution in March and 13-cents-a-share income dividends paid in March and June. By contrast, Standard & Poor's 500 Composite Index dropped 13.1%. The 12-month comparison was similar, with ICA off 10.2% and the S&P down 18.0%. The continued sell-off suggests that air is still hissing from the stock market bubble which ballooned in the late 1990s. At the same time, amid an economic slowdown, corporate earnings have suffered their biggest decline in decades, exacerbated by the growing number of companies whose reported earnings have been called into question by accounting irregularities. EXPERIENCE AND A LONG-TERM PERSPECTIVE As has been the case with every major stock market decline of the past three decades, ICA's long-term investment outlook and management approach have helped it escape the worst of the market's losses. The fund invests with an emphasis on thorough research and attention to risk. It seeks to identify and invest in companies that offer solid opportunities for long-term capital appreciation and the promise of growing dividends. The steady stream of cash offered by dividends can blunt an investment's downside and provide tangible evidence of a company's health. The fund is managed by nine portfolio counselors who average nearly a quarter-century of investment experience. Each is responsible for a portion of the fund's portfolio. Known as the multiple portfolio counselor system, this process combines the best attributes of individualism and teamwork, allowing the counselors to interact with one another while following their own highest investment convictions. ICA's research analysts directly manage another segment. This combination of experience, diversity and long-term view has enabled ICA to avoid most - though by no means all - of the market's recent nasty surprises. The fund holds more than 200 securities, which has limited the impact of individual disappointments. In fact, most of ICA's largest holdings did better than the overall market in the latest period. [Begin Sidebar] Resilience in a bear market: ICA vs. the S&P 500 March 24, 2000 - June 30, 2002 (with dividends reinvested) [begin bar chart]
ICA -11.7% S&P 500 -33.0%
[end bar chart] [End Sidebar] [Begin Sidebar] "Painstaking research has been ICA's hallmark for nearly seven decades." [End Sidebar] PROMOTING RESPONSIBLE CORPORATE GOVERNANCE Corporate bankruptcies and allegations of improper accounting have led to calls for greater transparency and accountability in corporate America. We support these efforts and believe they will benefit investors in the years ahead. Questioning corporate practices is nothing new for ICA's portfolio counselors and analysts. Their research goes well beyond the financial documents. They question executives personally, talk with lower-level employees, bankers, suppliers and competitors. This scrutiny continues after we make an investment. We voice concerns to management and use our shares to vote against policies that are not in the best interests of our investors. Such painstaking research and proactive relationships with management have been the hallmark of the fund's adviser, Capital Research and Management Company, since ICA's inception nearly seven decades ago. THE ROAD AHEAD The stock market continued to decline steeply in the weeks following the close of the six-month period. In such an environment, it is important to maintain a long-term view, as we do. Given the size of the speculative bubble of the late 1990s, we expect an extended period for this recovery. That said, the U.S. economy remains resilient. Efforts to curb the recent excesses of the financial markets show that our system works. The market sell-off is presenting attractive opportunities for long-term investments. We will continue to focus on finding those opportunities on your behalf. Sincerely, /s/ R. Michael Shanahan R. Michael Shanahan Chairman /s/ James F. Rothenberg James F. Rothenberg President August 9, 2002 JON LOVELACE has been named chairman emeritus of ICA. We can't thank him enough for his 31 years of distinguished leadership as only the second chairman in the fund's history. Mike Shanahan, president of the fund, has been elected chairman. Jim Rothenberg, executive vice-president, has been elected president. They each have been with the fund's adviser, Capital Research and Management Company, for more than 30 years. OTHER SHARE CLASS RESULTS unaudited
CLASS B, CLASS C, CLASS F, CLASS 529 AND CLASS R RETURNS FOR PERIODS ENDED JUNE 30, 2002: 1 YEAR LIFE OF CLASS CLASS B SHARES Reflecting applicable contingent deferred sales -15.23% -4.82%(1) charge (CDSC), maximum of 5%, payable only if shares are sold within six years of purchase Not reflecting CDSC -10.90% -3.28%(1) CLASS C SHARES Reflecting CDSC, maximum of 1%, payable only if -11.88% -6.08%(2) shares are sold within one year of purchase Not reflecting CDSC -11.02% -6.08%(2) CLASS F SHARES Not reflecting annual asset-based fee charged by -10.30% -5.32%(2) sponsoring firm CLASS 529 AND CLASS R SHARES Results for Class 529 and Class R shares are not shown because of the brief time between their introductions on February 15, 2002 and May 15, 2002, respectively, and the end of the period.
(1) Average annual compound return from March 15, 2000, when Class B shares first sold. (2) Average annual compound return from March 15, 2001, when Class C and Class F shares first sold. Percent of net Largest equity holdings assets Philip Morris 3.20 % Viacom 2.37 Royal Dutch Petroleum/"Shell" Transport and Trading 2.02 Fannie Mae 1.99 Eli Lilly 1.61 Lowe's 1.54 Pharmacia 1.53 J.P. Morgan Chase 1.47 American International Group 1.30 Bank of America 1.26 Percent of net Largest Investment Catergories assets Energy 7.77 % Food, Beverage & Tobacco 7.56 Pharmaceuticals & Biotechnology 6.94 Technology Hardware & Equipment 6.21 Capital Goods 5.30 Percent of net Largest Industry Holdings assets Pharmaceuticals 6.88 % Oil & Gas 6.51 Diversified Financials 4.76 Diversified Telecommunication Services 4.42 Media 4.21
