-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RKLDATnIHYLGMTAmTokvRoReaAAT5aRc166DmfDh2+RsAzBRqsIMWovgDkmQoPid dZz9qLxFkIN2VgU00YLaHQ== 0000051931-03-000003.txt : 20030228 0000051931-03-000003.hdr.sgml : 20030228 20030228125918 ACCESSION NUMBER: 0000051931-03-000003 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20030228 EFFECTIVENESS DATE: 20030301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTMENT CO OF AMERICA CENTRAL INDEX KEY: 0000051931 IRS NUMBER: 951426645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00116 FILM NUMBER: 03585562 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTMENT CO OF AMERICA CENTRAL INDEX KEY: 0000051931 IRS NUMBER: 951426645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-10811 FILM NUMBER: 03585563 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 485BPOS 1 ica.txt SEC File Nos. 2-10811 811-116 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A Registration Statement Under the Securities Act of 1933 Post-Effective Amendment No. 109 and Registration Statement Under The Investment Company Act of 1940 Amendment No. 33 THE INVESTMENT COMPANY OF AMERICA (Exact Name of Registrant as specified in charter) 333 South Hope Street Los Angeles, California 90071 (Address of principal executive offices) Registrant's telephone number, including area code: (213) 486-9200 Vincent P. Corti Capital Research and Management Company 333 South Hope Street Los Angeles, California 90071 (name and address of agent for service) Copies to: Eric A.S. Richards, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (Counsel for the Registrant) Approximate date of proposed public offering: It is proposed that this filing become effective on March 1, 2003, pursuant to paragraph (b) of rule 485. [logo - American Funds (sm)] The right choice for the long term/SM/ The Investment Company of America/(R)/
TABLE OF CONTENTS 1 Risk/Return Summary 5 Fees and Expenses of the Fund 7 Investment Objectives, Strategies and Risks 10 Management and Organization 12 Shareholder Information 13 Choosing a Share Class 15 Purchase and Exchange of Shares 18 Sales Charges 20 Sales Charge Reductions and Waivers 22 Plans of Distribution 23 How to Sell Shares 25 Distributions and Taxes 26 Financial Highlights
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS March 1, 2003 Risk/Return Summary The fund seeks to make your investment grow and provide you with income over time by investing primarily in common stocks that offer growth and dividend potential. The fund is designed for investors seeking both capital appreciation and income. Your investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to events specifically involving the companies in which the fund invests, as well as economic, political or social events in the U.S. or abroad. The fund's equity investments are limited to securities of companies that are included on its eligible list. The eligible list is reviewed and approved by the fund's board of directors at the recommendation of Capital Research and Management Company, the fund's investment adviser. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 The Investment Company of America / Prospectus HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual total returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, results would be lower.) [bar chart] 1993 11.62% 1994 0.16 1995 30.62 1996 19.35 1997 29.81 1998 22.93 1999 16.55 2000 3.84 2001 -4.59 2002 -14.47 [end chart] Highest/lowest quarterly results during this time period were:
HIGHEST 17.34% (quarter ended December 31, 1998) LOWEST -14.51% (quarter ended September 30, 2002)
2 The Investment Company of America / Prospectus Unlike the bar chart on the previous page, the Investment Results Table on the following page reflects, as required by Securities and Exchange Commission rules, the fund's investment results with the maximum initial or deferred sales charge imposed. Class A share results reflect the maximum initial sales charge of 5.75%. Class A sales charges are reduced for purchases of $25,000 or more. Class B share results reflect the applicable contingent deferred sales charge. These charges begin to decline after 12 months and are eliminated after six years. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividends and capital gain distributions. The fund's results are shown on a pre-tax and after-tax basis, as required by Securities and Exchange Commission rules. Total returns shown "after taxes on distributions" reflect the effect of taxes on distributions (for example, dividends or capital gain distributions) by the fund. Total returns shown "after taxes on distributions and sale of fund shares" assume that you sold your fund shares at the end of the particular time period, and as a result, reflect the effect of both taxes on distributions by the fund and taxes on any gain or loss realized upon the sale of the shares. After-tax returns are calculated using the highest historical individual federal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class A shares; after-tax returns for other share classes will vary. YOUR ACTUAL AFTER-TAX RETURNS DEPEND ON YOUR INDIVIDUAL TAX SITUATION AND LIKELY WILL DIFFER FROM THE RESULTS SHOWN ON THE FOLLOWING PAGE. IN ADDITION, AFTER-TAX RETURNS MAY NOT BE RELEVANT IF YOU HOLD YOUR FUND SHARES THROUGH TAX-DEFERRED ARRANGEMENTS, SUCH AS A 401(K) PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR COLLEGEAMERICA ACCOUNT. Because the fund's Class 529 shares were first available on February 15, 2002, comparable results for these classes are not available for the 2002 calendar year. Unlike the Investment Results Table on the following page, the Investment Results Table on page 8 reflects the fund's results calculated without a sales charge. 3 The Investment Company of America / Prospectus
INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002: ONE YEAR FIVE YEARS TEN YEARS LIFETIME - ------------------------------------------------------------------------------- CLASS A - BEGAN 1/1/34 Before Taxes -19.39% 2.74% 9.98% 12.72% After Taxes on Distributions -20.30% 0.89% 7.81% N/A After Taxes on Distributions and -11.58% 1.99% 7.71% N/A Sale of Fund Shares - ------------------------------------------------------------------------------- CLASS B - BEGAN 3/15/00 Before Taxes -19.29% N/A N/A -6.84% - ------------------------------------------------------------------------------- CLASS C - BEGAN 3/15/01 Before Taxes -16.02% N/A N/A -8.86% - ------------------------------------------------------------------------------- CLASS F - BEGAN 3/15/01 Before Taxes -14.59% N/A N/A -8.15% - ------------------------------------------------------------------------------- INDEXES (BEFORE TAXES)/1/ S&P 500/2/ -22.09% -0.58% 9.34% 11.14% Lipper Growth and Income Index/3/ -17.89% -0.62% 8.31% N/A Lipper Large-Cap Value Index/4/ -19.68% -0.39% 8.72% N/A - ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2002: 2.15% (For current yield information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are measured from the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted performance of 500 widely held common stocks. This index is unmanaged. 3 The Lipper Growth and Income Fund Index is an equally weighted performance index that represents funds that combine a growth-of-earnings orientation and an income requirement for level and/or rising dividends. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 4 The Lipper Large-Cap Value Index is an equally weighted performance index that represents funds which, by practice, invest at least 75% of their equity assets in companies with large market capitalizations. Large-cap value funds seek long-term growth of capital by investing in companies that are considered to be undervalued relative to a major unmanaged stock index based on price-to-current earnings or other factors. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 4 The Investment Company of America / Prospectus Fees and Expenses of the Fund
SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A/1/ CLASS B/1/ CLASS C/1/ CLASS 529-E/1/ CLASS F/1/ - ---------------------------------------------------------------------------------------- Maximum sales charge imposed on 5.75%/2/ none none none none purchases (as a percentage of offering price) - ---------------------------------------------------------------------------------------- Maximum sales charge none none none none none imposed on reinvested dividends - ---------------------------------------------------------------------------------------- Maximum deferred none/3/ 5.00%/4/ 1.00%/5/ none none sales charge - ---------------------------------------------------------------------------------------- Redemption or none none none none none exchange fees
1 Includes versions of these classes offered through CollegeAmerica, a 529 college savings plan sponsored by the Virginia College Savings Plan, an agency of the Commonwealth of Virginia. Class 529-E shares are only available through CollegeAmerica to employer-sponsored plans. 2 Sales charges are reduced or eliminated for purchases of $25,000 or more. 3 A contingent deferred sales charge of 1% applies on certain redemptions made within 12 months following purchases of $1 million or more made without a sales charge. 4 Deferred sales charge is reduced after 12 months and eliminated after six years. 5 Deferred sales charge is eliminated after 12 months.
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A CLASS B CLASS C CLASS F - ------------------------------------------------------------------------------- Management Fees 0.24% 0.24% 0.24% 0.24% - ------------------------------------------------------------------------------- Distribution and/or 0.23% 1.00% 1.00% 0.25% Service (12b-1) Fees/1/ - ------------------------------------------------------------------------------- Other Expenses 0.12% 0.15% 0.21% 0.21% - ------------------------------------------------------------------------------- Total Annual Fund 0.59% 1.39% 1.45% 0.70% Operating Expenses CLASS CLASS CLASS CLASS CLASS 529-A/2/ 529-B/2/ 529-C/2/ 529-E/2/ 529-F/3/ - ------------------------------------------------------------------------------- Management Fees 0.24% 0.24% 0.24% 0.24% 0.24% - ------------------------------------------------------------------------------- Distribution and/or 0.18% 1.00% 1.00% 0.50% 0.25% Service (12b-1) Fees/4/ - ------------------------------------------------------------------------------- Other Expenses/5/ 0.29% 0.34% 0.33% 0.29% 0.27% - ------------------------------------------------------------------------------- Total Annual Fund 0.71% 1.58% 1.57% 1.03% 0.76% Operating Expenses
1 Class A and F 12b-1 fees may not exceed 0.25% and 0.50%, respectively, of the class' average net assets annually. 2 Annualized. 3 Based on estimated amounts for the current fiscal year. 4 Class 529-A and 529-F 12b-1 fees may not exceed 0.50% of each class' average net assets annually. Class 529-E 12b-1 fees may not exceed 0.75% of the class' average net assets annually. 5 Includes 0.10% paid to the Virginia College Savings Plan for administrative services it provides in overseeing CollegeAmerica. 5 The Investment Company of America / Prospectus EXAMPLES The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividends and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown on the previous page. The examples assuming redemption do not reflect the effect of any taxable gain or loss at the time of the redemption. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS - ------------------------------------------------------------------------------- Class A/1/ $632 $753 $ 885 $1,270 - ------------------------------------------------------------------------------- Class B - assuming $642 $840 $ 961 $1,450 redemption/2/ - ------------------------------------------------------------------------------- Class B - assuming no $142 $440 $ 761 $1,450 redemption - ------------------------------------------------------------------------------- Class C - assuming $248 $459 $ 792 $1,735 redemption/3/ - ------------------------------------------------------------------------------- Class C - assuming no $148 $459 $ 792 $1,735 redemption - ------------------------------------------------------------------------------- Class F - excludes $ 72 $224 $ 390 $ 871 intermediary fees/4/ - ------------------------------------------------------------------------------- Class 529-A/1/ $643 $789 $ 947 $1,407 - ------------------------------------------------------------------------------- Class 529-B - assuming $661 $899 $1,060 $1,644 redemption/2/ - ------------------------------------------------------------------------------- Class 529-B - assuming no $161 $499 $ 860 $1,644 redemption - ------------------------------------------------------------------------------- Class 529-C - assuming $260 $496 $ 855 $1,867 redemption/3/ - ------------------------------------------------------------------------------- Class 529-C - assuming no $160 $496 $ 855 $1,867 redemption - ------------------------------------------------------------------------------- Class 529-E $105 $328 $ 569 $1,259 - ------------------------------------------------------------------------------- Class 529-F - excludes $ 78 $243 $ 422 $ 942 intermediary fees/4/
1 Reflects the maximum initial sales charge in the first year. 2 Reflects applicable contingent deferred sales charges through year six and Class A or 529-A expenses for years nine and ten because Class B and 529-B shares automatically convert to Class A and 529-A shares, respectively, after eight years. 3 Reflects contingent deferred sales charge during the first year. 4 Does not include fees charged by financial intermediaries, which are independent of fund expenses and will increase the overall cost of your investment. Intermediary fees typically range from 0.50% to 3.00% of assets annually depending on services offered. 6 The Investment Company of America / Prospectus Investment Objectives, Strategies and Risks The fund's investment objectives are to achieve long-term growth of capital and income. The fund strives to accomplish these objectives through extensive U.S. and global research, careful selection, and broad diversification. In the selection of securities for investment, potential for capital appreciation and future dividends are given more weight than current yield. The fund invests primarily in common stocks. The fund's investments are limited to securities of companies that are included on its eligible list, which consists of securities deemed suitable by the fund's investment adviser in light of the fund's investment objectives and policies. Securities are added to, or deleted from, the eligible list by the board of directors, after reviewing and acting upon the recommendations of the investment adviser. The prices of and the income generated by securities held by the fund may decline in response to certain events, including: those directly involving the companies whose securities are owned in the fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate fluctuations. The fund may also hold cash or money market instruments. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objectives in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general market downturn and provide liquidity to make additional investments or to meet redemptions. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek attractively priced securities that represent above average long-term investment opportunities. The investment adviser believes that the best way to accomplish this is through fundamental analysis, including meeting with company executives and employees, suppliers, customers and competitors. Securities may be sold when the investment adviser believes they no longer represent good long-term value. OTHER IMPORTANT INVESTMENT PRACTICES In addition to the principal investment strategies described above, the fund has other investment practices that are described in this prospectus and in the statement of additional information. The fund may invest up to 15% of its assets, at the time of purchase, in securities of issuers domiciled outside the U.S. and not included in the Standard & Poor's 500 Composite Index. Investments outside the U.S. may be subject to certain risks. For example, the prices of non-U.S. securities can decline in response to currency fluctuations or political, social or economic instability. 7 The Investment Company of America / Prospectus ADDITIONAL INVESTMENT RESULTS Unlike the investment results table shown on an earlier page, the table below reflects the fund's results calculated without a sales charge.