The Investment Company of America Investment portfolio, June 30, 2002 Shares or Market Principal value Equity securities (Common and preferred and Amount (000) convertible debentures) ENERGY ENERGY EQUIPMENT & SERVICES - 1.26% Baker Hughes Inc. 10,225,000$ 340,390 Halliburton Co. 2,000,000 31,880 Schlumberger Ltd. 6,762,400 314,452 OIL & GAS - 6.51% ChevronTexaco Corp. 6,970,000 616,845 Conoco Inc. 3,000,000 83,400 EnCana Corp. (formerly PanCanadian Energy Corp.) 1,573,200 48,140 ENI SpA 28,500,000 453,609 Exxon Mobil Corp. 3,250,000 132,990 Marathon Oil Corp. (formerly USX-Marathon Group) 12,550,000 340,356 Murphy Oil Corp. 2,075,000 171,187 Phillips Petroleum Co. 2,550,000 150,144 Royal Dutch Petroleum Co. (New York registered) 16,300,000 900,901 "Shell" Transport and Trading Co., PLC (ADR) 4,500,000 202,545 (New York registered) TOTAL FINA ELF SA, Class B 900,000 146,406 Unocal Corp. 8,190,000 302,539 4,235,784 MATERIALS CHEMICALS - 1.42% Air Products and Chemicals, Inc. 200,000 10,094 Dow Chemical Co. 18,730,900 643,968 Rohm and Haas Co. 3,000,000 121,470 METALS & MINING - 2.11% Alcoa Inc. 11,576,100 383,748 Barrick Gold Corp. 9,250,000 175,657 BHP Billiton Ltd. 9,412,655 54,602 Newmont Mining Corp. 8,000,000 210,640 Phelps Dodge Corp. (1) 1,000,000 41,200 Placer Dome Inc. 9,750,000 109,297 Rio Tinto PLC 4,000,000 73,489 WMC Ltd. 19,804,346 101,388 PAPER & FOREST PRODUCTS - 1.54% Georgia-Pacific Corp., Georgia-Pacific Group 9,599,298 235,951 International Paper Co. 5,997,235 261,359 Weyerhaeuser Co. 5,375,000 343,194 2,766,057 CAPITAL GOODS AEROSPACE & DEFENSE - 1.69% Boeing Co. 2,763,800 124,371 Honeywell International Inc. 2,500,000 88,075 Lockheed Martin Corp. 2,600,000 180,700 Raytheon Co. 11,852,535 482,991 United Technologies Corp. 684,000 46,444 CONSTRUCTION & ENGINEERING - 0.06% Fluor Corp. 824,300 32,106 INDUSTRIAL CONGLOMERATES - 2.01% 3M Co. (formerly Minnesota Mining and Manufacturing Co.) 1,570,000 193,110 General Electric Co. 12,250,000 355,862 Siemens AG 4,600,000 276,516 Tyco International Ltd. 20,150,000 272,226 MACHINERY - 1.54% Caterpillar Inc. 4,300,000 210,485 Cummins Inc. 1,700,000 56,270 Deere & Co. 6,663,400 319,177 Illinois Tool Works Inc. 2,200,000 150,260 Parker Hannifin Corp. 2,200,000 105,138 2,893,731 COMMERCIAL SERVICES & SUPPLIES COMMERCIAL SERVICES & SUPPLIES - 0.97% Cendant Corp. (1) 2,500,000 39,700 Pitney Bowes Inc. 3,515,100 139,620 Sabre Holdings Corp., Class A (1) 5,484,680 196,352 Waste Management, Inc. 5,950,000 154,997 530,669 TRANSPORTATION AIR FREIGHT & LOGISTICS - 0.28% FedEx Corp. 2,870,000 153,258 AIRLINES - 0.33% AMR Corp. (1) 2,000,000 33,720 Delta Air Lines, Inc. 942,100 18,842 Southwest Airlines Co. 8,000,000 129,280 ROAD & RAIL - 0.21% Burlington Northern Santa Fe Corp. 2,900,000 87,000 Canadian Pacific Railway Ltd. 1,150,000 28,198 450,298 AUTOMOBILES & COMPONENTS AUTOMOBILES - 1.43% Ford Motor Co. 2,500,000 40,000 Ford Motor Co. Capital Trust II 6.50% cumulative $1,400,000 78,750 convertible trust preferred 2032 General Motors Corp. 9,750,000 521,137 General Motors Corp., Series B, 5.25% convertible $2,441,000 64,125 debentures 2032 Honda Motor Co., Ltd. 1,825,000 74,141 778,153 CONSUMER DURABLES & APPAREL HOUSEHOLD DURABLES - 0.19% Newell Rubbermaid Inc. 3,000,000 105,180 LEISURE EQUIPMENT & PRODUCTS - 0.21% Eastman Kodak Co. 2,500,000 72,925 Fuji Photo Film Co., Ltd. 1,354,000 43,802 TEXTILES, APPAREL & LUXURY GOODS - 0.37% NIKE, Inc., Class B 3,735,900 200,431 422,338 HOTELS, RESTAURANTS & LEISURE HOTELS, RESTAURANTS & LEISURE - 0.64% Carnival Corp. 7,447,100 206,210 McDonald's Corp. 5,000,000 142,250 348,460 MEDIA MEDIA - 4.21% AOL Time Warner Inc. (1) 26,100,000 383,931 Clear Channel Communications, Inc. (1) 4,746,000 151,967 Comcast Corp., Class A, nonvoting (1) 3,000,000 71,520 Dow Jones & Co., Inc. 1,687,000 81,735 General Motors Corp., Class H (1) 2,200,000 22,880 Interpublic Group of Companies, Inc. 7,701,900 190,699 Knight-Ridder, Inc. 550,500 34,654 Liberty Media Corp., Class A (1) 7,000,000 70,000 Viacom Inc., Class A (1) 2,392,800 106,384 Viacom Inc., Class B, nonvoting (1) 26,686,900 1,184,098 2,297,868 RETAILING MULTILINE RETAIL - 0.76% Dollar General Corp. 7,530,900 143,313 Kohl's Corp. (1) 2,500,000 175,200 May Department Stores Co. 3,000,000 98,790 SPECIALTY RETAIL - 2.59% AutoZone, Inc. (1) 708,500 54,767 Gap, Inc. 7,000,000 99,400 Limited Brands, Inc. (formerly Limited Inc.) 19,800,000 421,740 Lowe's Companies, Inc. 18,430,000 836,722 1,829,932 FOOD & DRUG RETAILING FOOD & DRUG RETAILING - 0.89% Albertson's, Inc. 6,666,500 203,062 Walgreen Co. 7,220,000 278,909 481,971 FOOD, BEVERAGE & TOBACCO BEVERAGES - 1.64% Anheuser-Busch Companies, Inc. 3,000,000 150,000 Coca-Cola Co. 4,750,000 266,000 PepsiCo, Inc. 9,857,700 475,141 FOOD PRODUCTS - 2.28% ConAgra Foods, Inc. 2,000,000 55,300 General Mills, Inc. 6,000,000 264,480 H.J. Heinz Co. 5,990,900 246,226 Sara Lee Corp. 12,116,100 250,076 Unilever NV (New York registered) 6,575,000 426,060 TOBACCO - 3.64% Philip Morris Companies Inc. 40,000,000 1,747,200 R.J. Reynolds Tobacco Holdings, Inc. 4,461,666 239,815 4,120,298 HOUSEHOLD & PERSONAL PRODUCTS HOUSEHOLD PRODUCTS - 0.34% Kimberly-Clark Corp. 3,022,000 187,364 PERSONAL PRODUCTS - 0.67% Avon Products, Inc. 5,200,000 271,648 Gillette Co. 2,700,000 91,449 550,461 HEALTH CARE EQUIPMENT & SERVICES HEALTH CARE EQUIPMENT & SUPPLIES - 0.46% Applera Corp. - Applied Biosystems Group 5,170,500 100,773 Becton, Dickinson and Co. 1,500,000 51,675 Guidant Corp. (1) 3,361,700 101,624 HEALTH CARE PROVIDERS & SERVICES - 0.68% Aetna Inc. 5,000,000 239,850 HCA Inc. 2,000,000 95,000 IMS Health Inc. 1,900,000 34,105 623,027 PHARMACEUTICALS & BIOTECHNOLOGY BIOTECHNOLOGY - 0.06% Genentech, Inc. (1) 1,000,000 33,500 PHARMACEUTICALS - 6.88% Abbott Laboratories 2,500,000 94,125 AstraZeneca PLC 13,910,900 578,243 AstraZeneca PLC (ADR) 199,000 8,159 Bristol-Myers Squibb Co. 7,957,600 204,510 Eli Lilly and Co. 15,605,000 880,122 Johnson & Johnson 606,100 31,675 Merck & Co., Inc. 1,700,000 86,088 Novartis AG 1,366,000 60,189 Novartis AG (ADR) 1,121,556 49,158 Pfizer Inc 17,950,000 628,250 Pharmacia Corp. 22,310,000 835,509 Schering-Plough Corp. 3,700,000 91,020 Wyeth (formerly American Home Products Corp.) 3,977,800 203,663 3,784,211 BANKS BANKS - 4.13% Bank of America Corp. 9,794,240 689,123 BANK ONE CORP. 7,415,000 285,329 Comerica Inc. 750,000 46,050 FleetBoston Financial Corp. 5,050,000 163,367 National City Corp. 7,000,000 232,750 Sumitomo Mitsui Banking Corp. 13,000,000 63,571 Toronto-Dominion Bank 4,848,900 115,079 Wachovia Corp. 2,010,000 76,742 Washington Mutual, Inc. 8,000,000 296,880 Wells Fargo & Co. 5,653,000 282,989 2,251,880 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIALS - 4.76% Fannie Mae 14,721,300 1,085,696 Freddie Mac 1,800,000 110,160 Household International, Inc. 8,550,000 424,935 J.P. Morgan Chase & Co. 23,650,000 802,208 SLM Corp. (formerly USA Education Inc.) 1,800,000 174,420 2,597,419 INSURANCE INSURANCE - 3.96% Allstate Corp. 12,550,000 464,099 American International Group, Inc. 10,363,900 707,129 Aon Corp. 3,400,000 100,232 Berkshire Hathaway Inc., Class A (1) 1,500 100,200 Chubb Corp. 675,000 47,790 Hartford Financial Services Group, Inc. 3,400,000 202,198 Jefferson-Pilot Corp. 3,300,000 155,100 Lincoln National Corp. 2,000,000 84,000 Marsh & McLennan Companies, Inc. 287,100 27,734 SAFECO Corp. 4,300,000 132,827 St. Paul Companies, Inc. 3,519,700 136,987 2,158,296 SOFTWARE & SERVICES IT CONSULTING & SERVICES - 0.59% Computer Sciences Corp. (1) 3,178,300 151,923 Electronic Data Systems Corp. 4,500,000 167,175 SOFTWARE - 0.89% Microsoft Corp. (1) 7,597,300 415,572 Oracle Corp. (1) 7,350,000 69,604 804,274 TECHNOLOGY HARDWARE & EQUIPMENT COMMUNICATIONS EQUIPMENT - 1.26% Cisco Systems, Inc. (1) 18,470,000 257,657 Corning Inc. (1) 7,876,000 27,960 Motorola, Inc. 4,500,000 64,890 Motorola, Inc. 7.00% convertible preferred 2004, units 2,400,000 110,088 Nokia Corp. (ADR) 15,670,000 226,902 COMPUTERS & PERIPHERALS - 1.74% Dell Computer Corp. (1) 2,716,450 71,008 EMC Corp. (1) 5,500,000 41,525 Fujitsu Ltd. 6,550,000 45,773 Hewlett-Packard Co. (acquired Compaq Computer Corp.) 14,822,500 226,488 International Business Machines Corp. 7,165,000 515,880 Sun Microsystems, Inc. (1) 8,990,000 45,040 ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.74% Agilent Technologies, Inc. (1) 2,500,000 59,125 Agilent Technologies, Inc. 3.00% convertible $4,445,000 4,539 debentures 2021 (2) (3) Sanmina-SCI Corp. (1) 11,850,000 74,774 Solectron Corp. (1) 21,900,000 134,685 Solectron Corp. 7.25% convertible preferred 2004, units 4,000,000 71,440 Thermo Electron Corp. (1) 3,432,000 56,628 SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.47% Altera Corp. (1) 10,500,000 142,800 Applied Materials, Inc. (1) 5,470,000 104,039 Intel Corp. 2,140,000 39,098 Linear Technology Corp. 3,350,000 105,291 LSI Logic Corp. (1) 2,200,000 19,250 Maxim Integrated Products, Inc. (1) 2,600,000 99,658 Micron Technology, Inc. (1) 1,500,000 30,330 PMC-Sierra, Inc. (1) 2,000,000 18,540 Taiwan Semiconductor Manufacturing Co. Ltd. (1) 80,300,000 163,681 Texas Instruments Inc. 23,360,000 553,632 Xilinx, Inc. (1) 3,250,000 72,898 3,383,619 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 4.42% ALLTEL Corp. 6,450,000 303,150 AT&T Corp. 56,400,000 603,480 Deutsche Telekom AG 6,100,000 57,462 SBC Communications Inc. 19,564,700 596,723 Sprint FON Group 35,290,600 374,433 Telefonos de Mexico, SA de CV, Class L (ADR) 3,000,000 96,240 Verizon Communications Inc. 9,480,600 380,646 WIRELESS TELECOMMUNICATION SERVICES - 0.62% America Movil SA de CV, Series L (ADR) 1,199,300 16,071 AT&T Wireless Services, Inc. (1) 35,384,300 206,998 Vodafone Group PLC (ADR) 8,500,000 116,025 2,751,228 UTILITIES ELECTRIC UTILITIES - 2.48% Ameren Corp. 2,000,000 86,020 American Electric Power Co., Inc. 3,900,000 156,078 Consolidated Edison, Inc. 166,900 6,968 Dominion Resources, Inc. 5,731,912 379,453 Edison International (1) 9,380,500 159,469 FPL Group, Inc. 2,029,300 121,738 Pinnacle West Capital Corp. 2,490,000 98,355 Southern Co. 4,386,500 120,190 TXU Corp. 4,400,000 226,820 GAS UTILITIES - 0.17% El Paso Natural Gas Co. 4,450,000 91,715 MULTI-UTILITIES & UNREGULATED POWER - 0.81% Duke Energy Corp. 11,466,700 356,614 Williams Companies, Inc. 14,350,000 85,957 1,889,377 Miscellaneous Miscellaneous - 1.17% Other equity securities in initial period of acquisition 636,419 Total equity securities (cost: $34,334,891,000) 42,585,770 Principal Market Amount value Corporate bonds & notes (000) (000) AUTOMOBILES & COMPONENTS AUTOMOBILES - 0.30% Ford Motor Credit Co. 6.875% 2006 $30,000 $30,640 General Motors Acceptance Corp.: 6.15% 2007 30,000 30,292 6.875% 2011 50,000 49,561 7.25% 2011 50,000 51,138 161,631 HEALTH CARE EQUIPMENT & SERVICES HEALTH CARE EQUIPMENT & SERVICES - 0.06% Columbia/HCA Healthcare Corp. 6.91% 2005 15,000 15,445 HCA Inc. 7.125% 2006 15,000 15,590 31,035 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIALS - 0.13% Capital One Financial Corp.: 7.25% 2006 17,385 16,830 8.75% 2007 4,750 4,785 Household Finance Corp. 5.75% 2007 50,000 49,457 71,072 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 1.29% AT&T Corp.: (2) 6.50% 2006 68,365 59,811 7.30% 2011 181,600 149,549 Deutsche Telekom International Finance B.V. 8.125% 2012 20,000 19,446 VoiceStream Wireless Corp. 10.375% 2009 50,000 47,467 Sprint Capital Corp.: 5.875% 2004 70,373 61,049 7.90% 2005 (2) 237,710 204,431 7.125% 2006 5,000 4,396 8.375% 2012 (2) 197,500 161,930 WIRELESS TELECOMMUNICATION SERVICES - 0.23% AT&T Wireless Services, Inc.: 7.35% 2006 10,000 8,325 7.50% 2007 105,000 90,345 8.125% 2012 30,000 24,459 831,208 UTILITIES MULTI-UTILITIES & UNREGULATED POWER - 0.03% The