INVESTMENTS RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002: ONE YEAR FIVE YEARS TEN YEARS LIFETIME - ------------------------------------------------------------------------------- CLASS A - BEGAN 1/1/34 Before Taxes -14.47% 3.96% 10.63% 12.82% After Taxes on Distributions -15.44% 2.09% 8.45% N/A After Taxes on Distributions and -8.54% 2.98% 8.29% N/A Sale of Fund Shares - ------------------------------------------------------------------------------- CLASS B - BEGAN 3/15/00 Before Taxes -15.18% N/A N/A -5.63% - ------------------------------------------------------------------------------- CLASS C - BEGAN 3/15/01 Before Taxes -15.20% N/A N/A -8.86% - ------------------------------------------------------------------------------- CLASS F - BEGAN 3/15/01 Before Taxes -14.59% N/A N/A -8.15% - ------------------------------------------------------------------------------- INDEXES (BEFORE TAXES)/1/ S&P 500/2/ -22.09% -0.58% 9.34% 11.14% Lipper Growth and Income Index/3/ -17.89% -0.62% 8.31% N/A Lipper Large-Cap Value Index/4/ -19.68% -0.39% 8.72% N/A - ------------------------------------------------------------------------------- Class A distribution rate at December 31, 2002: 2.17%/5/ (For current distribution rate information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are measured from the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted performance of 500 widely held common stocks. This index is unmanaged. 3 The Lipper Growth and Income Fund Index is an equally weighted performance index that represents funds that combine a growth-of-earnings orientation and an income requirement for level and/or rising dividends. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 4 The Lipper Large-Cap Value Index is an equally weighted performance index that represents funds which, by practice, invest at least 75% of their equity assets in companies with large market capitalizations. Large-cap value funds seek long-term growth of capital by investing in companies that are considered to be undervalued relative to a major unmanaged stock index based on price-to-current earnings or other factors. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 5 The distribution rate is based on actual distributions paid to shareholders over a 12-month period. Capital gain distributions are added back to the net asset value to determine the rate. 8 The Investment Company of America / Prospectus
LARGEST INVESTMENT CATEGORIES AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Food, beverage & tobacco 7.44% - ------------------------------------------------------------------ Pharmaceuticals & biotechnology 6.73 - ------------------------------------------------------------------ Telecommunication services 6.71 - ------------------------------------------------------------------
LARGEST INDUSTRY HOLDINGS AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Pharmaceuticals 6.66% - ------------------------------------------------------------------ Diversified telecommunication services 5.79 - ------------------------------------------------------------------ Beverages & tobacco 5.24 - ------------------------------------------------------------------ Oil & gas 5.13 - ------------------------------------------------------------------ Media 4.20 - ------------------------------------------------------------------
LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Altria Group (formerly Philip Morris) 3.44% - ------------------------------------------------------------------ Eli Lilly 2.34 - ------------------------------------------------------------------ SBC Communications 1.56 - ------------------------------------------------------------------ Viacom 1.52 - ------------------------------------------------------------------ Pharmacia 1.49 - ------------------------------------------------------------------ Fannie Mae 1.45 - ------------------------------------------------------------------ Dow Chemical 1.40 - ------------------------------------------------------------------ Lowe's 1.39 - ------------------------------------------------------------------ Bank of America 1.27 - ------------------------------------------------------------------ ChevronTexaco 1.27 - ------------------------------------------------------------------
Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 9 The Investment Company of America / Prospectus Management and Organization INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier in the Annual Fund Operating Expenses Table. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach, the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for The Investment Company of America are:
PORTFOLIO COUNSELOR/ FUND PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE - ----------------------------------------------------------------------------------------------------------- R. MICHAEL SHANAHAN 12 years Chairman of the Board and Principal Executive Chairman of the Board and (plus 7 years prior Officer, Capital Research and Management Company Chief Executive Officer experience as a research professional for the fund) Investment professional for 38 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES F. ROTHENBERG 9 years President and Director, Capital Research and President and Director (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 33 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES B. LOVELACE 11 years Senior Vice President and Director, Capital Senior Vice President and (plus 3 years prior Research and Management Company Director experience as a research professional for the fund) Investment professional for 21 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DONALD D. O'NEAL 11 years Senior Vice President, Capital Research and Senior Vice President and (plus 4 years prior Management Company Director experience as a research professional for the fund) Investment professional for 18 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- GREGG E. IRELAND 11 years Senior Vice President, Capital Research and Senior Vice President (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 30 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JOYCE E. GORDON 2 years Senior Vice President, Capital Research Company Vice President (plus 12 years prior experience as a research Investment professional for 27 years, all with professional for the fund) Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES E. DRASDO 16 years Senior Vice President, Capital Research and (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 31 years in total; 26 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DINA N. PERRY 9 years Senior Vice President, Capital Research and (plus 2 years prior Management Company experience as a research professional for the fund) Investment professional for 25 years in total; 11 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- C. ROSS SAPPENFIELD 3 years Vice President and Director, Capital Research (plus 6 years prior Company experience as a research professional for the fund) Investment professional for 11 years, all with Capital Research and Management Company or affiliate - -----------------------------------------------------------------------------------------------------------
10 The Investment Company of America / Prospectus [This page is intentionally left blank for this filing.] 11 The Investment Company of America / Prospectus Shareholder Information SHAREHOLDER SERVICES American Funds Service Company, the fund's transfer agent, offers you a wide range of services you can use to alter your investment program should your needs and circumstances change. These services may be terminated or modified at any time upon 60 days written notice. For your convenience, American Funds Service Company has four service centers across the country. AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS Call toll-Free from anywhere in the U.S. (8 a.m. to 8 p.m. ET): 800/421-0180 Access the American Funds website : www.americanfunds.com [map of the United States]
Western Western Central Eastern Central Eastern Service Center Service Center Service Center Service Center American Funds American Funds American Funds American Funds Service Company Service Company Service Company Service Company P.O. Box 25065 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280 Santa Ana, San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia California 78265-9522 46206-6007 23501-2280 92799-5065 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773 Fax: 714/671-7080
A MORE DETAILED DESCRIPTION OF POLICIES AND SERVICES IS INCLUDED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION AND THE OWNER'S GUIDE SENT TO NEW AMERICAN FUNDS SHAREHOLDERS TITLED "WELCOME TO THE FAMILY." CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO THEIR COLLEGEAMERICA ACCOUNT(S). These documents are available by writing or calling American Funds Service Company. 12 The Investment Company of America / Prospectus Choosing a Share Class The fund offers different classes of shares through this prospectus. Class A, B, C and F shares may be purchased through various investment programs or accounts, including many types of retirement plans. The services or share classes available to you may vary depending upon how you wish to purchase shares of the fund. Investors residing in any state may purchase Class 529-A, 529-B, 529-C, 529-E and 529-F shares through an account established with CollegeAmerica. Class 529-A, 529-B, 529-C and 529-F shares are structured similarly to the corresponding Class A, B, C and F shares. For example, the same initial sales charges apply to Class 529-A shares as they do to Class A shares. Class 529-E shares are only available to investors participating in CollegeAmerica through an eligible employer plan. Each share class represents investments in the same portfolio of securities, but each class has its own sales charge and expense structure, allowing you to choose the class that best meets your situation. WHEN YOU PURCHASE SHARES OF THE FUND, YOU MUST CHOOSE A SHARE CLASS. IF NONE IS CHOSEN, YOUR INVESTMENT WILL BE MADE IN CLASS A SHARES OR, IN THE CASE OF A COLLEGEAMERICA INVESTMENT, CLASS 529-A SHARES. Factors you should consider in choosing a class of shares include: .. how long you expect to own the shares; .. how much you intend to invest; .. total expenses associated with owning shares of each class; .. whether you qualify for any reduction or waiver of sales charges (for example, Class A or 529-A shares may be a less expensive option over time if you qualify for a sales charge reduction or waiver); .. whether you plan to take any distributions in the near future (for example, the contingent deferred sales charge will not be waived if you sell your Class 529-B or 529-C shares to cover higher education expenses); .. Class B and C shares are generally not available to certain retirement plans, including employer-sponsored retirement plans such as 401(k) plans, 457 plans, employer-sponsored 403(b) plans, and money purchase pension and profit sharing plans; .. Class F and 529-F shares are generally only available to fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. EACH INVESTOR'S FINANCIAL CONSIDERATIONS ARE DIFFERENT. YOU SHOULD SPEAK WITH YOUR FINANCIAL ADVISER TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU. UNLESS OTHERWISE NOTED, REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F SHARES. 13 The Investment Company of America / Prospectus
SUMMARY OF THE PRIMARY DIFFERENCES AMONG SHARE CLASSES CLASS A SHARES Initial sales charge up to 5.75% (reduced or eliminated for purchases of $25,000 or more) Contingent deferred none (except on certain redemptions on purchases of $1 sales charge million or more made without an initial sales charge) 12b-1 fees up to 0.25% annually (529-A may not exceed 0.50% annually) Dividends generally higher than other classes due to lower annual expenses Purchase maximum none Conversion none CLASS B SHARES Initial sales charge none Contingent deferred starts at 5.00% and declines until it reaches 0% after sales charge six years 12b-1 fees 1.00% annually Dividends generally lower than A and F shares due to higher distribution fees and other expenses, but higher than C shares due to lower other expenses Purchase maximum $100,000 Conversion automatic conversion to A or 529-A shares after eight years, reducing future annual expenses CLASS C SHARES Initial sales charge none Contingent deferred 1.00% if shares are sold within one year after being sales charge purchased 12b-1 fees 1.00% annually Dividends generally lower than other classes due to higher distribution fees and other expenses Purchase maximum $500,000 Conversion automatic conversion to F shares after 10 years, reducing future annual expenses (529-C shares will not convert to 529-F shares) CLASS 529-E SHARES Initial sales charge none Contingent deferred none sales charge 12b-1 fees currently 0.50% annually (may not exceed 0.75% annually) Dividends generally higher than 529-B and 529-C shares due to lower distribution fees, but lower than 529-A and 529-F shares due to higher distribution fees Purchase maximum none Conversion none CLASS F SHARES Initial sales charge none Contingent deferred none sales charge 12b-1 fees currently 0.25% annually (may not exceed 0.50% annually) Dividends generally higher than B and C shares due to lower distribution fees, but lower than A shares due to higher other expenses Purchase maximum none Conversion none
14 The Investment Company of America / Prospectus Purchase and Exchange of Shares PURCHASE OF CLASS A, B AND C SHARES You may generally open an account and purchase Class A, B and C shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. PURCHASE OF CLASS F SHARES You may generally open an account and purchase Class F shares only through fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. These firms and advisers typically charge ongoing fees for services they provide. PURCHASE OF CLASS 529 SHARES Class 529 shares may be purchased only through a CollegeAmerica account. You may open a CollegeAmerica account and purchase 529 shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell a CollegeAmerica account. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. Class 529-E shares may only be purchased by employees participating in CollegeAmerica through an eligible employer plan. EXCHANGE Generally, you may exchange your shares into shares of the same class of other funds in The American Funds Group without a sales charge. Class A, C or F shares may generally be exchanged into the corresponding 529 share class without a sales charge. Class B shares may not be exchanged into Class 529-B shares. EXCHANGES FROM CLASS A, C OR F SHARES TO THE CORRESPONDING 529 SHARE CLASS, PARTICULARLY IN THE CASE OF UNIFORM GIFTS TO MINORS ACT OR UNIFORM TRANSFER TO MINORS ACT CUSTODIAL ACCOUNTS, MAY RESULT IN SIGNIFICANT LEGAL AND TAX CONSEQUENCES AS DESCRIBED IN THE COLLEGEAMERICA PROGRAM DESCRIPTION. PLEASE CONSULT YOUR FINANCIAL ADVISER PRIOR TO MAKING SUCH AN EXCHANGE. Exchanges of shares from the money market funds in The American Funds Group initially purchased without a sales charge generally will be subject to the appropriate sales charge. For purposes of computing the contingent deferred sales charge on Class B and C shares, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any permitted exchange. 15 The Investment Company of America / Prospectus Exchanges have the same tax consequences as ordinary sales and purchases. For example, to the extent you exchange shares held in a taxable account that are worth more now than what you paid for them, the gain will be subject to taxation. See "Transactions by Telephone, Fax or the Internet" for information regarding electronic exchanges. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM FLUCTUATIONS IN THE SECURITIES MARKETS. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND OR AMERICAN FUNDS DISTRIBUTORS HAS DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. THE FUND'S TRANSFER AGENT, ON BEHALF OF THE FUND AND AMERICAN FUNDS DISTRIBUTORS, IS REQUIRED BY LAW TO OBTAIN CERTAIN PERSONAL INFORMATION FROM YOU OR PERSONS ACTING ON YOUR BEHALF IN ORDER TO VERIFY YOUR OR SUCH PERSON'S IDENTITY. IF YOU DO NOT PROVIDE THE INFORMATION, THE TRANSFER AGENT MAY NOT BE ABLE TO OPEN YOUR ACCOUNT. IF THE TRANSFER AGENT IS UNABLE TO VERIFY YOUR IDENTITY OR THAT OF ANOTHER PERSON(S) AUTHORIZED TO ACT ON YOUR BEHALF, OR IF IT BELIEVES IT HAS IDENTIFIED POTENTIALLY CRIMINAL ACTIVITY, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO CLOSE YOUR ACCOUNT OR TAKE ANY OTHER ACTION THEY DEEM REASONABLE OR REQUIRED BY LAW. PURCHASE MINIMUMS AND MAXIMUMS
PURCHASE MINIMUMS FOR ALL CLASSES OF SHARES - ------------------------------------------------------------------------------- To establish an account (including retirement plan and $ 250 CollegeAmerica accounts) For automatic investment plans $ 50 For a retirement plan account through payroll deduction $ 25 or employer-sponsored CollegeAmerica account To add to an account $ 50 For a retirement plan account through payroll deduction $ 25 or employer-sponsored CollegeAmerica account - ------------------------------------------------------------------------------- PURCHASE MAXIMUM FOR CLASS B SHARES $100,000 - ------------------------------------------------------------------------------- PURCHASE MAXIMUM FOR CLASS C SHARES $500,000
16 The Investment Company of America / Prospectus VALUING SHARES The net asset value of each share class of the fund is the value of a single share. The fund calculates the net asset values, each day the New York Stock Exchange is open, as of approximately 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. A contingent deferred sales charge may apply at the time you sell certain Class A, B and C shares. 17 The Investment Company of America / Prospectus Sales Charges CLASS A SHARES The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below. Any applicable sales charge will be deducted directly from your investment.
SALES CHARGE AS A PERCENTAGE OF DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE - --------------------------------------------------------------------------- Less than $25,000 5.75% 6.10% 5.00% - --------------------------------------------------------------------------- $25,000 but less than $50,000 5.00% 5.26% 4.25% - --------------------------------------------------------------------------- $50,000 but less than $100,000 4.50% 4.71% 3.75% - --------------------------------------------------------------------------- $100,000 but less than $250,000 3.50% 3.63% 2.75% - --------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% - --------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% - --------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% - --------------------------------------------------------------------------- $1 million or more and certain other none none see below investments described below - ---------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE INVESTMENTS OF $1 MILLION OR MORE MAY BE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE IF SHARES ARE SOLD WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans, including certain 403(b) plans, investing $1 million or more or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through retirement plans, endowments or foundations with $50 million or more in assets, and investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). A transfer from the Virginia Prepaid Education Program or the Virginia Education Savings Trust to a CollegeAmerica account will be made with no sales charge. No commission will be paid to the dealer on such a transfer. Certain other investors may qualify to purchase shares without a sales charge, such as employees of broker-dealer firms and registered investment advisers authorized to sell 18 The Investment Company of America / Prospectus American Funds, and employees of The Capital Group Companies. Please see the statement of additional information for more information. CLASS B AND C SHARES Class B and C shares are sold without any initial sales charge. American Funds Distributors pays 4% of the amount invested to dealers who sell Class B shares and 1% to dealers who sell Class C shares. For Class C shares, a contingent deferred sales charge of 1% applies if shares are sold within one year of purchase. For Class B shares, a contingent deferred sales charge may be applied to shares you sell within six years of purchase, as shown in the table below.