Williams Companies, Inc.: 6.625% 2004 3,550 2,974 8.125% 2012 (2) 5,450 4,571 Williams Holdings of Delaware, Inc. 6.50% 2008 11,000 8,699 16,244 Total corporate bonds & notes (cost: $1,213,770,000) 1,111,190 U.S. Treasury & agency obligations FEDERAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 6.62% Fannie Mae 6.00%-6.50% due 4/1/2017-5/1/2032 (4) 3,514,230 3,609,884 NON-PASS-THROUGH OBLIGATIONS - 2.95% Fannie Mae 5.25%-7.125% due 8/15/2004-5/15/2011 1,316,000 1,412,440 Freddie Mac 7.00% due 7/15/2005 183,000 200,392 5,222,716 U.S. TREASURY NOTES & BONDS U.S. TREASURY NOTES & BONDS - 3.29% 4.25% March 2003 580,000 590,301 5.25% August 2003 580,000 600,068 3.00% February 2004 600,000 603,492 1,793,861 Total U.S. Treasury & Agency (cost: $6,891,203,000) 7,016,577 Market value Short-term securities (000) U.S. Treasuries & other federal agencies - 5.78% Fannie Mae 1.67%-2.02% due 7/9-11/27/2002 1,452,084 1,447,177 Federal Farm Credit Bank 1.86%-2.00% due 9/10-12/3/2002 95,000 94,474 Federal Home Loan Banks 1.725%-2.04% due 7/10-12/16/2002 609,896 607,619 Freddie Mac 1.67%-1.89% due 7/8-12/5/2002 816,607 814,151 U.S. Treasury Bills 1.705%-1.85% due 8/1-9/12/2002 194,100 193,674 Corporate short-term notes - 1.48% Abbott Laboratories Inc. 1.75%-1.76% due 71,400 71,300 7/18-8/20/2002 (2) American Express Credit Corp. 1.76% due 7/1/2002 50,000 49,998 American General Finance Corp. 1.78% due 7/22/2002 50,000 49,946 Archer Daniels Midland Co. 1.76% due 8/27/2002 (2) 20,000 19,943 Bank of America Corp. 1.76% due 8/19/2002 25,000 24,939 Citicorp 1.76%-1.79% due 7/11-9/17/2002 98,100 97,943 Colgate-Palmolive Co. 1.75% due 7/19/2002 (2) 17,000 16,984 Gannett Co. 1.75%-1.78% due 7/2-7/26/2002 (2) 70,500 70,455 General Dynamics Corp. 1.75% due 7/16/2002 (2) 25,000 24,981 General Electric Capital Corp. 1.78%-1.93% 59,600 59,565 due 7/1-7/15/2002 Gillette Co. 1.74%-1.75% due 7/19-9/9/2002 (2) 89,100 88,937 Johnson & Johnson 1.75% due 10/2-10/17/2002 (2) 58,300 58,003 Medtronic Inc. 1.74%-1.75% due 7/3-7/12/2002 (2) 30,000 29,990 Pfizer Inc 1.73%-1.75% due 7/8-7/15/2002 (2) 41,945 41,923 Procter & Gamble Co. 1.74% due 7/23/2002 (2) 50,000 49,944 Wells Fargo & Co. 1.76% due 8/20/2002 50,000 49,875 Certificates of deposit - 0.09% Mellon Bank NA 1.77% due 7/11/2002 50,000 50,000 Total short-term securities (cost: $4,011,628,000) 4,011,821 Total investment securities (cost: $46,451,492,000) 54,725,358 Non-U.S. currency - 0.02% New Taiwanese Dollar (cost:$8,050,000) NT$276,931 8,301 Excess of payables over cash and receivables (189,550) Net assets $54,544,109 (1) Non-income-producing security. (2) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. (3) Coupon rate may change periodically. (4) Pass-through security backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturity is shorter than the stated maturity. ADR = American Depositary Receipts See Notes to Financial Statements
Financial statements Statement of assets and liabilities unaudited at June 30, 2002 (dollars and shares in thousands, except per-share amounts) Assets: Investment securities at market: (cost: $46,451,492) $54,725,358 Cash denominated in non-U.S. currencies (cost: $8,050) 8,301 Cash 108,900 Receivables for: Sales of investments $98,350 Sales of fund's shares 79,930 Dividends and interest 177,693 355,973 55,198,532 Liabilities: Payables for: Purchases of investments 559,838 Repurchases of fund's shares 65,646 Investment advisory services 11,049 Services provided by affiliates 15,449 Deferred Directors' and Advisory Board compensation 1,868 Other fees and expenses 573 654,423 Net assets at June 30, 2002 $54,544,109 Net assets consist of: Capital paid in on shares of capital stock $44,977,578 Undistributed net investment income 122,769 Undistributed net realized gain 1,169,259 Net unrealized appreciation 8,274,503 Net assets at June 30, 2002 $54,544,109
Authorized shares of Net asset capital stock - Shares value per $.001 par value Net assets outstanding share (1) Class A 2,500,000 $51,402,631 1,967,668 $26.12 Class B 1,250,000 1,760,307 67,560 26.06 Class C 250,000 886,519 34,064 26.02 Class F 250,000 330,347 12,654 26.11 Class 529-A 325,000 83,706 3,205 26.12 Class 529-B 75,000 21,166 811 26.11 Class 529-C 150,000 24,852 952 26.11 Class 529-E 75,000 2,336 89 26.11 Class R-1 75,000 89 3 26.11 Class R-2 100,000 335 13 26.10 Class R-3 300,000 101 4 26.13 Class R-4 75,000 544 21 26.12 Class R-5 150,000 31,176 1,194 26.12 (1) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A and Class 529-A, for which the maximum offering prices per share were $27.71 and $27.70, respectively. See Notes to Financial Statements
Statement of operations for the six months ended June 30, 2002 Investment income: unaudited Income: (dollars in thousands) Dividends (net of non-U.S. withholding tax of $10,787) $440,180 Interest (net of non-U.S. withholding tax of $13) 156,501 $596,681 Fees and expenses: Investment advisory services 69,089 Distribution services 75,981 Transfer agent services 23,431 Administrative services 937 Reports to shareholders 844 Registration statement and prospectus 1,564 Postage, stationery and supplies 2,753 Directors' and Advisory Board compensation 355 Auditing and legal 113 Custodian 808 State and local taxes 606 Other 49 176,530 Net investment income 420,151 Net realized gain and unrealized depreciation on investments and non-U.S. currency: Net realized gain (loss) on: Investments 1,174,185 Non-U.S. currency transactions (679) 1,173,506 Net unrealized (depreciation) appreciation on: Investments (5,856,953) Non-U.S. currency translations 468 (5,856,485) Net realized gain and unrealized depreciation on investments and non-U.S. currency (4,682,979) Net decrease in net assets resulting from operations ($4,262,828) See Notes to Financial Statements Statement of changes in net assets (dollars in thousands) Six months Year ended ended June 30, December 31, 2002* 2001 