CLASS B SHARES SOLD WITHIN YEAR 1 2 3 4 5 6 - ---------------------------------------------------------------- CONTINGENT DEFERRED SALES CHARGE 5% 4% 4% 3% 2% 1%
Shares acquired through reinvestment of dividends or capital gain distributions are not subject to a contingent deferred sales charge. In addition, the contingent deferred sales charge may be waived in certain circumstances. See "Contingent Deferred Sales Charge Waivers" below. The contingent deferred sales charge is based on the original purchase cost or the current market value of the shares being sold, whichever is less. For purposes of determining the contingent deferred sales charge, if you sell only some of your shares, shares that are not subject to any contingent deferred sales charge will be sold first, followed by shares that you have owned the longest. See "Plans of Distribution" below for ongoing compensation paid to your dealer or financial adviser for all share classes. CONVERSION OF CLASS B AND C SHARES Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date; however, Class 529-C shares will not convert to Class 529-F shares. The Internal Revenue Service currently takes the position that these automatic conversions are not taxable. Should its position change, the automatic conversion feature may be suspended. If this happens, you would have the option of converting your Class B, 529-B or C shares to the respective share classes at the anniversary dates described above, but you may face certain tax consequences as a result. CLASS F AND 529-E SHARES Class F and Class 529-E shares are sold without any initial or contingent deferred sales charge. 19 The Investment Company of America / Prospectus Sales Charge Reductions and Waivers TO RECEIVE A REDUCTION IN YOUR CLASS A INITIAL SALES CHARGE, YOU MUST LET YOUR INVESTMENT DEALER OR AMERICAN FUNDS SERVICE COMPANY KNOW AT THE TIME YOU PURCHASE SHARES THAT YOU QUALIFY FOR SUCH A REDUCTION. IF YOU DO NOT LET YOUR DEALER OR AMERICAN FUNDS SERVICE COMPANY KNOW YOU ARE ELIGIBLE FOR A REDUCTION, YOU MAY NOT RECEIVE A SALES CHARGE DISCOUNT TO WHICH YOU ARE OTHERWISE ENTITLED. To have your Class A, B or C contingent deferred sales charge waived, you must let your investment dealer or American Funds Service Company know at the time you redeem shares that you qualify for such a waiver. REDUCING YOUR CLASS A INITIAL SALES CHARGE Consistent with the policies described in this prospectus, you and your "immediate family" (your spouse and your children under the age of 21) may combine all of your American Funds and American Legacy investments to reduce your Class A sales charge. AGGREGATING ACCOUNTS To receive a reduced Class A sales charge, investments made by you and your immediate family (see above) may be aggregated if made for your own account(s) and/or certain other accounts, such as: . trust accounts established by the above individuals. However, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the primary beneficiary of the trust; .solely controlled business accounts; .single-participant retirement plans. CONCURRENT PURCHASES You may combine simultaneous purchases of any class of shares of two or more American Funds, as well as individual holdings in various American Legacy variable annuity contracts and variable life insurance policies, to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION You may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in any class of shares of the American Funds, as well as individual holdings in various American Legacy variable annuity contracts and variable life insurance policies, to determine your Class A sales charge. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION You may reduce your Class A sales charges by establishing a Statement of Intention. A Statement of Intention allows you to combine all non-money market fund purchases of 20 The Investment Company of America / Prospectus all share classes you intend to make over a 13-month period, as well as individual holdings in various American Legacy variable annuity contracts and variable life insurance policies, to determine the applicable sales charge. At your request, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of your account may be held in escrow to cover additional Class A sales charges that may be due if your total investments over the 13-month period do not qualify for the applicable sales charge reduction. CONTINGENT DEFERRED SALES CHARGE WAIVERS The contingent deferred sales charge on Class A, B and C shares may be waived in the following cases: .. permitted exchanges of shares, except if shares acquired by exchange are then redeemed within the period during which a contingent deferred sales charge would apply to the initial shares purchased; .. tax-free returns of excess contributions to IRAs; .. redemptions due to death or post-purchase disability of the shareholder (this generally excludes trusts); .. for 529 share classes only, redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship (to the extent of the scholarship award); .. the following types of transactions, if together they do not exceed 12% of the value of an account annually: -- redemptions due to receiving required minimum distributions from retirement accounts upon reaching age 70 1/2 (required minimum distributions that continue to be taken by the beneficiary(ies) after the account owner is deceased also qualify for a waiver); and -- if you have established a systematic withdrawal plan, redemptions through such a plan (including any dividends and/or capital gain distributions taken in cash). 21 The Investment Company of America / Prospectus Plans of Distribution The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. The plans provide for annual expenses of up to 0.25% for Class A shares, up to 0.50% for Class 529-A shares, 1.00% for Class B, 529-B, C and 529-C shares, up to 0.75% for Class 529-E shares, and up to 0.50% for Class F and 529-F shares. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The amount remaining for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier in the Annual Fund Operating Expenses Table. Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. The higher fees for Class B and C shares may cost you more over time than paying the initial sales charge for Class A shares. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 22 The Investment Company of America / Prospectus How to Sell Shares You may sell (redeem) shares in any of the following ways: THROUGH YOUR DEALER OR FINANCIAL ADVISER (CERTAIN CHARGES MAY APPLY) . Shares held for you in your dealer's name must be sold through the dealer. . Class F shares must be sold through your dealer or financial adviser. WRITING TO AMERICAN FUNDS SERVICE COMPANY . Requests must be signed by the registered shareholder(s). . A signature guarantee is required if the redemption is: -- over $75,000; -- made payable to someone other than the registered shareholder(s); or -- sent to an address other than the address of record, or an address of record that has been changed within the last 10 days. . American Funds Service Company reserves the right to require signature guarantee(s) on any redemptions. . Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY OR USING THE INTERNET . Redemptions by telephone, fax or the Internet (including American FundsLine(R) and American FundsLine OnLine(R)) are limited to $75,000 per American Funds shareholder each day. . Checks must be made payable to the registered shareholder. . Checks must be mailed to an address of record that has been used with the account for at least 10 days. If you recently purchased shares and subsequently request a redemption of those shares, you will receive proceeds from the redemption once a sufficient period of time has passed to reasonably assure that checks or drafts (including certified or cashiers' checks) for the shares purchased have cleared (normally 15 calendar days). If you notify American Funds Service Company, you may reinvest proceeds from a redemption, dividend payment or capital gain distribution without a sales charge in any of the American Funds within 90 days after the date of the redemption or distribution. Proceeds from a Class B share redemption where a contingent deferred sales charge was charged will be reinvested in Class A shares. Proceeds from any other type of redemption and all dividend payments and capital gain distributions will be reinvested in the same share class from which the original redemption or distribution was made. Any contingent deferred sales charge on Class A or C shares will be credited to your account. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will 23 The Investment Company of America / Prospectus be reinvested at the next calculated net asset value after your request is received and accepted by American Funds Service Company. TRANSACTIONS BY TELEPHONE, FAX OR THE INTERNET Generally, you are automatically eligible to use these services for redemptions and exchanges unless you notify us in writing that you do not want any or all of these services. You may reinstate these services at any time. Unless you decide not to have telephone, fax or Internet services on your account(s), you agree to hold the fund, American Funds Service Company, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, officers, employees and agents harmless from any losses, expenses, costs or liabilities (including attorney fees) which may be incurred in connection with the exercise of these privileges, provided American Funds Service Company employs reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine. If reasonable procedures are not employed, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. 24 The Investment Company of America / Prospectus Distributions and Taxes DIVIDENDS AND DISTRIBUTIONS The fund intends to distribute dividends to you, usually in March, June, September and December. Capital gains, if any, are usually distributed in December. When a dividend or capital gain is distributed, the net asset value per share is reduced by the amount of the payment. You may elect to reinvest dividends and/or capital gain distributions to purchase additional shares of this fund or other American Funds, or you may elect to receive them in cash. Most shareholders do not elect to take capital gain distributions in cash because these distributions reduce principal value. Dividends and capital gain distributions by 529 share classes will be automatically reinvested. TAXES ON DIVIDENDS AND DISTRIBUTIONS Dividends and capital gain distributions you receive from the fund may be subject to income tax and may also be subject to state or local taxes - unless you are exempt from taxation. For federal tax purposes, any taxable dividends and distributions of short-term capital gains are treated as ordinary income. The fund's distributions of net long-term capital gains are taxable to you as long-term capital gains. Any taxable dividends or capital gain distributions you receive from the fund will normally be taxable to you when made, regardless of whether you reinvest dividends or capital gain distributions or receive them in cash. TAXES ON TRANSACTIONS Your redemptions, including exchanges, may result in a capital gain or loss for federal tax purposes. A capital gain or loss on your investment is the difference between the cost of your shares, including any sales charges, and the price you receive when you sell them. PLEASE SEE YOUR TAX ADVISER FOR MORE INFORMATION. HOLDERS OF 529 SHARES SHOULD REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR MORE INFORMATION REGARDING THE TAX CONSEQUENCES OF SELLING 529 SHARES. 25 The Investment Company of America / Prospectus [This page is intentionally left blank for this filing.] 26 Financial Highlights/1/ The financial highlights table is intended to help you understand the fund's results for the past five years. Certain information reflects financial results for a single share of a particular class. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and capital gain distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
INCOME (LOSS) FROM INVESTMENT OPERATIONS/2/ Net (losses) gains on Net asset securities value, Net (both realized Total from beginning investment and investment of period income unrealized) operations - ----------------------------------------------------------------------------------------------- CLASS A: Year ended 12/31/2002 $28.53 $.49 $(4.56) $(4.07) 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 - ----------------------------------------------------------------------------------------------- CLASS B: Year ended 12/31/2002 28.47 .30 (4.57) (4.27) 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: Year ended 12/31/2002 28.44 .30 (4.58) (4.28) Period from 3/15/2001 to 12/31/2001 29.05 .09 (.14) (.05) - ----------------------------------------------------------------------------------------------- CLASS F: Year ended 12/31/2002 28.52 .49 (4.59) (4.10) Period from 3/15/2001 to 12/31/2001 29.10 .27 (.13) .14 - ----------------------------------------------------------------------------------------------- CLASS 529-A: Period from 2/15/2002 to 12/31/2002 27.88 .46 (3.91) (3.45) - ----------------------------------------------------------------------------------------------- CLASS 529-B: Period from 2/15/2002 to 12/31/2002 27.88 .28 (3.92) (3.64) - ----------------------------------------------------------------------------------------------- CLASS 529-C: Period from 2/19/2002 to 12/31/2002 27.47 .28 (3.50) (3.22) CLASS 529-E: Period from 3/1/2002 to 12/31/2002 28.27 .38 (4.52) (4.14) CLASS 529-F: Period from 9/16/2002 to 12/31/2002 23.98 .16 (.19) (.03) DIVIDENDS AND DISTRIBUTIONS Dividends Total Net assets, (from net Distributions dividends Net asset end of investment (from and value, end of Total period income) capital gains) distributions period return/3/ (in millions) - -------------------------------------------------------------------------------------------------------------------------- CLASS A: Year ended 12/31/2002 $(.52) $ (.46) $ (.98) $23.48 (14.47)% $46,129 Year ended 12/31/2001 (.52) (.59) (1.11) 28.53 (4.59) 54,315 Year ended 12/31/2000 (.52) (2.08) (2.60) 31.07 3.84 56,212 Year ended 12/31/1999 (.51) (3.04) (3.55) 32.46 16.55 56,095 Year ended 12/31/1998 (.51) (2.94) (3.45) 31.07 22.93 48,498 - -------------------------------------------------------------------------------------------------------------------------- CLASS B: Year ended 12/31/2002 (.33) (.46) (.79) 23.41 (15.18) 1,841 Year ended 12/31/2001 (.31) (.59) (.90) 28.47 (5.30) 1,302 Period from 3/15/2000 to 12/31/2000 (.25) (1.68) (1.93) 31.01 5.87 439 - -------------------------------------------------------------------------------------------------------------------------- CLASS C: Year ended 12/31/2002 (.32) (.46) (.78) 23.38 (15.20) 1,025 Period from 3/15/2001 to 12/31/2001 (.21) (.35) (.56) 28.44 (.19) 480 - -------------------------------------------------------------------------------------------------------------------------- CLASS F: Year ended 12/31/2002 (.50) (.46) (.96) 23.46 (14.59) 415 Period from 3/15/2001 to 12/31/2001 (.37) (.35) (.72) 28.52 .48 190 - -------------------------------------------------------------------------------------------------------------------------- CLASS 529-A: Period from 2/15/2002 to 12/31/2002 (.49) (.46) (.95) 23.48 (12.57) 153 - -------------------------------------------------------------------------------------------------------------------------- CLASS 529-B: Period from 2/15/2002 to 12/31/2002 (.33) (.46) (.79) 23.45 (13.22) 41 - -------------------------------------------------------------------------------------------------------------------------- CLASS 529-C: Period from 2/19/2002 to 12/31/2002 (.34) (.46) (.80) 23.45 (11.91) 45 CLASS 529-E: Period from 3/1/2002 to 12/31/2002 (.33) (.35) (.68) 23.45 (14.72) 6 CLASS 529-F: Period from 9/16/2002 to 12/31/2002 (.13) (.35) (.48) 23.47 (.14) -/4/ Ratio of Ratio of net expenses to income average net to average net assets assets - ------------------------------------------------------------------- CLASS A: Year ended 12/31/2002 .59 % 1.89 % Year ended 12/31/2001 .57 1.49 Year ended 12/31/2000 .56 1.74 Year ended 12/31/1999 .55 1.54 Year ended 12/31/1998 .55 1.65 - ------------------------------------------------------------------- CLASS B: Year ended 12/31/2002 1.39 1.18 Year ended 12/31/2001 1.35 .66 Period from 3/15/2000 to 12/31/2000 1.34/5/ 1.06/5/ - ------------------------------------------------------------------- CLASS C: Year ended 12/31/2002 1.45 1.17 Period from 3/15/2001 to 12/31/2001 1.52/5/ .38/5/ - ------------------------------------------------------------------- CLASS F: Year ended 12/31/2002 .70 1.92 Period from 3/15/2001 to 12/31/2001 .72/5/ 1.17/5/ - ------------------------------------------------------------------- CLASS 529-A: Period from 2/15/2002 to 12/31/2002 .71/5/ 2.17/5/ - ------------------------------------------------------------------- CLASS 529-B: Period from 2/15/2002 to 12/31/2002 1.58/5/ 1.30/5/ - ------------------------------------------------------------------- CLASS 529-C: Period from 2/19/2002 to 12/31/2002 1.57/5/ 1.32/5/ CLASS 529-E: Period from 3/1/2002 to 12/31/2002 1.03/5/ 1.90/5/ CLASS 529-F: Period from 9/16/2002 to 12/31/2002 .23 .68
The Investment Company of America / Prospectus
YEAR ENDED DECEMBER 31 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE FOR ALL CLASSES 27% 22% 25% 28% 24% OF SHARES
1 Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Years ended 1999 and 1998 are based on shares outstanding on the last day of the year; all other periods are based on average shares outstanding. 3 Total returns exclude all sales charges, including contingent deferred sales charges. 4 Amount less than 1 million. 5 Annualized. The Investment Company of America / Prospectus 27 [logo - American Funds (sm)] The right choice for the long term/SM/
FOR SHAREHOLDER American Funds Service Company SERVICES 800/421-0180 FOR RETIREMENT PLAN Call your employer or plan SERVICES administraton FOR DEALER SERVICES American Funds Distributors 800/421-9900 FOR COLLEGEAMERICA American Funds Service Company 800 /421-0180, ext. 529 American FundsLine(R) FOR 24 800/325-3590 -HOUR INFORMATION American FundsLine OnLine(R) www.americanfunds.com Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. - -----------------------------------------------------------------------------------
MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The shareholder reports contain additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). COLLEGEAMERICA PROGRAM DESCRIPTION The Program Description contains additional information about the policies and services related to CollegeAmerica accounts. STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains more detailed information on all aspects of the fund, including the fund's financial statements, and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the SAI, Codes of Ethics or CollegeAmerica Program Description, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. [LOGO - recycled bug]
Printed on recycled paper Investment Company File No. 811-116 ICA-010-0303/RRD - ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
[logo - American Funds (sm)] The right choice for the long term/SM/ The Investment Company of America/(R)/ THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS ADDENDUM March 1, 2003 Class R-5 shares of The Investment Company of America are available to certain clients of the Personal Investment Management Group of Capital Guardian Trust Company. Accordingly, for these shareholders the following information should be read in conjunction with the prospectus for this fund: Fees and Expenses of the Fund - pages 5-6
SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) CLASS R-5 - -------------------------------------------------------------------- Maximum sales charge imposed on purchases none (as a percentage of offering price) - -------------------------------------------------------------------- Maximum sales charge imposed on reinvested dividends none - -------------------------------------------------------------------- Maximum deferred sales charge none - -------------------------------------------------------------------- Redemption or exchange fees none
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS R-5/1/ - --------------------------------------------------------------------- Management Fees 0.24% - --------------------------------------------------------------------- Distribution and/or Service (12b-1) Fees none - --------------------------------------------------------------------- Other Expenses 0.13% - --------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.37%
1 Annualized. EXAMPLES The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividends and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown on the previous page. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS - ----------------------------------------------------------------- Class R-5 $38 $119 $208 $468 - -----------------------------------------------------------------
Purchase and Exchange of Shares - pages 15-17 PURCHASE OF CLASS R-5 SHARES Class R-5 shares of the fund are only available to certain clients of the Personal Investment Management Group of Capital Guardian Trust Company. Please contact Capital Guardian Trust Company if you wish to purchase Class R-5 shares of the fund. Sales Charges - pages 18-19 CLASS R-5 SHARES Class R-5 shares are sold with no initial or deferred sales charges. In addition, no dealer compensation is paid on sales of Class R-5 shares. Financial Highlights/1/ - pages 26-27 The financial highlights table is intended to help you understand the fund's results. Certain information reflects financial results for a single share of a particular class. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and capital gain distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
INCOME (LOSS) FROM INVESTMENT OPERATIONS/2/ Net (losses) gains Net asset on securities value, Net (both realized Total from beginning investment and investment of period income unrealized) operations - ----------------------------------------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 $28.37 $.39 $(4.50) $(4.11) DIVIDENDS AND DISTRIBUTIONS Dividends Total Net assets, (from net Distributions dividends Net asset end of investment (from and value, end of Total period income) capital gains) distributions period return (in millions) - ------------------------------------------------------------------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 $(.43) $(.35) $(.78) $23.48 (14.59)% $48 Ratio of Ratio of net expenses to income average net to average assets net assets - ----------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 .37%/3/ 2.56%/3/
YEAR ENDED DECEMBER 31 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE FOR ALL CLASSES 27% 22% 25% 28% 24% OF SHARES
1 Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Based on average shares outstanding. 3 Annualized. THE INVESTMENT COMPANY OF AMERICA Part B Statement of Additional Information March 1, 2003 This document is not a prospectus but should be read in conjunction with the current prospectus of The Investment Company of America (the "fund or "ICA") dated March 1, 2003. The prospectus may be obtained from your investment dealer or financial adviser or by writing to the fund at the following address: The Investment Company of America Attention: Secretary 333 South Hope Street Los Angeles, California 90071 (213) 486-9200 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. They should contact their employer for details. TABLE OF CONTENTS