Operations: Net investment income $420,151 $819,564 Net realized gain on investments and non-U.S. currency transactions 1,173,506 972,412 Net unrealized depreciation on investments and non-U.S. (5,856,485) (4,453,803) currency translations Net decrease in net assets resulting from operations (4,262,828) (2,661,827) Dividends and distributions paid to shareholders: Dividends from net investment income (522,187) (972,633) Distributions from net realized gain on investments (220,908) (1,116,727) Total dividends and distributions paid to shareholders (743,095) (2,089,360) Capital share transactions 3,262,620 4,387,730 Total decrease in net assets (1,743,303) (363,457) Net assets: Beginning of period 56,287,412 56,650,869 End of period (including undistributed net investment income: $122,769 and $224,805; respectively) $54,544,109 $56,287,412 *Unaudited See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS unaudited 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - 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 fund seeks long-term growth of capital and income, placing greater emphasis on future dividends than on current income. The fund offers 14 share classes consisting of four retail share classes, five CollegeAmerica savings plan share classes and five retirement plan share classes. The CollegeAmerica savings plan share classes (classes 529-A, 529-B, 529-C, 529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be utilized to save for college education. The five retirement plan share classes (classes R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry any conversion rights. The fund's share classes are described below:
SHARE CLASS INITIAL CONTINGENT DEFERRED CONVERSION FEATURE SALES SALES CHARGE UPON CHARGE REDEMPTION Class A and Up to 5.75% None None Class 529-A Class B and None Declines from 5% to Class B and Class Class 529-B zero for 529-B convert to redemptions within Class A and Class six years of 529-A, respectively, purchase after eight years Class C None 1% for redemptions Class C converts to within one year of Class F after 10 purchase years Class 529-C None 1% for redemptions None within one year of purchase Class 529-E None None None Class F and None None None Class 529-F* Class R-1, None None None Class R-2, Class R-3, Class R-4 and Class R-5
* As of June 30, 2002, there were no Class 529-F shares outstanding. Holders of all share classes have equal pro rata rights to assets, dividends and liquidation. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses ("class-specific fees and expenses"), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the fund: SECURITY VALUATION - Equity securities are valued at the last reported sale price on the broadest and most representative exchange or market on which such securities are traded, as determined by the fund's investment adviser, as of the close of business or, lacking any sales, at the last available bid price. Fixed-income securities are valued at prices obtained from a pricing service. However, where the investment adviser deems it appropriate, they will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. Short-term securities maturing within 60 days are valued at amortized cost, which approximates market value. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Forward currency contracts are valued at the mean of their representative quoted bid and asked prices. Securities and other assets for which representative market quotations are not readily available are valued at fair value as determined in good faith by authority of the fund's Board of Directors. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security. CLASS ALLOCATIONS - Income, fees and expenses (other than class-specific fees and expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid to shareholders are recorded on the ex-dividend date. NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including investment securities, denominated in non-U.S. currencies are translated into U.S. dollars at the exchange rates in effect at the end of the reporting period. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. In the accompanying financial statements, the effects of changes in non-U.S. exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in non-U.S. currencies are disclosed separately. 2. NON-U.S. INVESTMENTS INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may include, but are not limited to, investment and repatriation restrictions; revaluation of currencies; adverse political, social and economic developments; government involvement in the private sector; limited and less reliable investor information; lack of liquidity; certain local tax law considerations; and limited regulation of the securities markets. TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid 3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. DISTRIBUTIONS - Distributions are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to expenses deferred for tax purposes; reclassification of net investment income to net realized gains; and higher tax basis of securities sold. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund. The fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. As of June 30, 2002, the cost of investment securities and cash denominated in non-U.S. currencies, for federal income tax purposes was $46,456,025,000. During the six months ended June 30, 2002, the fund reclassified $5,404,000 from undistributed net realized gains to additional paid-in capital to align financial reporting with tax reporting. As of June 30, 2002, the components of distributable earnings on a tax basis were as follows:
(DOLLARS IN THOUSANDS) Undistributed net investment income and $121,340 currency gains Accumulated short-term losses (175,654) Undistributed long-term gains 1,351,139 Gross unrealized appreciation 12,214,769 Gross unrealized depreciation (3,937,135)
The tax character of distributions paid was as follows (dollars in thousands): Six months ended June 30, 2002 Distributions from ordinary income Net investment Distributions Total income and Short-term from long-term distributions Share class currency gains capital gains capital gains paid Class A $ 505,485 - $ 211,659 $ 717,144 Class B 9,331 - 5,816 15,147 Class C 4,189 - 2,480 6,669 Class F 2,542 - 933 3,475 Class 529-A(1) 350 - 14 364 Class 529-B(1) 54 - 4 58 Class 529-C(1) 63 - 2 65 Class 529-E(1) 7 - - 7 Class R-1(2) -* - - -* Class R-2(2) 1 - - 1 Class R-3(2) -* - - -* Class R-4(2) 1 - - 1 Class R-5(2) - - 164 Total $ 522,187 - $ 220,908 $ 743,095 Year ended December 31, 2001 Distributions from ordinary income Net investment Distributions Total income and Short-term from long-term distributions Share class currency gains capital gains capital gains paid Class A $ 959,826 - $ 1,089,756 $ 2,049,582 Class B 9,501 - 19,552 29,053 Class C(3) 2,076 - 5,375 7,451 Class F(3) 1,230 - 2,044 3,274 Total $ 972,633 - $ 1,116,727 $ 2,089,360
*Amount less than one thousand. (1) Class 529-A, Class 529-B, Class 529-C and Class 529-E shares were offered beginning February 15, 2002. (2) Class R-1, Class R-2, Class R-3, Class R-4 and Class R-5 shares were offered beginning May 15, 2002. (3) Class C and Class F shares were offered beginning March 15, 2001. 4. FEES AND TRANSACTIONS WITH RELATED PARTIES Capital Research and Management Company ("CRMC"), the fund's investment adviser, is the parent company of American Funds Service Company ("AFS"), the fund's transfer agent, and American Funds Distributors ("AFD"), the principal underwriter of the fund's shares. INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.390% on the first $1 billion of month-end net assets and decreasing to 0.222% on such assets in excess of $71 billion. For the six months ended June 30, 2002, the investment advisory services fee was equivalent to an annualized rate of 0.255% of average month-end net assets. Class-specific fees and expenses - Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below: DISTRIBUTION SERVICES - The fund has adopted plans of distribution for all share classes, except Class R-5. Under the plans, the Board of Directors approves certain categories of expenses which are used to finance activities primarily intended to sell fund shares. The plans provide for annual expenses, based on a percentage of average daily net assets, ranging from 0.25% to 1.00% as noted below. In some cases, the Board of Directors has approved expense amounts lower than plan limits.
SHARE CLASS CURRENTLY PLAN APPROVED LIMITS LIMITS CLASS A 0.25% 0.25% CLASS 529-A 0.25 0.50 CLASS B AND CLASS 529-B 1.00 1.00 CLASS C, CLASS 529-C AND CLASS R-1 1.00 1.00 CLASS R-2 0.75 1.00 CLASS 529-E AND CLASS R-3 0.50 0.75 CLASS F, CLASS 529-F AND CLASS R-4 0.25 0.50
All share classes may use up to 0.25% of these expenses to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD for providing certain shareholder services. Expenses in excess of these amounts, up to approved limits, may be used to compensate dealers and wholesalers for shares sold. For Class A and Class 529-A, the Board of Directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. Each class reimburses AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of June 30, 2002, unreimbursed expenses which remain subject to reimbursement totaled $13,000 for Class 529-A. There were no unreimbursed expenses which remain subject to reimbursement for Class A. TRANSFER AGENT SERVICES - The fund has a transfer agency agreement with AFS for Class A and Class B shares. Under this agreement, these share classes compensate AFS for transfer agency services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agency services provided to all other share classes from the administrative services fees paid to CRMC described below. ADMINISTRATIVE SERVICES - The fund has an administrative services agreement with CRMC to provide transfer agency and other related shareholder services for all classes of shares other than Class A and Class B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant class also pays AFS additional amounts for certain transfer agency services. CRMC and AFS may use these fees to compensate third parties for performing these services. Each 529 share class is subject to an additional annual administrative fee of 0.10% of its respective average daily net assets; this fee is payable to the Commonwealth of Virginia for the maintenance of the CollegeAmerica plan. Expenses under the agreements described above for the six months ended June 30, 2002, were as follows (dollars in thousands):
SHARE CLASS DISTRIBUTION TRANSFER AGENT ADMINISTRATIVE SERVICES SERVICES SERVICES Class A $63,978 $22,609 Not applicable Class B 7,946 822 Not applicable Class C 3,593 $605 Class F 339 261 Class 529-A 40 41 Class 529-B 39 11 Class 529-C 44 Included 13 Class 529-E 2 in 1 Class 529-F -* administrative -* Class R-1 -* services -* Class R-2 -* -* Class R-3 -* -* Class R-4 -* -* Class R-5 Not applicable 5
*Amount less than one thousand. DEFERRED DIRECTORS' AND ADVISORY BOARD COMPENSATION - Since the adoption of the deferred compensation plan in 1993, Directors and Advisory Board members who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors' and Advisory Board fees in the accompanying financial statements include the current fees (either paid in cash or deferred) and the net increase or decrease in the value of the deferred amounts. AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or Directors received any compensation directly from the fund. 5. WARRANTS As of June 30, 2002, the fund had warrants outstanding which may be exercised at any time for the purchase of 822,026 Class A shares at approximately $5.24 per share. If these warrants had been exercised as of June 30, 2002, the net asset value of Class A shares would have been reduced by $0.01 per share. 