Item Page No. - ---- -------- Certain Investment Limitations and Guidelines . . . . . . . . . . . 2 Description of Certain Securities and Investment Techniques . . . . 2 Fundamental Policies and Investment Restrictions. . . . . . . . . . 5 Management of the Fund . . . . . . . . . . . . . . . . . . . . . . 7 Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 24 Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 29 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 35 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 39 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Shareholder Account Services and Privileges . . . . . . . . . . . . 43 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 46 General Information . . . . . . . . . . . . . . . . . . . . . . . . 47 Class A Share Investment Results and Related Statistics . . . . . . 48 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Financial Statements
The Investment Company of America - Page 1 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES The following limitations and guidelines are considered at the time of purchase, under normal circumstances, and are based on a percentage of the fund's net assets unless otherwise noted. This summary is not intended to reflect all of the fund's investment limitations. GENERAL GUIDELINE .. The fund may only invest in securities included on its eligible list (does not apply to securities issued or guaranteed by the U.S. government). DEBT SECURITIES .. The fund's investments in straight debt securities (i.e., not convertible into equity) will generally consist of investment grade securities. The fund may, however, invest up to 5% of its assets in straight debt securities rated Ba or below by Moody's Investors Service, Inc. and BB or below by Standard & Poor's Corporation or unrated but determined to be of equivalent quality. NON-U.S. SECURITIES .. The fund may invest up to 15% of its securities in issuers domiciled outside the U.S. and not included in the Standard & Poor's 500 Composite Index. * * * * * * The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES The descriptions below are intended to supplement the material in the prospectus under "Investment Objectives, Strategies and Risks." EQUITY SECURITIES - Equity securities represent an ownership position in a company. These securities may include common stocks and securities with equity conversion or purchase rights. The prices of equity securities fluctuate based on changes in the financial condition of their issuers and on market and economic conditions. DEBT SECURITIES - Debt securities are used by issuers to borrow money. Issuers pay investors interest and generally must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values. The prices of debt securities fluctuate depending on such factors as interest rates, credit quality and maturity. In general, prices of debt securities decline when interest rates rise and increase when interest rates fall. SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in securities that have a combination of equity and debt characteristics. These securities may at times behave more like equity than debt and vice versa. Some types of convertible bonds or preferred stock automatically convert into common stock. The prices and yields of non-convertible preferred The Investment Company of America - Page 2 stock generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. Convertible bonds, convertible preferred stock, and other securities may sometimes be converted into common stock or other securities at a stated conversion ratio. These securities, prior to conversion, pay a fixed rate of interest or a dividend. Because convertible securities have both debt and equity characteristics, their value varies in response to many factors, including the value of the underlying assets, general market and economic conditions, and convertible market valuations, as well as changes in interest rates, credit spreads, and the credit quality of the issuer. U.S. TREASURY SECURITIES - U.S. Treasury securities include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For 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. U.S. AGENCY SECURITIES - U.S. agency securities include those securities issued by certain U.S. government instrumentalities and certain federal agencies. These securities are neither direct obligations of, nor guaranteed by, the Treasury. However, they generally involve some form of federal sponsorship: 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 Home Loan Bank, Federal Home Loan Mortgage Corporation ("Freddie Mac"), Federal National Mortgage Association ("Fannie Mae"), Tennessee Valley Authority, and Federal Farm Credit Bank System. INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. may involve special risks, caused by, among other things: currency controls and fluctuating currency values; different accounting, auditing, financial reporting and legal standards and practices in some countries; changing local, regional and global economic, political, and social conditions; expropriation or confiscatory taxation; greater market volatility; differing securities market structures; and various administrative difficulties such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. However, in the opinion of the Investment Adviser, investing outside the U.S. also can reduce certain portfolio risks due to greater diversification opportunities. The risks described above are potentially heightened in connection with investments in developing countries. Although there is no universally accepted definition, a developing country is generally considered to be a country in the initial stages of its industrialization cycle with a low per capita gross national product. For example, political and/or economic structures in these countries may be in their infancy and developing rapidly. Historically, the markets of developing countries have been more volatile than the markets of developed countries. The fund may invest in securities of issuers in developing countries only to a limited extent. Additional costs could be incurred in connection with the fund's investment activities outside the U.S. Brokerage commissions may be higher outside the U.S., and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with the maintenance of assets in certain jurisdictions. The Investment Company of America - Page 3 CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency exchange rates. A forward currency contract is 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. Forward currency contracts entered into by the fund will involve the purchase or sale of one currency against the U.S. dollar. While entering into forward currency transactions could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain which might result from an increase in the value of the currency. The fund will not generally attempt to protect against all potential changes in exchange rates. The fund will segregate liquid assets which will be marked to market daily to meet its forward contract commitments to the extent required by the Securities and Exchange Commission. Certain provisions of the Internal Revenue Code may affect the extent to which the fund may enter into forward contracts. Such transactions may also affect the character and timing of income, gain or loss recognized by the fund for U.S. federal income tax purposes. RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject to restrictions on resale. Securities not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures adopted by the fund's Board of Directors, taking into account factors such as the frequency and volume of trading, the commitment of dealers to make markets and the availability of qualified investors, all of which can change from time to time. The fund may incur certain additional costs in disposing of illiquid securities. CASH AND CASH EQUIVALENTS - These include: (i) commercial paper (e.g., short-term notes up to 9 months in maturity issued by corporations, governmental bodies or bank/corporation sponsored conduits (asset-backed commercial paper)), (ii) commercial bank obligations (e.g., certificates of deposit, bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)), (iii) savings association and savings bank obligations (e.g., bank notes and certificates of deposit issued by savings banks or savings associations), (iv) securities of the U.S. government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (v) corporate bonds and notes that mature, or that may be redeemed, in one year or less. * * * * * * PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. Short-term trading profits are not the fund's objective, and changes in its investments are generally accomplished gradually, though short-term transactions may occasionally be made. High portfolio turnover (100% or more) involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions, and may result in the realization of net capital gains, which are taxable when distributed to shareholders. A fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio was replaced once per year. The fund's portfolio turnover rate for the fiscal year ended 2002 was 27%. See "Financial Highlights" in the prospectus for the fund's annual portfolio turnover for each of the last five fiscal periods. The Investment Company of America - Page 4 FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies and investment restrictions which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is defined in the Investment Company Act of 1940, as amended (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. All percentage limitations are considered at the time securities are purchased and are based on the fund's net assets unless otherwise indicated. None of the following investment restrictions involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. These restrictions (which do not apply to the purchase of securities issued or guaranteed by the U.S. government) provide that the fund shall make no investment: Which involves promotion or business management by the fund; 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 fund, 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 fund to be invested in the securities in any one industry; If the investment would cause the fund 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 fund's total assets; or In any security which has not been placed on the fund's Eligible List. (See the prospectus). The fund 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 fund to make such investments (and it has no current intention of doing so at least for the next 12 months), the fund may invest in the securities of real estate investment trusts.) The fund has also adopted other fundamental policies which cannot be changed without shareholder approval. These policies require the fund 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 fund 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. The Investment Company of America - Page 5 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 fund 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. NON-FUNDAMENTAL POLICIES - The following non-fundamental policies may be changed without shareholder approval: 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 judgment makes such action seem advisable. Purchase or retain the securities of any issuer if those officers and directors of the fund 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 fund (restricted securities), or other securities that are not readily marketable. The Investment Company of America - Page 6 MANAGEMENT OF THE FUND BOARD OF DIRECTORS AND OFFICERS
YEAR FIRST NUMBER OF BOARDS POSITION ELECTED WITHIN THE FUND WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH OTHER DIRECTORSHIPS/3/ HELD NAME AND AGE FUND OF THE FUND/1/ PAST 5 YEARS DIRECTOR SERVES BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS - ----------------------------------------------------------------------------------------------------------------------------------- Louise H. Bryson Director 1999 Executive Vice President, 1 None Age: 58 Distribution and Business Development, Lifetime Television; Director and former Chairman of the Board, KCET - Los Angeles (public television station); former Senior Vice President, fx Networks, Inc: Fox Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Mary Anne Dolan Director 2000 Founder and President, 3 None Age: 55 M.A.D., Inc. (communications company); Former Editor-in-Chief, Los Angeles ----------- Herald Examiner --------------- - ----------------------------------------------------------------------------------------------------------------------------------- Martin Fenton Director 2000 Managing Director, Senior 17 None Age: 67 Resource Group LLC (development and management of senior living communities) - ----------------------------------------------------------------------------------------------------------------------------------- Leonard R. Fuller Director 2002 President, Fuller Consulting 14 None Age: 56 (financial management consulting firm) - ----------------------------------------------------------------------------------------------------------------------------------- Claudio X. Gonzalez Director 2001 Chairman and Chief Executive 1 America Movil, SA; Grupo Laporte Officer, Kimberly Clark de Carso; Grupo Alfa; Age: 68 Mexico, SA Kimberly Clark Corp.; Kellogg Company; General Electric Company; The Home Depot; The Mexico Fund - ----------------------------------------------------------------------------------------------------------------------------------- John G. McDonald Director 1976 The IBJ Professor of 8 Plum Creek Timber Co.; Age: 65 Finance, Graduate School of Scholastic Corporation; Business, Stanford iStar Financial, Inc.; University Varian, Inc.; Capstone Turbine Corp. - ----------------------------------------------------------------------------------------------------------------------------------- Bailey Morris-Eck Director 1993 Senior Associate, Reuters 3 None Age: 58 Foundation; Senior Fellow, Institute for International Economics; Consultant, The --- Independent of London --------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Newman Director 1996 Chairman and CEO, AECOM 13 Sempra Energy; Age: 68 Technology Corporation Southwest Water Company (engineering, consulting and professional services) - ----------------------------------------------------------------------------------------------------------------------------------- Olin C. Robison Director 1987 President of the Salzburg 3 None Age: 66 Seminar; President Emeritus, Middlebury College - ----------------------------------------------------------------------------------------------------------------------------------- William J. Spencer Director 1997 Chairman and Chief Executive 1 None Age: 72 Officer, SEMATECH (research and development consortium); Trustee, William Jewell College; Associated Universities, Inc. - -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 7 [This page is intentionally left blank for this filing.] The Investment Company of America - Page 8
PRINCIPAL OCCUPATION(S) DURING YEAR FIRST PAST 5 YEARS AND ELECTED POSITIONS HELD NUMBER OF BOARDS POSITION A DIRECTOR WITH AFFILIATED ENTITIES WITHIN THE FUND OTHER DIRECTORSHIPS/3/ WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER COMPLEX/2/ ON WHICH HELD NAME AND AGE FUND OF THE FUND/1/ OF THE FUND DIRECTOR SERVES BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/4//,//5/ - ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Haaga, Jr. Director 2002 Executive Vice President and 17 None Age: 54 Director, Capital Research and Management Company; Director, American Funds Distributors, Inc.* - ----------------------------------------------------------------------------------------------------------------------------------- James B. Lovelace Senior Vice 1994 Senior Vice President and 2 None Age: 46 President Director, Capital Research and and Management Company Director - ----------------------------------------------------------------------------------------------------------------------------------- Donald D. O'Neal Senior Vice 1994 Senior Vice President, 2 None Age: 42 President Capital Research and and Management Company Director - ----------------------------------------------------------------------------------------------------------------------------------- James F. President 2000 President and Director, 3 None Rothenberg and Capital Research and Age: 56 Director Management Company; Director, American Funds Distributors, Inc.*; Director, American Funds Service Company*; Director, The Capital Group Companies, Inc.*; Director, Capital Group Research, Inc.*; Director, Capital Management Services, Inc.* - ----------------------------------------------------------------------------------------------------------------------------------- R. Michael Chairman of 1994 Chairman of the Board and 2 None Shanahan the Board Principal Executive Officer, Age: 64 and Chief Capital Research and Executive Management Company; Director, Officer American Funds Distributors, Inc.*; Director, The Capital Group Companies, Inc.*; Chairman of the Board, Capital Management Services, Inc.*; Director, Capital Strategy Research, Inc.* - -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 9
PRINCIPAL OCCUPATION(S) DURING POSITION YEAR FIRST ELECTED PAST 5 YEARS AND POSITIONS HELD WITH THE AN OFFICER WITH AFFILIATED ENTITIES NAME AND AGE FUND OF THE FUND/1/ OR THE PRINCIPAL UNDERWRITER OF THE FUND - ----------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS/5/ - ----------------------------------------------------------------------------------------------------------------------------------- Gregg E. Ireland Senior Vice President 1994 Senior Vice President, Capital Research and Management Company Age: 53 - ----------------------------------------------------------------------------------------------------------------------------------- Joyce E. Gordon Vice President 1998 Senior Vice President, Capital Research Company* Age: 46 - ----------------------------------------------------------------------------------------------------------------------------------- Anne M. Llewellyn Vice President 1984 Associate, Capital Research and Management Company Age: 55 - ----------------------------------------------------------------------------------------------------------------------------------- Vincent P. Corti Secretary 1994 Vice President - Fund Business Management Group, Capital Age: 46 Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Thomas M. Rowland Treasurer 1998 Senior Vice President, Capital Research and Management Company; Age: 61 Director, American Funds Service Company* - ----------------------------------------------------------------------------------------------------------------------------------- R. Marcia Gould Assistant Treasurer 1993 Vice President - Fund Business Management Group, Capital Age: 48 Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Anthony W. Hynes, Assistant Treasurer 1998 Vice President - Fund Business Management Group, Capital Jr. Research and Management Company Age: 40 - -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 10 * Company affiliated with Capital Research and Management Company. 1 Directors and officers of the fund are elected annually. 2 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 This includes all directorships (other than those in the American Funds Group) that are held by each director as a director of a public company or a registered investment company. 4 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). 5 All of the officers listed, with the exception of Anne M. Llewellyn and Thomas M. Rowland, are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as Investment Adviser. THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET - - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. The Investment Company of America - Page 11 FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2002
AGGREGATE DOLLAR RANGE/1/ OF SHARES OWNED IN ALL FUNDS IN THE AMERICAN FUNDS DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN NAME SHARES OWNED BY DIRECTOR - ------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS - ------------------------------------------------------------------------------- Louise H. Bryson $10,001 - $50,000 $10,001 - $50,000 - ------------------------------------------------------------------------------- Mary Anne Dolan $50,001 - $100,000 Over $100,000 - ------------------------------------------------------------------------------- Martin Fenton $50,001 - $100,000 Over $100,000 - ------------------------------------------------------------------------------- Leonard R. Fuller $10,001 - $50,000 $50,001 - $100,000 - ------------------------------------------------------------------------------- Claudio X. Gonzalez $50,001 - $100,000 $50,001 - $100,000 Laporte - ------------------------------------------------------------------------------- John G. McDonald Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- Bailey Morris-Eck $50,001 - $100,000 $50,001 - $100,000 - ------------------------------------------------------------------------------- Richard G. Newman Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- Olin C. Robison $50,001 - $100,000 Over $100,000 - ------------------------------------------------------------------------------- William J. Spencer Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/2/ - ------------------------------------------------------------------------------- Paul G. Haaga, Jr. Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- James B. Lovelace $10,001 - $50,000 Over $100,000 - ------------------------------------------------------------------------------- Donald D. O'Neal Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- James F. Rothenberg Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- R. Michael Shanahan Over $100,000 Over $100,000 - -------------------------------------------------------------------------------
1 Ownership disclosure is made using the following ranges: None; $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000 and Over $100,000. The amounts listed for "interested" Directors include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan. 2 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2002 No compensation is paid by the fund to any officer or Director who is a director, officer or employee of the Investment Adviser or its affiliates. The fund pays annual fees of $50,000 to Directors who are not affiliated with the Investment Adviser, $2,000 for each Board of Directors meeting attended, and $1,000 for each meeting attended as a member of a committee of the Board of Directors. The Investment Company of America - Page 12 No pension or retirement benefits are accrued as part of fund expenses. The Directors may elect, on a voluntary basis, to defer all or a portion of their fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the Directors who are not affiliated with the Investment Adviser.
TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ - ------------------------------------------------------------------------------------------ Louise H. Bryson $ 64,000/3/ $ 64,000/3/ - ------------------------------------------------------------------------------------------ Mary Anne Dolan 63,000 105,000 - ------------------------------------------------------------------------------------------ Martin Fenton 62,190 210,230 - ------------------------------------------------------------------------------------------ Leonard R. Fuller 29,050 130,050 - ------------------------------------------------------------------------------------------ Claudio X. Gonzalez 61,000/3/ 68,500/3/ Laporte - ------------------------------------------------------------------------------------------ John G. McDonald 79,380/3/ 269,830/3/ - ------------------------------------------------------------------------------------------ Bailey Morris-Eck 61,000 105,000 - ------------------------------------------------------------------------------------------ Richard G. Newman 76,230 136,730 - ------------------------------------------------------------------------------------------ Olin C. Robison 66,000/3/ 109,500/3/ - ------------------------------------------------------------------------------------------ William J. Spencer 79,000/3/ 79,000/3/ - ------------------------------------------------------------------------------------------
1 Amounts may be deferred by eligible Directors under a non-qualified deferred compensation plan adopted by the fund 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 Directors. 2 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the 2002 fiscal year for participating Directors is as follows: Louise H. Bryson ($159,801), Claudio X. Gonzalez Laporte ($68,446), John G. McDonald ($785,161), Olin C. Robison ($153,280) and William J. Spencer ($390,134). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Directors. As of February 1, 2003, the officers and Directors of the fund and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. FUND ORGANIZATION AND THE BOARD OF DIRECTORS The fund, an open-end, diversified management investment company, was organized as a Delaware corporation on August 28, 1933. All fund operations are supervised by the fund's Board of Directors, which meets periodically and performs duties required by applicable state and federal laws. The Investment Company of America - Page 13 Delaware law provides that the business and affairs of the fund are managed by or under the direction of the Board of Directors. Directors are charged with fiduciary duties of care and loyalty to the fund and its shareholders. Generally, a Director will satisfy his or her duties if he or she acts with the care of an ordinarily prudent person under similar circumstances and refrains from self-dealing. Members of the Board who are not employed by Capital Research and Management Company or its affiliates are paid certain fees for services rendered to the fund as described above. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund has several different classes of shares, including classes A, B, C, F, 529-A, 529-B, 529-C, 529-E, 529-F, R-1, R-2, R-3, R-4 and R-5. The 529 share classes are available only through CollegeAmerica to investors establishing qualified higher education savings accounts. The R share classes are generally available only to retirement plans. Class R-5 shares are also available to clients of the Personal Investment Management Group of Capital Guardian Trust Company who do not have an intermediary associated with their accounts and without regard to the $1 million purchase minimum. The R share classes are described in more detail in the fund's Retirement Plan Statement of Additional Information. The shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Directors and set forth in the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 Plans adopted in connection with the distribution of shares and on other matters in which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. Note that CollegeAmerica account owners are not shareholders of the fund and accordingly, do not have the rights of a shareholder, such as the right to vote proxies relating to fund shares. As the legal owner of the fund's shares, the Virginia College Savings Plan will vote any proxies relating to fund shares. The fund holds annual meetings of shareholders for the purpose of electing directors. Significant matters which require shareholder approval, such as a change in a fundamental investment policy, will be presented to shareholders at a meeting called for such purpose. Shareholders have one vote per share owned. At the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the Board could be removed by a majority vote. COMMITTEES OF THE BOARD OF DIRECTORS The fund has an Audit Committee comprised of Louise H. Bryson, Mary Anne Dolan, Martin Fenton, Leonard R. Fuller, Claudio X. Gonzalez Laporte, John G. McDonald, Bailey Morris-Eck, Richard G. Newman, Olin C. Robison and William J. Spencer, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee oversees the fund's accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund's principal service providers. The Committee acts as a liaison between the fund's independent accountants and the full Board of Directors. Three Audit Committee meetings were held during the 2002 fiscal year. The Investment Company of America - Page 14 The fund has a Contracts Committee comprised of Louise H. Bryson, Mary Anne Dolan, Martin Fenton, Leonard R. Fuller, Claudio X. Gonzalez Laporte, John G. McDonald, Bailey Morris-Eck, Richard G. Newman, Olin C. Robison and William J. Spencer, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee's function is to request, review and consider the information deemed necessary to evaluate the terms of certain agreements between the fund and its Investment Adviser or the Investment Adviser's affiliates, such as the Investment Advisory and Service Agreement, Principal Underwriting Agreement, Administrative Services Agreement and Plans of Distribution under rule 12b-1, that the fund may enter into, renew or continue, and to make its recommendations to the full Board of Directors on these matters. One Contracts Committee meeting was held during the 2002 fiscal year. The fund has a Nominating Committee comprised of Louise H. Bryson, John G. McDonald and Olin C. Robison, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee periodically reviews such issues as the Board's composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates independent director and Advisory Board member candidates to the full Board of Directors. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating Committee of the fund, c/o the fund's Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee. Four Nominating Committee meetings were held during the 2002 fiscal year. The fund has a Proxy Committee comprised of John G. McDonald, Richard G. Newman and William J. Spencer, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. Donald D. O'Neal is also a member of the Committee and is an "interested person" of the fund due to his affiliation with the Investment Adviser. The Committee's functions include establishing and reviewing procedures and policies for voting of proxies of companies held in the fund's portfolio, making determinations with regard to certain contested proxy voting issues, and discussing related current issues. Five Proxy Committee meetings were held during the 2002 fiscal year. The Investment Company of America - Page 15 ADVISORY BOARD MEMBERS The Board of Directors has established an Advisory Board whose members are, in the judgment of the Directors, highly knowledgeable about world 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 world trade and business conditions. Members of the Advisory Board, however, possess no authority or responsibility with respect to the fund's investments or management. The chart below sets out additional information about the Advisory Board Members.
YEAR FIRST NUMBER OF BOARDS ELECTED AN WITHIN THE FUND ADVISORY BOARD MEMBER PRINCIPAL OCCUPATION(S) DURING COMPLEX/1/ ON WHICH NAME AND AGE OF THE FUND PAST 5 YEARS MEMBER SERVES OTHER DIRECTORSHIPS/2/ HELD - ----------------------------------------------------------------------------------------------------------------------------------- Thomas M. Crosby, 1995 Partner, Faegre & Benson (law 1 None Jr. firm) Age: 64 - ----------------------------------------------------------------------------------------------------------------------------------- Ellen H. Goldberg 1998 President, Santa Fe Institute; 1 None Age: 57 Research Professor, University of New Mexico - ----------------------------------------------------------------------------------------------------------------------------------- William H. Kling 1985 President, American Public 6 Irwin Financial Corporation; Age: 60 Media Group St. Paul Companies - ----------------------------------------------------------------------------------------------------------------------------------- Robert J. O'Neill 1988 Chairman of the Council, 3 None Age: 66 Australian Strategic Policy Institute; former Chairman of the Council, the International Institute for Strategic Studies; former Chichele Professor of the History of War and former Fellow, All Souls College, University of Oxford - ----------------------------------------------------------------------------------------------------------------------------------- Norman R. Weldon 1977 Managing Director, Partisan 3 Novoste Corporation Age: 68 Management Group, Inc.; former Chairman of the Board, Novoste Corporation; former President and Director, Corvita Corporation - -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 16 1 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 2 This includes all directorships (other than those in the American Funds Group) that are held by each Advisory Board member as a director of a public company or a registered investment company. THE ADDRESS FOR ALL ADVISORY BOARD MEMBERS OF THE FUND IS 333 SOUTH HOPE STREET - - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. The Investment Company of America - Page 17 ADVISORY BOARD MEMBER COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2002 The fund pays fees of $5,500 per annum to Advisory Board members who are not affiliated with the Investment Adviser, plus $1,500 for each meeting attended in conjunction with meetings with the Board of Directors. No pension or retirement benefits are accrued as part of fund expenses. The 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 fund. The fund also reimburses certain expenses of the Advisory Board Members who are not affiliated with the fund.
TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ - ------------------------------------------------------------------------------------------ Thomas M. Crosby, $10,000 $10,000 Jr. - ------------------------------------------------------------------------------------------ Ellen H. Goldberg 10,000 10,000 - ------------------------------------------------------------------------------------------ William H. Kling 10,000/3/ 28,580/3/ - ------------------------------------------------------------------------------------------ Robert J. O'Neill 8,500 55,500 - ------------------------------------------------------------------------------------------ Norman R. Weldon 8,500 53,250 - ------------------------------------------------------------------------------------------
1 Amounts may be deferred by eligible Advisory Board members under a non-qualified deferred compensation plan adopted by the fund 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 Advisory Board member. 2 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) as of the fiscal year ended December 31, 2002 for participating Advisory Board members is as follows: William H. Kling ($64,952). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Advisory Board member. The Investment Company of America - Page 18 INVESTMENT ADVISER - The Investment Adviser, Capital Research and Management Company, founded in 1931, maintains research facilities in the U.S. and abroad (Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo) with a staff of professionals, many of whom have significant investment experience. The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment Adviser's research 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. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. The Investment Adviser is responsible for managing more than $350 billion of stocks, bonds and money market instruments and serves over 11 million shareholder accounts of all types throughout the world. These investors include individuals, privately owned businesses 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 fund and the Investment Adviser will continue in effect until April 30, 2004, 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 of the fund, and (ii) the vote of a majority of Directors who are not parties to the Agreement or interested persons (as defined in the 1940 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 fund for its acts or omissions in the performance of its obligations to the fund 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). In determining whether to renew the Agreement each year, the Contracts Committee of the Board of Directors evaluates information provided by the Investment Adviser in accordance with Section 15(c) of the 1940 Act, and presents its recommendations to the full Board of Directors. At its most recent meeting, the Committee reviewed and considered a number of factors in recommending renewal of the existing Agreement, including the quality of services provided to the fund (primarily measured by investment results), fees and expenses borne by the fund, financial results of the Investment Adviser (including comparisons to a group of publicly held mutual fund managers) and comparative data for other mutual funds and selected indexes. Members of the Committee discussed the quality of services provided to the fund and noted that while absolute results have been negative during the more recent period, its results versus its peers were favorable during comparative periods as well as for longer periods of time. The Committee recognized that the fund's research-based long-term approach helped it to resist the overall stock market weakness during the year. The Committee considered the quality and depth of the Investment Adviser's organization in general and of the investment professionals currently providing services to the fund. The Investment Company of America - Page 19 The Committee observed that the fund's expenses for the most recent fiscal year and earlier periods compared favorably to its peer group. The Committee also considered steps taken in recent years by the Investment Adviser to help control transfer agent expenses borne by the fund. Based on their review, the Committee and the Board concluded that the advisory fees and other expenses of the fund are fair, both absolutely and in comparison with those of other funds in the industry, and that shareholders have received reasonable value in return for paying such fees and expenses. The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to: custodian, stock transfer and dividend disbursing fees and expenses; shareholder recordkeeping and administrative expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares of the fund (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's Plans of Distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to Directors and members of the advisory board unaffiliated with the Investment Adviser; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data. As compensation for its services, the Investment Adviser receives a monthly fee which is based on prior month-end net assets, calculated at the annual rate of 0.39% on the first $1 billion of 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 over $13 billion to $21 billion, plus 0.234% on net assets over $21 billion to $34 billion, plus 0.231% on net assets over $34 billion to $44 billion, plus 0.228% on net assets over $44 billion to $55 billion, plus 0.225% on net assets over $55 billion to $71 billion, plus 0.222% on net assets in excess of $71 billion. The Agreement provides for a management fee reduction to the extent that the annual ordinary operating expenses of the fund's Class A shares exceed 1 1/2% of the first $30 million of the net assets of the fund and 1% of the average net assets in excess thereof. Expenses which are not subject to these limitations are interest, taxes, and extraordinary expenses. 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. To the extent the fund's management fee must be waived due to Class A share expense ratios exceeding this limit, management fees will be reduced similarly for all classes of shares of the fund or other Class A fees will be waived in lieu of management fees. For the fiscal years ended 2002, 2001 and 2000, the Investment Adviser received from the fund advisory fees of $129,674,000, $134,899,000 and $135,760,000, respectively. The Investment Company of America - Page 20 ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the Investment Adviser relating to the fund's Class C, F and 529 shares will continue in effect until April 30, 2004, 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 the vote of a majority of Directors who are not parties to the Administrative Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Administrative Agreement provides that the fund may terminate the agreement at any time by vote of a majority of Directors who are not interested persons of the fund. The Investment Adviser has the right to terminate the Administrative Agreement upon 60 days' written notice to the fund. The Administrative Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). Under the Administrative Agreement, the Investment Adviser provides certain transfer agent and administrative services for shareholders of the fund's Class C and F shares, and all Class 529 shares. The Investment Adviser contracts with third parties, including American Funds Service Company, the fund's Transfer Agent, to provide these services. Services include, but are not limited to, shareholder account maintenance, transaction processing, tax information reporting, and shareholder and fund communications. In addition, the Investment Adviser monitors, coordinates and oversees the activities performed by third parties providing such services. As compensation for its services, the Investment Adviser receives transfer agent fees for transfer agent services provided to the fund's applicable share classes. Transfer agent fees are paid monthly according to a fee schedule contained in a Shareholder Services Agreement between the fund and American Funds Service Company. The Investment Adviser also receives an administrative services fee for administrative services provided to the fund's applicable share classes. Administrative services fees are paid monthly, accrued daily and calculated at the annual rate of 0.15% of the average daily net assets of each respective applicable share class. During the fiscal period ended 2002, administrative services fees paid by the fund were:
ADMINISTRATIVE SERVICES FEE - ------------------------------------------------------------------------------ CLASS C $1,472,000 - ------------------------------------------------------------------------------ CLASS F 584,000 - ------------------------------------------------------------------------------ CLASS 529-A 120,000 - ------------------------------------------------------------------------------ CLASS 529-B 40,000 - ------------------------------------------------------------------------------ CLASS 529-C 42,000 - ------------------------------------------------------------------------------ CLASS 529-E 3,000 - ------------------------------------------------------------------------------ CLASS 529-F 65 - ------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION - American Funds Distributors, Inc. (the "Principal Underwriter") is the principal underwriter of the fund's shares. The Principal Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071; 135 South State College Boulevard, Brea, CA 92821; 3500 Wiseman Boulevard, San Antonio, TX 78251; 8332 The Investment Company of America - Page 21 Woodfield Crossing Boulevard, Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513. The Principal Underwriter receives revenues from sales of the fund's shares. For Class A and 529-A shares, the Principal Underwriter receives commission revenue consisting of that portion of the Class A and 529A sales charge remaining after the allowances by the Principal Underwriter to investment dealers. For Class B and 529-B shares, the Principal Underwriter sells the rights to the 12b-1 fees paid by the fund for distribution expenses to a third party and receives the revenue remaining after compensating investment dealers for sales of Class B and 529-B shares. The fund also pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers of Class B and 529-B shares. For Class C and 529-C shares, the Principal Underwriter receives any contingent deferred sales charges that apply during the first year after purchase. The fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers of Class C and 529-C shares. For Class 529-E shares, the fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers. For Class F and 529-F shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers who sell Class F and 529-F shares. Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were:
COMMISSIONS, ALLOWANCE OR FISCAL YEAR/PERIOD REVENUE COMPENSATION OR FEES RETAINED TO DEALERS - ----------------------------------------------------------------------------------------------------- CLASS A 2002 $26,701,000 $131,273,000 2001 25,295,000 123,707,000 2000 19,507,000 94,128,000 CLASS B 2002 8,234,000 40,572,000 2001 7,031,000 37,823,000 2000 2,854,000 17,424,000 - ----------------------------------------------------------------------------------------------------- CLASS 529-A 2002 921,000 4,603,000 - ----------------------------------------------------------------------------------------------------- CLASS 529-B 2002 247,000 1,772,000 - -----------------------------------------------------------------------------------------------------
The fund has adopted Plans of Distribution (the "Plans") pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plans (see below). As required by rule 12b-1 and the 1940 Act, the Plans (together with the Principal Underwriting Agreement) have been approved by the full Board of Directors and separately by a majority of the Directors who are not "interested persons" of the fund and who have no direct or indirect financial interest in the operation of the Plans or the Principal Underwriting Agreement. Potential benefits of the Plans to the fund include: shareholder services; savings to the fund in transfer agency The Investment Company of America - Page 22 costs; savings to the fund 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 fund are committed to the discretion of the Directors who are not "interested persons" during the existence of the Plans. The Plans may not be amended to increase materially the amount spent for distribution without shareholder approval. Plan expenses are reviewed quarterly and the Plans must be renewed annually by the Board of Directors. Under the Plans, the fund may annually expend the following amounts to finance any activity primarily intended to result in the sale of fund shares, provided the fund's Board of Directors has approved the category of expenses for which payment is being made: (i) for Class A shares, up to 0.25% of the average daily net assets attributable to Class A shares; (ii) for Class 529-A shares, up to 0.50% of the average daily net assets attributable to Class 529-A shares; (iii) for Class B and 529-B shares, 1.00% of the average daily net assets attributable to Class B and 529-B shares, respectively; (iv) for Class C and 529-C shares, 1.00% of the average daily net assets attributable to Class C and 529-C shares, respectively; (v) for Class 529-E shares, up to 0.75% of the average daily net assets attributable to Class 529-E shares; and (vi) for Class F and 529-F shares, up to 0.50% of the average daily net assets attributable to Class F and 529-F shares, respectively. For Class A and 529-A shares: (i) up to 0.25% is reimbursed to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) up to the amount allowable under the fund's Class A and 529-A 12b-1 limit is reimbursed to the Principal Underwriter for paying distribution-related expenses, including for Class A and 529-A shares dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge (including purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees, and retirement plans, endowments and foundations with $50 million or more in assets) ("no load purchases"). Commissions on no load purchases of Class A and 529-A shares, in excess of the Class A and 529-A Plan limitations not reimbursed to the Principal Underwriter during the most recent fiscal quarter are recoverable for five quarters, provided that such commissions do not exceed the annual expense limit. After five quarters these commissions are not recoverable. For Class B and 529-B shares: (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including the financing of commissions paid to qualified dealers. For Class C and 529-C shares: (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class 529-E shares: (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees paid to qualified dealers, and (ii) 0.25% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. The Investment Company of America - Page 23 For Class F and 529-F shares, 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers or advisers. Currently, no compensation is paid under the fund's Class F and 529-F Plans for distribution-related expenses. During the 2002 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:
12B-1 EXPENSES 12B-1 LIABILITY ACCRUED OUTSTANDING - ------------------------------------------------------------------------------ CLASS A $116,270,000 $8,339,000 - ------------------------------------------------------------------------------ CLASS B 16,571,000 1,562,000 - ------------------------------------------------------------------------------ CLASS C 8,184,000 865,000 - ------------------------------------------------------------------------------ CLASS F 775,000 84,000 - ------------------------------------------------------------------------------ CLASS 529-A 129,000 24,000 - ------------------------------------------------------------------------------ CLASS 529-B 188,000 32,000 - ------------------------------------------------------------------------------ CLASS 529-C 213,000 36,000 - ------------------------------------------------------------------------------ CLASS 529-E 11,000 2,000 - ------------------------------------------------------------------------------ CLASS 529-F 100 65 - ------------------------------------------------------------------------------
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from a designated percentage of its income), currently provides additional compensation to dealers. Currently, these payments are limited to the top 100 dealers who have sold shares of the fund or other funds in The American Funds Group. These payments are based principally on a pro rata share of a qualifying dealer's sales. The Principal Underwriter will, on an annual basis, determine the advisability of continuing these payments. TAXES AND DISTRIBUTIONS FUND TAXATION - The fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code (the "Code"). A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including the excess of net short-term capital gain over net long-term capital losses) and generally is not subject to federal income tax to the extent that it distributes annually 100% of its investment company taxable income and net realized capital gains in the manner required under the Code. The fund intends to distribute annually all of its investment company taxable income and net realized capital gains and therefore does not expect to pay federal income tax, although in certain circumstances the fund may determine that it is in the interest of shareholders to distribute less than that amount. To be treated as a regulated investment company under Subchapter M of the Code, the fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such securities or currencies, and The Investment Company of America - Page 24 (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the fund'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 two or more issuers which the fund controls and which are determined to be engaged in the same or similar 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 gain (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 fund from its current year's ordinary income and capital gain net income and (ii) any amount on which the fund pays income tax during the periods described above. Although the fund intends to distribute its net investment income and net capital gains so as to avoid excise tax liability, the fund may determine that it is the interest of shareholders to distribute a lesser amount. The following information may not apply to you if you hold fund shares in a non-taxable account, such as a qualified retirement plan. Please see your tax adviser for more information. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS - Dividends and capital gain distributions on fund shares will be reinvested in shares of the fund of the same class, unless shareholders indicate in writing that they wish to receive them in cash or in shares of the same class of other American Funds, as provided in the prospectus. Dividends and capital gain distributions by 529 share classes will be automatically reinvested. Distributions of investment company taxable income and net realized capital gains to individual shareholders will be taxable whether received in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of that share on the reinvestment date. DIVIDENDS - The fund intends to follow the practice of distributing substantially all of its investment company taxable income, which includes any excess of net realized short-term gains over net realized long-term capital losses. Investment company taxable income generally includes dividends, interest, net short-term capital gains in excess of net long-term capital losses, and certain foreign currency gains, if any, less expenses and certain foreign currency losses. Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the fund accrues receivables or liabilities denominated in a foreign currency and the time the fund actually collects such receivables, or pays such liabilities, The Investment Company of America - Page 25 generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of the fund's investment company taxable income to be distributed to its shareholders as ordinary income. If the fund invests in stock of certain passive foreign investment companies, the fund may be subject to U.S. federal income taxation on a portion of any "excess distribution" with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the fund's holding period for the stock. The distribution or gain so allocated to any taxable year of the fund, other than the taxable year of the excess distribution or disposition, would be taxed to the fund at the highest ordinary income rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company's stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the fund's investment company taxable income and, accordingly, would not be taxable to the fund to the extent distributed by the fund as a dividend to its shareholders. To avoid such tax and interest, the fund intends to elect to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time. Under this election, deductions for losses are allowable only to the extent of any prior recognized gains, and both gains and losses will be treated as ordinary income or loss. The fund will be required to distribute any resulting income, even though it has not sold the security and received cash to pay such distributions. Upon disposition of these securities, any gain recognized is treated as ordinary income and loss is treated as ordinary loss to the extent of any prior recognized gain. Dividends from domestic corporations are expected to comprise some portion of the fund's gross income. To the extent that such dividends constitute any of the fund's gross income, a portion of the income distributions of the fund will be eligible for the deduction for dividends received by corporations. Shareholders will be informed of the portion of dividends which so qualify. The dividends-received deduction is reduced to the extent that either the fund shares, or the underlying shares of stock held by the fund, with respect to which dividends are received, are treated as debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held by the shareholder or the fund, as the case may be, for less than 46 days during the 90-day period beginning on the date which is 45 days before the date on which the shares become ex-dividend. Capital gain distributions are not eligible for the dividends-received deduction. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to the fund each year, even though the fund will not receive cash interest payments from these securities. This original issue discount (imputed income) will comprise a part of the investment company taxable income of the fund which must be distributed to shareholders in order to maintain the qualification of the fund as a regulated investment company and to avoid federal income taxation at the level of the fund. The Investment Company of America - Page 26 In addition, some of the bonds may be purchased by the fund at a discount that exceeds the original issue discount on such bonds, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any bond having a market discount may be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond or a fund may elect to include the market discount in income in tax years to which it is attributable. Generally, accrued market discount may be figured under either the ratable accrual method or constant interest method. If the fund has paid a premium over the face amount of a bond, the fund has the option of either amortizing the premium until bond maturity and reducing the fund's basis in the bond by the amortized amount, or not amortizing and treating the premium as part of the bond's basis. In the case of any debt security having a fixed maturity date of not more than one year from its date of issue, the gain realized on disposition generally will be treated as a short-term capital gain. In general, any gain realized on disposition of a security held less than one year is treated as a short-term capital gain. Dividend and interest income received by the fund from sources outside the U.S. may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the U.S. may reduce or eliminate these foreign taxes, however. Most foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. CAPITAL GAIN DISTRIBUTIONS - The fund also intends to follow the practice of distributing the entire excess of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carry-forward of the fund. If any net long-term capital gains in excess of net short-term capital losses are retained by the fund for reinvestment, requiring federal income taxes to be paid thereon by the fund, the fund intends to elect to treat such capital gains as having been distributed to shareholders. As a result, each shareholder will report such capital gains as long-term capital gains taxable to individual shareholders at a maximum 20% capital gains rate, will be able to claim a pro rata share of federal income taxes paid by the fund on such gains as a credit against personal federal income tax liability, and will be entitled to increase the adjusted tax basis on fund shares by the difference between a pro rata share of the retained gains and such shareholder's related tax credit. SHAREHOLDER TAXATION - In January of each year, individual shareholders of the fund will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also may be subject to state and local taxes on distributions received from the fund. Distributions of the excess of net long-term capital gains over net short-term capital losses which the fund properly designates as "capital gain dividends" generally will be taxable to individual shareholders at a maximum 20% capital gains rate, regardless of the length of time the shares of the fund have been held by such shareholders. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gains during such six-month period. Distributions by the fund result in a reduction in the net asset value of the fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution would The Investment Company of America - Page 127 nevertheless be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of investment capital. For this reason, investors should consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive a partial return of investment capital upon the distribution, which will nevertheless be taxable to them. Redemptions of shares, including exchanges for shares of other American Funds, may result in federal, state and local tax consequences (gain or loss) to the shareholder. However, conversion from one class to another class in the same fund should not be a taxable event. If a shareholder exchanges or otherwise disposes of shares of the fund 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 fund, or of a different fund, the sales charge previously incurred in acquiring the fund's shares will not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purposes 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 funds. Also, any loss realized on a redemption or exchange of shares of the fund will be disallowed to the extent substantially identical shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. The fund will be required to report to the IRS all distributions of investment company taxable income and capital gains as well as gross proceeds from the redemption or exchange of fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of investment company taxable income and capital gains and proceeds from the redemption or exchange of a regulated investment company may be subject to withholding of federal income tax in the case of non-exempt U.S. shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law. Withholding may also be required if the fund is notified by the IRS or a broker that the taxpayer identification number furnished by the shareholder is incorrect or that the shareholder has previously failed to report interest or dividend income. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by the shareholder. Shareholders should consult their tax advisers about the application of federal, state and local tax law in light of their particular situation. The Investment Company of America - Page 28 UNLESS OTHERWISE NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F SHARES. CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO COLLEGEAMERICA ACCOUNTS. PURCHASE OF SHARES
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS - ------------------------------------------------------------------------------- See "Purchase $50 minimum (except where a Minimums" for initial lower minimum is noted under investment minimums. "Purchase Minimums"). - ------------------------------------------------------------------------------- By contacting Visit any investment Mail directly to your your investment dealer dealer who is investment dealer's address registered in the printed on your account state where the statement. purchase is made, has a sales agreement with American Funds Distributors and is authorized to sell a CollegeAmerica account in the case of 529 shares. - ------------------------------------------------------------------------------- By mail Make your check Fill out the account additions payable to the fund form at the bottom of a recent and mail to the account statement, make your address indicated on check payable to the fund, the account write your account number on application. Please your check, and mail the check indicate an investment and form in the envelope dealer on the account provided with your account application. statement. - ------------------------------------------------------------------------------- By telephone Please contact your Complete the "Investments by investment dealer to Phone" section on the account open an account, then application or American follow the procedures FundsLink Authorization Form. for additional Once you establish the investments. privilege, you, your financial advisor or any person with your account information can call American FundsLine(R) and make investments by telephone (subject to conditions noted in "Shareholder Account Services and Privileges - Telephone and Internet Purchases, Redemptions and Exchanges" below). - ------------------------------------------------------------------------------- By Internet Please contact your Complete the American FundsLink investment dealer to Authorization Form. Once you open an account, then establish the privilege, you, follow the procedures your financial advisor or any for additional person with your account investments. information may access American FundsLine OnLine(R) on the Internet and make investments by computer (subject to conditions noted in "Shareholder Account Services and Privileges - Telephone and Internet Purchases, Redemptions and Exchanges" below). - ------------------------------------------------------------------------------- By wire Call 800/421-0180 to Your bank should wire your obtain your account additional investments in the number(s), if same manner as described under necessary. Please "Initial Investment." indicate an 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 Investment Company of America - Page 29 The fund and the Principal Underwriter reserve the right to reject any purchase order. Generally, Class F shares are only available to fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. Class B and C shares are generally not available to certain employer-sponsored retirement plans, such as 401(k) plans, 457 plans, employer-sponsored 403(b) plans, and money purchase pension and profit sharing plans. Class 529 shares may be purchased by investors only through CollegeAmerica accounts. Class 529-E shares may only be purchased by investors participating in CollegeAmerica through an eligible employer plan. In addition, the state tax-exempt funds are only offered in certain states, and tax-exempt funds in general should not serve as retirement plan investments. PURCHASE MINIMUMS - The minimum initial investment for all funds in The American Funds Group, except the money market funds and the state tax-exempt funds, is $250. The minimum initial investment for the money market funds (The Cash Management Trust of America, The Tax-Exempt Money Fund of America, and The U.S. Treasury Money Fund of America) and the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, and The Tax-Exempt Fund of Virginia) is $1,000. Purchase 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 deduction or by employer-sponsored CollegeAmerica accounts and may be reduced or waived for shareholders of other funds in The American Funds Group. The minimum is $50 for additional investments (except for retirement plan payroll deduction and employer-sponsored CollegeAmerica accounts as noted above). PURCHASE MAXIMUM FOR CLASS B SHARES - The maximum purchase order for Class B shares for all American Funds is $100,000. Direct purchases of Class B shares of The Cash Management Trust of America are not permitted; shares may be acquired only by exchanging from Class B shares of other American Funds. For investments above $100,000, Class A shares are generally a less expensive option over time due to sales charge reductions or waivers. PURCHASE MAXIMUM FOR CLASS C SHARES - The maximum purchase order for Class C shares for all American Funds is $500,000. Direct purchases of Class C shares of The Cash Management Trust of America are not permitted; shares may be acquired only by exchanging from Class C shares of other American Funds. FUND NUMBERS - Here are the fund numbers for use with our automated telephone line, American FundsLine/(R)/ (see description below):
FUND NUMBERS ---------------------------------------- FUND CLASS A CLASS B CLASS C CLASS F - ---------------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . 002 202 302 402 American Balanced Fund/(R)/ . . . . . . . . . . . . 011 211 311 411 American Mutual Fund/(R)/ . . . . . . . . . . . . . 003 203 303 403 Capital Income Builder/(R)/ . . . . . . . . . . . . 012 212 312 412 Capital World Growth and Income Fund/SM/ . . . . . 033 233 333 433 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . 016 216 316 416 Fundamental Investors/SM/ . . . . . . . . . . . . . 010 210 310 410 The Growth Fund of America/(R)/ . . . . . . . . . . 005 205 305 405 The Income Fund of America/(R)/ . . . . . . . . . . 006 206 306 406 The Investment Company of America/(R)/ . . . . . . 004 204 304 404 The New Economy Fund/(R)/ . . . . . . . . . . . . . 014 214 314 414 New Perspective Fund/(R)/ . . . . . . . . . . . . . 007 207 307 407 New World Fund/SM/ . . . . . . . . . . . . . . . . 036 236 336 436 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . 035 235 335 435 Washington Mutual Investors Fund/SM/ . . . . . . . 001 201 301 401 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . 040 240 340 440 American High-Income Trust/SM/ . . . . . . . . . . 021 221 321 421 The Bond Fund of America/SM/ . . . . . . . . . . . 008 208 308 408 Capital World Bond Fund/(R)/ . . . . . . . . . . . 031 231 331 431 Intermediate Bond Fund of America/SM/ . . . . . . . 023 223 323 423 Limited Term Tax-Exempt Bond Fund of America/SM/ . 043 243 343 443 The Tax-Exempt Bond Fund of America/(R)/ . . . . . 019 219 319 419 The Tax-Exempt Fund of California/(R)/* . . . . . . 020 220 320 420 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . 024 224 324 424 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . 025 225 325 425 U.S. Government Securities Fund/SM/ . . . . . . . . 022 222 322 422 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . 009 209 309 409 The Tax-Exempt Money Fund of America/SM/ . . . . . 039 N/A N/A N/A The U.S. Treasury Money Fund of America/SM/ . . . . 049 N/A N/A N/A ___________ *Available only in certain states.