6. CAPITAL SHARE TRANSACTIONS Capital share transactions in the fund were as follows (dollars and shares in thousands): Six months ended June 30, 2002 Sales (1) Sales (1) Share class Amount Shares Class A $ 3,894,189 138,255 Class B 670,142 23,867 Class C 516,298 18,407 Class F 195,942 6,973 Class 529-A(2) 90,584 3,219 Class 529-B(2) 22,820 812 Class 529-C(2) 26,766 953 Class 529-E(2) 2,503 89 Class R-1(3) 90 3 Class R-2(3) 348 13 Class R-3(3) 104 4 Class R-4(3) 560 21 Class R-5(3) 34,882 1,230 Total net increase (decrease) in fund $ 5,455,228 193,846 Six months ended June 30, 2002 Reinvestments Reinvestments of dividends of dividends and distributions and distributions Share class Amount Shares Class A $ 662,270 23,788 Class B 14,628 526 Class C 6,388 230 Class F 2,872 104 Class 529-A(2) 364 13 Class 529-B(2) 58 2 Class 529-C(2) 66 2 Class 529-E(2) 7 -* Class R-1(3) -* -* Class R-2(3) 1 -* Class R-3(3) -* -* Class R-4(3) 1 -* Class R-5(3) 163 6 Total net increase (decrease) in fund $ 686,818 24,671 Six months ended June 30, 2002 Repurchases (1) Repurchases (1) Net increase Net increase Share class Amount Shares Amount Shares Class A $ (2,735,827) (97,903) $ 1,820,632 64,140 Class B (71,246) (2,571) 613,524 21,822 Class C (40,261) (1,460) 482,425 17,177 Class F (29,959) (1,081) 168,855 5,996 Class 529-A(2) (737) (27) 90,211 3,205 Class 529-B(2) (105) (3) 22,773 811 Class 529-C(2) (93) (3) 26,739 952 Class 529-E(2) (12) -* 2,498 89 Class R-1(3) - - 90 3 Class R-2(3) -* -* 349 13 Class R-3(3) -* -* 104 4 Class R-4(3) - - 561 21 Class R-5(3) (1,186) (42) 33,859 1,194 Total net increase (decrease) in fund $ (2,879,426) (103,090) $ 3,262,620 115,427 Year ended December 31, 2002 Sales (1) Sales (1) Share class Amount Shares Class A $ 6,534,080 221,910 Class B 976,698 33,294 Class C(4) 501,953 17,317 Class F(4) 198,978 6,922 Total net increase (decrease) in fund $ 8,211,709 279,443 Year ended December 31, 2001 Reinvestments Reinvestments of dividends of dividends and distributions and distributions Share class Amount Shares Class A $ 1,884,217 64,925 Class B 28,010 978 Class C(4) 7,161 254 Class F(4) 2,696 95 Total net increase (decrease) in fund $ 1,922,084 66,252 Year ended December 31, 2001 Repurchases (1) Repurchases (1) Net increase Net increase Share class Amount Shares Amount Shares Class A $ (5,639,751) (192,784) $ 2,778,546 94,051 Class B (76,876) (2,684) 927,832 31,588 Class C(4) (19,333) (683) 489,781 16,888 Class F(4) (10,103) (359) 191,571 6,658 Total net increase (decrease) in fund $ (5,746,063) (196,510) $ 4,387,730 149,185
* Amount less than one thousand. (1) Includes exchanges between share classes of the fund. (2) Class 529-A, Class 529-B, Class 529-C and Class 529-E shares were offered beginning February 15, 2002. (3) Class R-1, Class R-2, Class R-3, Class R-4 and Class R-5 shares were offered beginning May 15, 2002. (4) Class C and Class F shares were offered beginning March 15, 2001. 7. RESTRICTED SECURITIES The fund has invested in certain securities for which resale may be limited to qualified buyers or which are otherwise restricted. These securities are identified in the investment portfolio. As of June 30, 2002, the total value of restricted securities was $1,057,291,000, which represents 1.94% of the net assets of the fund. 8. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities, of $16,378,685,000 and $6,753,665,000, respectively, during the six months ended June 30, 2002. The fund receives a reduction in its custodian fee equal to the amount of interest calculated on certain cash balances held at the custodian bank. For the six months ended June 30, 2002, the custodian fee of $808,000 includes $36,000 that was offset by this reduction, rather than paid in cash. Financial Highlights (1) Income Income Income from from from investment investment investment operations operations operations Net Net asset (losses) gains value, Net on securities Total from beginning investment (both realized investment of period income (3) and unrealized)(3) operations Class A: Six months ended 6/30/2002 (2) $28.53 $.21 $(2.25) $(2.04) Year ended 12/31/2001 31.07 .44 (1.87) (1.43) Year ended 12/31/2000 32.46 .56 .65 1.21 Year ended 12/31/1999 31.07 .49 4.45 4.94 Year ended 12/31/1998 28.25 .48 5.79 6.27 Year ended 12/31/1997 24.23 .51 6.61 7.12 Class B: Six months ended 6/30/2002 (2) 28.47 .11 (2.25) (2.14) Year ended 12/31/2001 31.01 .19 (1.83) (1.64) Period from 3/15/2000 to 12/31/2000 31.13 .26 1.55 1.81 Class C: Six months ended 6/30/2002 (2) 28.44 .11 (2.27) (2.16) Period from 3/15/2001 to 12/31/2001 29.05 .09 (.14) (.05) Class F: Six months ended 6/30/2002 (2) 28.52 .21 (2.26) (2.05) Period from 3/15/2001 to 12/31/2001 29.10 .27 (.13) .14 Class 529-A: Period from 2/15/2002 to 6/30/2002 (2) 27.88 .19 (1.59) (1.40) Class 529-B: Period from 2/15/2002 to 6/30/2002 (2) 27.88 .11 (1.59) (1.48) Class 529-C: Period from 2/19/2002 to 6/30/2002 (2) 27.47 .11 (1.18) (1.07) Class 529-E: Period from 3/1/2002 to 6/30/2002 (2) 28.27 .16 (2.21) (2.05) Class R-1: Period from 6/6/2002 to 6/30/2002 (2) 27.27 .05 (1.09) (1.04) Class R-2: Period from 5/21/2002 to 6/30/2002 (2) 28.23 .05 (2.07) (2.02) Class R-3: Period from 6/4/2002 to 6/30/2002 (2) 27.58 .06 (1.40) (1.34) Class R-4: Period from 5/28/2002 to 6/30/2002 (2) 28.22 .08 (2.05) (1.97) Class R-5: Period from 5/15/2002 to 6/30/2002 (2) 28.37 .09 (2.20) (2.11) Financial Highlights (1) Dividends Dividends Dividends and and and distributions distributions distributions Dividends (from net Distributions Net asset investment (from capital Total value, end income) gains) distributions of period Class A: Six months ended 6/30/2002 (2) $(.26) $(.11) $(.37) $26.12 Year ended 12/31/2001 (.52) (.59) (1.11) 28.53 Year ended 12/31/2000 (.52) (2.08) (2.60) 31.07 Year ended 12/31/1999 (.51) (3.04) (3.55) 32.46 Year ended 12/31/1998 (.51) (2.94) (3.45) 31.07 Year ended 12/31/1997 (.50) (2.60) (3.10) 28.25 Class B: Six months ended 6/30/2002 (2) (.16) (.11) (.27) 26.06 Year ended 12/31/2001 (.31) (.59) (.90) 28.47 Period from 3/15/2000 to 12/31/2000 (.25) (1.68) (1.93) 31.01 Class C: Six months ended 6/30/2002 (2) (.15) (.11) (.26) 26.02 Period from 3/15/2001 to 12/31/2001 (.21) (.35) (.56) 28.44 Class F: Six months ended 6/30/2002 (2) (.25) (.11) (.36) 26.11 Period from 3/15/2001 to 12/31/2001 (.37) (.35) (.72) 28.52 Class 529-A: Period from 2/15/2002 to 6/30/2002 (2) (.25) (.11) (.36) 26.12 Class 529-B: Period from 2/15/2002 to 6/30/2002 (2) (.18) (.11) (.29) 26.11 Class 529-C: Period from 2/19/2002 to 6/30/2002 (2) (.18) (.11) (.29) 26.11 Class 529-E: Period from 3/1/2002 to 6/30/2002 (2) (.11) - (.11) 26.11 Class R-1: Period from 6/6/2002 to 6/30/2002 (2) (.12) - (.12) 26.11 Class R-2: Period from 5/21/2002 to 6/30/2002 (2) (.11) - (.11) 26.10 Class R-3: Period from 6/4/2002 to 6/30/2002 (2) (.11) - (.11) 26.13 Class R-4: Period from 5/28/2002 to 6/30/2002 (2) (.13) - (.13) 26.12 Class R-5: Period from 5/15/2002 to 6/30/2002 (2) (.14) - (.14) 26.12 Financial Highlights (1) Ratio of Ratio of Net assets, expenses net income Total end of period to average to average return (4) (in millions) net assets net assets Class A: Six months ended 6/30/2002 (2) (7.23)% $51,403 .59% (6) 1.51% (6) Year ended 12/31/2001 (4.59) 54,315 .57 1.49 Year ended 12/31/2000 3.84 56,212 .56 1.74 Year ended 12/31/1999 16.55 56,095 .55 1.54 Year ended 12/31/1998 22.93 48,498 .55 1.65 Year ended 12/31/1997 29.81 39,718 .56 1.90 Class B: Six months ended 6/30/2002 (2) (7.58) 1,760 1.37 (6) .78 (6) Year ended 12/31/2001 (5.30) 1,302 1.35 .66 Period from 3/15/2000 to 12/31/2000 5.87 439 1.34 (6) 1.06 (6) Class C: Six months ended 6/30/2002 (2) (7.62) 887 1.44 (6) .76 (6) Period from 3/15/2001 to 12/31/2001 (.19) 480 1.52 (6) .38 (6) Class F: Six months ended 6/30/2002 (2) (7.28) 330 .70 (6) 1.49 (6) Period from 3/15/2001 to 12/31/2001 .48 190 .72 (6) 1.17 (6) Class 529-A: Period from 2/15/2002 to 6/30/2002 (2) (5.14) 84 .29 .67 Class 529-B: Period from 2/15/2002 to 6/30/2002 (2) (5.39) 21 .57 .39 Class 529-C: Period from 2/19/2002 to 6/30/2002 (2) (3.96) 25 .55 .39 Class 529-E: Period from 3/1/2002 to 6/30/2002 (2) (7.26) 2 .34 .57 Class R-1: Period from 6/6/2002 to 6/30/2002 (2) (3.80) - (5) .10 .17 Class R-2: Period from 5/21/2002 to 6/30/2002 (2) (7.11) - (5) .16 .19 Class R-3: Period from 6/4/2002 to 6/30/2002 (2) (4.79) - (5) .07 .24 Class R-4: Period from 5/28/2002 to 6/30/2002 (2) (6.99) 1 .06 .30 Class R-5: Period from 5/15/2002 to 6/30/2002 (2) (7.46) 31 .05 .32
Supplemental data - all classes Six months ended Year ended Year ended June 30, December 31, December 31, 2002 (2) 2001 2000 Portfolio turnover rate 13% 22% 25% Supplemental data - all classes Year ended Year ended Year ended December 31, December 31, December 31, 1999 1998 1997 Portfolio turnover rate 28% 24% 26%
(1) Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. (2) Unaudited. (3) Years ended 1999, 1998 and 1997 are based on shares outstanding on the last day of the year; all other periods are based on average shares outstanding. (4) Total returns exclude all sales charges, including contingent deferred sales charges. (5) Amount less than 1 million. (6) Annualized. [logo - American Funds(SM)] The right choice for the long term(SM) OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND MANAGEMENT COMPANY 333 South Hope Street Los Angeles, CA 90071-1443 135 South State College Boulevard Brea, CA 92821-5823 TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS American Funds Service Company (Please write to the address nearest you.) P.O. Box 25065 Santa Ana, CA 92799-5065 P.O. Box 659522 San Antonio, TX 78265-9522 P.O. Box 6007 Indianapolis, IN 46206-6007 P.O. Box 2280 Norfolk, VA 23501-2280 CUSTODIAN OF ASSETS JPMorgan Chase Bank 270 Park Avenue New York, NY 10017-2070 COUNSEL O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071-2899 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 350 South Grand Avenue Los Angeles, CA 90071-3405 PRINCIPAL UNDERWRITER American Funds Distributors, Inc. 333 South Hope Street Los Angeles, CA 90071-1462 There are several ways to invest in The Investment Company of America. Class A shares are subject to a 5.75% maximum up-front sales charge that declines for accounts of $25,000 or more. Other share classes, which are generally not available for certain employer-sponsored retirement plans, have no up-front sales charges but are subject to additional annual expenses and fees. Annual expenses for Class B shares were 0.78% higher than for Class A shares; Class B shares convert to Class A shares after eight years of ownership. If redeemed within six years, Class B shares may also be subject to a contingent deferred sales charge (CDSC) of up to 5% that declines over time. Class C shares were subject to annualized expenses 0.85% higher than those for Class A shares and a 1% CDSC if redeemed within the first year after purchase. Class C shares convert to Class F shares after 10 years. Class F shares, which are available only through certain fee-based programs offered by broker-dealer firms and registered investment advisers, had higher expenses (0.11% annualized) than did Class A shares, and an annual asset-based fee charged by the sponsoring firm. Expenses are deducted from income earned by the fund. As a result, dividends and investment results will differ for each share class. FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, PLEASE CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR VISIT US AT AMERICANFUNDS.COM ON THE WORLD WIDE WEB. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY. 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 September 30, 2002, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter. THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust Lit. No. ICA-013-0802 Litho in USA BDC/GRS/5696 Printed on recycled paper