The Investment Company of America - Page 30
FUND NUMBERS --------------------------------------------- CLASS CLASS CLASS CLASS CLASS FUND 529-A 529-B 529-C 529-E 529-F - ------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . 1002 1202 1302 1502 1402 American Balanced Fund/(R)/ . . 1011 1211 1311 1511 1411 American Mutual Fund/(R)/ . . . 1003 1203 1303 1503 1403 Capital Income Builder/(R)/ . . 1012 1212 1312 1512 1412 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . 1033 1233 1333 1533 1433 EuroPacific Growth Fund/(R)/ . 1016 1216 1316 1516 1416 Fundamental Investors/SM/ . . . 1010 1210 1310 1510 1410 The Growth Fund of America/(R)/ 1005 1205 1305 1505 1405 The Income Fund of America/(R)/ 1006 1206 1306 1506 1406 The Investment Company of America/(R)/. . . . . . . . . . 1004 1204 1304 1504 1404 The New Economy Fund/(R)/ . . . 1014 1214 1314 1514 1414 New Perspective Fund/(R)/ . . . 1007 1207 1307 1507 1407 New World Fund/SM/ . . . . . . 1036 1236 1336 1536 1436 SMALLCAP World Fund/(R)/ . . . 1035 1235 1335 1535 1435 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . 1001 1201 1301 1501 1401 BOND FUNDS American High-Income Trust/SM/ 1021 1221 1321 1521 1421 The Bond Fund of America/SM/ . 1008 1208 1308 1508 1408 Capital World Bond Fund/(R)/ . 1031 1231 1331 1531 1431 Intermediate Bond Fund of America/SM/ . . . . . . . . . . 1023 1223 1323 1523 1423 U.S. Government Securities Fund/SM/. . . . . . . . . . . . 1022 1222 1322 1522 1422 MONEY MARKET FUND The Cash Management Trust of America/(R)/. . . . . . . . . . 1009 1209 1309 1509 1409
The Investment Company of America - Page 31 SALES CHARGES CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares of 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 "Fund Numbers" above for a listing of the funds.)
DEALER SALES CHARGE AS COMMISSION PERCENTAGE OF THE: AS PERCENTAGE ------------------ OF THE AMOUNT OF PURCHASE AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING -INVESTED- PRICE PRICE - ------------------------------------------- -------- ----- ----- STOCK AND STOCK/BOND FUNDS Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00% $25,000 but less than $50,000 . . . 5.26 5.00 4.25 $50,000 but less than $100,000. . 4.71 4.50 3.75 BOND FUNDS Less than $100,000 . . . . . . . . 3.90 3.75 3.00 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 $750,000 . 2.04 2.00 1.60 $750,000 but less than $1 million 1.52 1.50 1.20 $1 million or more . . . . . . . . none none see below - --------------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED SALES CHARGE (CDSC) MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers from retirement plans with assets invested in the American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may invest with no sales charge and are not subject to a CDSC. 403(b) plans may be treated as employer-sponsored plans for sales charge purposes if: (i) the American Funds are principal investment options; (ii) the employer facilitates the enrollment process by, for example, allowing for onsite group enrollment meetings held during working The Investment Company of America - Page 32 hours; and (iii) there is only one dealer firm assigned to the plans. 403(b) plans meeting these criteria may invest with no sales charge and are not subject to a CDSC if investing $1 million or more or having 100 or more eligible employees. Investments made through accounts that purchased Class A shares of the fund before March 15, 2001 and are part of certain qualified fee-based programs, and retirement plans, endowments or foundations with $50 million or more in assets, may also be made with no sales charge and are not subject to a CDSC. A dealer concession of up to 1% may be paid by the fund under its Class A Plan of Distribution on investments made with no initial sales charge. A transfer from the Virginia Prepaid Education Program or the Virginia Education Savings Trust to a CollegeAmerica account will be made with no sales charge. No commission will be paid to the dealer on such a transfer. In addition, Class A shares of the stock, stock/bond and bond funds may be sold at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to, the funds managed by Capital Research and Management Company, current or retired employees of Washington Management Corporation, current or retired employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members and employees of the above persons, and trusts or plans primarily for such persons; (2) current registered representatives and assistants directly employed by such representatives, retired registered representatives with respect to accounts established while active, or full-time employees (and their spouses, parents, and children) of dealers who have sales agreements with the Principal Underwriter (or who clear transactions through such dealers) and plans for such persons or the dealers; (3) current and retired registered investment advisers, with respect to accounts established while active, registered with the Principal Underwriter, or full-time employees (and their spouses, parents, and children) of registered investment advisers (including assistants directly employed by individual registered investment advisers) registered with the Principal Underwriter and plans for such persons; (4) companies exchanging securities with the fund through a merger, acquisition or exchange offer; (5) insurance company separate accounts; (6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; (7) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation; (8) an individual or entity with a substantial business relationship with The Capital Group Companies, Inc. or its affiliates, as determined by a Vice President or more senior officer of the Capital Research and Management Company Fund Administration Unit; and The Investment Company of America - Page 33 (9) wholesalers and full-time employees directly supporting wholesalers involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. CONTINGENT DEFERRED SALES CHARGE ON CLASS A AND C SHARES - Except as described above, a CDSC of 1% applies to redemptions of Class A shares of the American Funds, other than the money market funds, made within 12 months following the purchase of Class A shares of $1 million or more made without an initial sales charge. A CDSC of 1% also applies to redemptions of Class C shares of the American Funds made within 12 months following the purchase of the Class C shares. 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 the longest are assumed to be redeemed first for purposes of calculating this CDSC. The CDSC may be waived in certain circumstances. See "CDSC Waivers for Class A, B and C Shares" below. CLASS B SALES CHARGES - Class B shares are sold without any initial sales charge. However, a CDSC may be applied to shares you sell within six years of purchase, as shown in the table below:
CONTINGENT DEFERRED SALES CHARGE ON SHARES SOLD WITHIN YEAR AS A % OF SHARES BEING SOLD -------------------------------------------------------------------------- 1 5.00% 2 4.00 3 4.00 4 3.00 5 2.00 6 1.00
There is no CDSC on appreciation in share value above the initial purchase price or on shares acquired through reinvestment of dividends or capital gain distributions. In addition, the CDSC may be waived in certain circumstances. See "CDSC Waivers for Class A, B and C Shares" below. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. In processing redemptions of Class B shares, shares that are not subject to any CDSC will be redeemed first followed by shares that you have owned the longest during the six-year period. CLASS F AND CLASS 529-E SALES CHARGE - Class F and 529-E shares are sold with no initial or contingent deferred sales charge. DEALER COMMISSIONS AND COMPENSATION - For Class A shares, commissions (up to 1%) are paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored defined contribution-type plan investing $1 million or more or with 100 or more eligible employees, IRA rollover accounts of $1 million or more (as described in "Individual Retirement Account (IRA) Rollovers" below), and for purchases made at The Investment Company of America - Page 34 net asset value by certain retirement plans, endowments and foundations with assets of $50 million or more. Commissions on investments in Class A shares are paid at the following rates: 1.00% on amounts to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on amounts over $10 million. Commissions are based on cumulative investments and are not annually reset. For Class B shares, compensation equal to 4.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class B shares. For Class C shares, compensation equal to 1.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class C shares. CONVERSION OF CLASS B AND C SHARES - Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date. Class 529-C shares will not convert to Class 529-F shares. The conversion of shares is subject to the Internal Revenue Service's continued position that the conversions are not subject to federal income tax. In the event the Internal Revenue Service no longer takes this position, the automatic conversion feature may be suspended, in which event no further conversions of Class B or C shares would occur while such suspension remained in effect. In that event, at your option, Class B shares could be exchanged for Class A shares and Class C shares for Class F shares on the basis of the relative net asset values of the two classes, without the imposition of a sales charge or fee; however, such an exchange could constitute a taxable event for you. Absent such an exchange, Class B and C shares would continue to be subject to higher expenses for longer than eight years and ten years, respectively. SALES CHARGE REDUCTIONS AND WAIVERS REDUCING YOUR CLASS A SALES CHARGE - You and your "immediate family" (your spouse and your children under age 21) may combine investments to reduce your costs. You must let your investment dealer or American Funds Service Company (the "Transfer Agent") know at the time you purchase shares if you qualify for a reduction in your sales charge using one or any combination of the methods described below. STATEMENT OF INTENTION - You may enter into a non-binding commitment to purchase shares of a fund(s) over a 13-month period and receive the same sales charge as if all shares had been purchased at once. This includes purchases made during the previous 90 days, but does not include future appreciation of your investment or reinvested distributions. The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $25,000 or more for equity funds and $100,000 or more for bond funds made within a 13-month period subject to a statement of intention (the "Statement"). The Statement is not a binding obligation to purchase the indicated amount. When a shareholder elects to use 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 remit to the Principal Underwriter the difference The Investment Company of America - Page 35 between the sales charge actually paid and the sales charge which would have been paid if the total of such purchases had been made at a single time. The dealer assigned to the account at the end of the period will receive an appropriate commission adjustment. If the difference is not paid by the close of the Statement period, the appropriate number of shares held in escrow 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. Accordingly, upon your request, the sales charge paid on investments made 90 days prior to the Statement revision will be adjusted to reflect the revised Statement. Existing holdings eligible for rights of accumulation (see below), including Class A shares held in a fee-based arrangement, other classes of shares of the American Funds, and any individual investments in American Legacy variable annuity contracts and variable life insurance policies (American Legacy, American Legacy II and American Legacy III, American Legacy Life, American Legacy Variable Life, and American Legacy Estate Builder) may be credited toward satisfying the Statement. During the Statement period, reinvested dividends and capital gain distributions, investments in money market funds, and investments made under a right of reinstatement will not be credited toward satisfying the Statement. The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder's death. When the trustees of certain retirement plans purchase shares by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: the total monthly investment will be multiplied by 13 and then multiplied by 1.5. The current value of existing American Funds investments (other than money market fund investments) and any rollovers or transfers reasonably anticipated to be invested in non-money market American Funds during the 13-month period are added to the figure determined above. The sum is the Statement amount and applicable breakpoint level. 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 made during the 13-month period. Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms with their first purchase. AGGREGATION - Sales charge discounts are available for certain aggregated investments. Qualifying investments include those made by you and your immediate family (your spouse and your children under the age of 21), if all parties are purchasing shares for their own accounts and/or: .individual-type employee benefit plan(s), such as an IRA, 403(b) plan (see exception below), or single-participant Keogh-type plan; The Investment Company of America - Page 36 .business accounts solely controlled by you or your immediate family (for example, you own the entire business); .trust accounts established by you or your immediate family. However, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the person who is the primary beneficiary of the trust; .endowments or foundations established and controlled by you or your immediate family; or .CollegeAmerica accounts, which will be aggregated at the account owner level (Class 529-E accounts may only be aggregated with an eligible employer plan). Individual purchases by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are: .for a single trust estate or fiduciary account, including employee benefit plans other than the individual-type employee benefit plans described above; .made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding individual-type employee benefit plans described above; .for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares; .for non-profit, charitable or educational organizations (or any employer-sponsored retirement plan for such an endowment or foundation) or any endowments or foundations established and controlled by the organization; or .for participant accounts of a 403(b) plan that is treated as an employer-sponsored plan (see "Class A Purchases Not Subject to Sales Charges" above), or made for two or more 403(b) plans that are treated as employer-sponsored plans of a single employer or affiliated employers as defined in the 1940 Act. 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 - You may combine purchases of all classes of shares of two or more funds in The American Funds Group, as well as individual holdings in American Legacy variable annuity contracts and variable life insurance policies. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of the money market funds are excluded. RIGHTS OF ACCUMULATION - Subject to the limitations described in the aggregation policy, you may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in all share classes of The American Funds Group, as well as your holdings in Endowments (shares of which may be owned only by tax-exempt organizations), to determine your sales charge on investments in accounts eligible to be aggregated, or when making a gift to an individual or charity. When deter- The Investment Company of America - Page 37 mining your sales charge, you may also take into account the value of your individual holdings, as of the end of the week prior to your investment, in various American Legacy variable annuity contracts and variable life insurance policies. Direct purchases of the money market funds are excluded. CDSC WAIVERS FOR CLASS A, B AND C SHARES - Any CDSC on Class A, B and C shares (and, if applicable, on the corresponding Class 529 shares) may be waived only in the following cases: (1) Permitted exchanges of shares as described in the prospectus, provided that the shares acquired by such exchanges are not redeemed within: (i) one year of the initial purchase in the case of Class A or 529-A shares, (ii) six years of the initial purchase in the case of Class B or 529-B shares, or (iii) one year of the initial purchase in the case of Class C or 529-C shares. (2) Tax-free returns of excess contributions to IRAs. (3) Redemptions due to death or post-purchase disability of a shareholder. In the case of joint tenant accounts, if one joint tenant dies, a surviving joint tenant, at the time he or she notifies the Transfer Agent of the other joint tenant's death and removes the decedent's name from the account, may redeem shares from the account without incurring a CDSC. Redemptions made after the Transfer Agent is notified of the death of a joint tenant will be subject to a CDSC. (4) For Class 529-A, 529-B and 529-C shareholders only, redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship (to the extent of the scholarship award). (5) The following types of transactions, if together they do not exceed 12% of the value of an account annually (the "12% limit"): . Required minimum distributions taken from retirement accounts upon the shareholder's attainment of age 70 1/2 (required minimum distributions that continue to be taken by the beneficiary(ies) after the account owner is deceased also qualify for a waiver). . Redemptions through a systematic withdrawal plan ("SWP") (see "Automatic Withdrawals" under "Shareholder Account Services and Privileges", below). For each SWP payment, assets that are not subject to a CDSC, such as appreciation on shares and shares acquired through reinvestment of dividends and/or capital gain distributions, will be redeemed first and will count toward the 12% limit. If there is an insufficient amount of assets not subject to a CDSC to cover a particular SWP payment, shares subject to the lowest CDSC will be redeemed next until the 12% limit is reached. Any dividends and/or capital gain distributions taken in cash by a shareholder who receives payments through a SWP will also count toward the 12% limit. In the case of a SWP, the 12% limit is calculated at the time a systematic redemption is first made, and is recalculated at the time each additional systematic redemption is made. Shareholders who establish a SWP should be aware that the amount of a payment not subject to a CDSC may vary over time depending on fluctuations in the value of their accounts. This privilege may be revised or terminated at any time. CDSC waivers are allowed only in the cases listed above. For example, CDSC waivers will not be allowed on redemptions of Class 529-B and 529-C shares due to: termination of Col- The Investment Company of America - Page 38 legeAmerica; a determination by the Internal Revenue Service that CollegeAmerica does not qualify as a qualified tuition program under the Code; proposal or enactment of law that eliminates or limits the tax-favored status of CollegeAmerica; or the Virginia College Savings Plan eliminating the fund as an option for additional investment within CollegeAmerica. INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the applicable fund's current prospectus and statement of additional information. An IRA rollover involving plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: (i) Class A shares at net asset value; (ii) Class A shares subject to the applicable initial sales charge; (iii) Class B shares; (iv) Class C shares; or (v) Class F shares. Plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees (i.e., shares do not have to age). Dealer commissions will be paid only on IRA rollovers of $1 million or more according to the schedule applicable to Class A share investments of $1 million or more (see "Dealer Commissions and Compensation" above). IRA rollovers that do not indicate in which share class plan assets should be invested and that do not have an adviser associated with the account will be invested in Class F shares. Additional plan assets may be rolled into the account holding F shares; however, subsequent contributions cannot be invested in F shares. PRICE OF SHARES Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received and accepted by the fund or the Transfer Agent; the offering or net asset value 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 or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase and sell orders to the Principal Underwriter. Orders received by the investment dealer or authorized designee, the Transfer Agent, or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Note that investment dealers or other intermediaries may have their own rules about share transactions and may have earlier cut-off times than those of the fund. For more information about how to purchase through your intermediary, contact your intermediary directly. The Investment Company of America - Page 39 Prices which appear in the newspaper do not always indicate prices at which you will be purchasing and redeeming shares of the fund, 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 as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange, each day the Exchange is open. If, for example, the Exchange closes at 1:00 p.m., the fund's share price would still be determined as of 4:00 p.m. New York time. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. All portfolio securities of funds managed by Capital Research and Management Company (other than money market funds) are valued, and the net asset value per share is determined as follows: 1. Equity securities, including depositary receipts, are valued at the last reported sale price on the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the Investment Adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Fixed-income securities are valued at prices obtained from a pricing service, when such prices are available; however, in circumstances where the Investment Adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. Short-term securities maturing within 60 days are valued at amortized cost which approximates market value. Assets or liabilities initially expressed in terms of non-U.S. currencies are translated prior to the next determination of the net asset value of the fund's shares into U.S. dollars at the prevailing market rates. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith under procedures adopted by authority of the fund's Board. The fair value of all other assets is added to the value of securities to arrive at the total assets. The fund's Board has delegated the obligation to make fair valuation determinations to a Valuation Committee established by the fund's Investment Adviser. The Board receives regular reports describing fair-valued securities and the valuation methods used. The Valuation Committee has adopted guidelines and procedures (consistent with SEC rules and guidance) to ensure that certain basic principles and factors are considered when making all fair value determinations. As a general principle, securities lacking readily available market quotations are valued in good faith by the Valuation Committee based upon what the fund might reasonably expect to receive upon their current sale. The Valuation Committee considers all indications of value available to it in determining the "fair value" to be assigned to a particular security, including, without limitation, the type of security, the existence of contractual or legal restrictions on resale, any relevant financial or business developments affecting the issuer or its business prospects, similar or related securities that are more actively traded, and changes in overall market conditions. The Valuation Committee employs additional fair value procedures to The Investment Company of America - Page 40 address issues related to investing substantial portions of applicable fund portfolios outside the United States. Securities owned by these funds trade in markets that open and close at different times, reflecting time zone differences. If events occur after the close of a market (and before the close of the New York Stock Exchange, when these funds' net asset values are next determined) which affect the value of portfolio securities, appropriate adjustments from closing market prices will be made to reflect these events. Events of this type could include earthquakes and other natural disasters or significant price changes in other markets (e.g., U.S. stock markets); 2. Liabilities, including accruals of taxes and other expense items, are deducted from total assets; and 3. Net assets so obtained are then divided by the total number of shares outstanding, 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 fund. The Principal Underwriter will not knowingly sell shares of the fund directly or indirectly to any person or entity, where, after the sale, such person or entity would own beneficially directly or indirectly more than 3.0% of the outstanding shares of the fund without the consent of a majority of the fund's Board of Directors. SELLING SHARES Shares are sold at the net asset value next determined after your request is received in good order by the Transfer Agent, dealer or any of their designees. Sales of certain Class A, B and C shares may be subject to a CDSC. Generally, Class F shares are only available to fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. You may sell (redeem) other classes of shares in your account in any of the following ways: THROUGH YOUR DEALER (certain charges may apply) --Shares held for you in your dealer's street name must be sold through the dealer. WRITING TO AMERICAN FUNDS SERVICE COMPANY -- Requests must be signed by the registered shareholder(s). -- A signature guarantee is required if the redemption is: - Over $75,000; - Made payable to someone other than the registered shareholder(s); or - Sent to an address other than the address of record, or an address of record which has been changed within the last 10 days. Your signature may be guaranteed by a domestic stock exchange or the National Association of Securities Dealers, Inc., bank, savings association or credit union The Investment Company of America - Page 41 that is an eligible guarantor institution. The Transfer Agent reserves the right to require a signature guarantee on any redemptions. --Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. --You must include with your written request any shares you wish to sell that are in certificate form. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR USING THE INTERNET --Redemptions by telephone, fax or the Internet (including American FundsLine/(R)/ and American FundsLine OnLine/(R)/) are limited to $75,000 per shareholder each day. -- Checks must be made payable to the registered shareholder(s). -- Checks must be mailed to an address of record that has been used with the account for at least 10 days. MONEY MARKET FUNDS --You may have redemptions of $1,000 or more wired to your bank by writing American Funds Service Company. --You may establish check writing privileges (use the money market funds application). - If you request check writing privileges, you will be provided with checks that you may use to draw against your account. These checks may be made payable to anyone you designate and must be signed by the authorized number of registered shareholders exactly as indicated on your checking account signature card. - Check writing is not available for any of the 529 share classes or B, C or F share classes of The Cash Management Trust of America. If you sell Class A, B or C shares and request a specific dollar amount to be sold, we will sell sufficient shares so that the sale proceeds, after deducting any applicable CDSC, equals the dollar amount requested. 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 1940 Act), sale proceeds will be paid on or before the seventh day following receipt and acceptance of an order. Interest will not accrue or be paid on amounts that represent uncashed distribution or redemption checks. The Investment Company of America - Page 42 If you notify the Transfer Agent, you may reinvest proceeds from a redemption, dividend payment or capital gain distribution without a sales charge in any of the American Funds within 90 days after the date of the redemption or distribution. Proceeds from a Class B share redemption where a CDSC was charged will be reinvested in Class A shares. Proceeds from any other type of redemption and all dividend payments and capital gain distributions will be reinvested in the same share class from which the original redemption or distribution was made. Any CDSC on Class A or C shares will be credited to your account. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by the Transfer Agent. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES The following services and privileges are generally available to all shareholders. However, certain services and privileges may not be available for Class 529 shareholders or if your account is held with an investment dealer. AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make monthly or quarterly investments in The American Funds through automatic debits from your bank account. To set up a plan, you must fill out an account application and specify the amount you would like to invest ($50 minimum) and the date on which you would like your investments to occur. The plan will begin within 30 days after your account application is received. Your bank account will be debited on the day or a few days before your investment is made, depending on the bank's capabilities. The Transfer Agent will then invest your money into the fund you specified on or around the date you specified. If the date you specified falls on a weekend or holiday, your money will be invested on the following business day. However, if the following business day falls in the next month, your money will be invested on the business day immediately preceding the weekend or holiday. If your bank account cannot be debited due to insufficient funds, a stop-payment or the closing of the account, the plan may be terminated and the related investment reversed. You may change the amount of the investment or discontinue the plan at any time by writing to the Transfer Agent. AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested in additional shares of the same class and fund at net asset value unless you indicate otherwise on the account application. You also may elect to have dividends and/or capital gain distributions paid in cash by informing the fund, the Transfer Agent or your investment dealer. Dividends and capital gain distributions paid by the 529 share classes will be automatically reinvested. If you have elected to receive dividends and/or capital gain distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from American Funds Service Company with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - For all share classes, except the 529 classes of shares, you may cross-reinvest dividends and capital gains ("distributions") of the same share class into any other fund in The American Funds Group at net asset value, subject to the following conditions: The Investment Company of America - Page 43 (a) The aggregate value of your account(s) in the fund(s) paying distributions equals or exceeds $5,000 (this is waived if the value of the account in the fund receiving the distributions equals or exceeds that fund's minimum initial investment requirement), (b) If the value of the account of the fund receiving distributions is below the minimum initial investment requirement, distributions must be automatically reinvested, (c) If you discontinue the cross-reinvestment of distributions, the value of the account of the fund receiving distributions must equal or exceed the minimum initial investment requirement. If you do not meet this requirement within 90 days of notification, the fund has the right to automatically redeem the account. EXCHANGE PRIVILEGE - You may only exchange shares into other funds in The American Funds Group within the same class. However, exchanges from Class A shares of The Cash Management Trust of America may be made to Class B or C shares of any other American Fund for dollar cost averaging purposes. 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. Exchanges of Class F shares generally may only be done through fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. Exchanges from Class A, C or F shares to the corresponding 529 share class, particularly in the case of Uniform Gifts to Minors Act or Uniform Transfer to Minors Act custodial accounts, may result in significant legal and tax consequences as described in the CollegeAmerica Program Description. Please consult your financial adviser prior to making such an exchange. You may exchange shares of other classes by writing to the Transfer Agent (see "Selling Shares" above), by contacting your investment dealer, by using American FundsLine and American FundsLine OnLine (see "American FundsLine and American FundsLine OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "American Funds Service Company Service Areas" in the prospectus for the appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone and Internet Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type retirement plans for which Capital Bank and Trust Company serves as trustee may not be exchanged by telephone, Internet, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "Price of Shares" above.) THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. AUTOMATIC EXCHANGES - For all share classes, except the 529 classes of shares, you may automatically exchange shares of the same class in amounts of $50 or more among any of the funds in The American Funds Group on any day (or preceding business day if the day falls on a non-business day) of each month you designate. AUTOMATIC WITHDRAWALS - For all share classes, except the 529 classes of shares, you may automatically withdraw shares from any of the funds in The American Funds Group. You can make automatic withdrawals of $50 or more as often as you wish if your account is worth at least $10,000, or up to four times a year for an account worth at least $5,000. You can designate the The Investment Company of America - Page 44 day of each period for withdrawals and request that checks be sent to you or someone else. Withdrawals may also be electronically deposited to your bank account. The Transfer Agent will withdraw your money from the fund you specify on or around the date you specify. If the date you specified falls on a weekend or holiday, the redemption will take place on the previous business day. However, if the previous business day falls in the preceding month, the redemption will take place on the following business day after the weekend or holiday. 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 fund of sufficient shares, deposited by the shareholder with the Transfer Agent, to provide the withdrawal payment specified. ACCOUNT STATEMENTS - Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments, will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments, purchases through automatic investment plans and certain retirement plans, as well as automatic exchanges and withdrawals will be confirmed at least quarterly. AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share balance, the price of your shares, or your most recent account transaction, redeem shares (up to $75,000 per American Funds shareholder each day) from non-retirement plan accounts, or exchange shares around the clock with American FundsLine and American FundsLine OnLine. To use these services, call 800/325-3590 from a TouchTone(TM) telephone or access the American Funds website on the Internet at www.americanfunds.com. Redemptions and exchanges through American FundsLine and American FundsLine OnLine are subject to the conditions noted above and in "Telephone and Internet Purchases, Redemptions and Exchanges" below. You will need your fund number (see the list of funds in The American Funds Group under "Purchase of Shares - Fund Numbers"), personal identification number (generally the last four digits of your Social Security number or other tax identification number associated with your account) and account number. TELEPHONE AND INTERNET PURCHASES, REDEMPTIONS AND EXCHANGES - By using the telephone (including American FundsLine) or the Internet (including American FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange options, you agree to hold the fund, the Transfer Agent, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, 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 the Transfer Agent (you may also reinstate them at any time by writing the Transfer Agent). If the Transfer Agent does not employ reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the fund by telephone because of technical difficulties, market conditions, or a natural disaster, redemption and exchange requests may be made in writing only. REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder for their then current net asset value per The Investment Company of America - Page 45 share if at such time the shareholder of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the fund's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Directors of the fund may from time to time adopt. While payment of redemptions normally will be in cash, the fund's Articles of Incorporation permit payment of the redemption price wholly or partly in securities or other property included in the assets belonging to the fund when in the opinion of the fund's Board of Directors, which shall be conclusive, conditions exist which make payment wholly in cash unwise or undesirable. SHARE CERTIFICATES - Shares are credited to your account and certificates are not issued unless you request them by writing to the Transfer Agent. Certificates are not available for the 529 share classes. EXECUTION OF PORTFOLIO TRANSACTIONS The Investment Adviser places orders for the fund's portfolio securities transactions. The Investment Adviser strives to obtain the best available prices in its portfolio transactions taking into account the costs and quality of executions. When, in the opinion of the Investment Adviser, two or more brokers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the fund or who have provided investment research, statistical, or other related services to the Investment Adviser. The fund does not consider that it has an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. There are occasions on which portfolio transactions for the fund 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 fund, they are effected only when the Investment Adviser believes that to do so is in the interest of the fund. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The fund will not pay a mark-up for research in principal transactions. Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, if applicable, for the fiscal years ended 2002, 2001 and 2000, amounted to $45,817,000, $33,794,000 and $25,958,000. The volume of securities subject to brokerage commissions and dealer concessions purchased by the fund increased during the 2002 fiscal year, resulting in an increase in total commissions paid on portfolio transactions. The fund is required to disclose information regarding investments in the securities of its "regular" broker-dealers (or parent companies of its regular broker-dealers) that derive more than 15% of their revenue from broker-dealer activities. A regular broker-dealer is: (1) one of the ten broker-dealers that received from the fund the largest amount of brokerage commissions by participating, directly or indirectly, in the fund's portfolio transactions during the fund's most recent fiscal year; (2) one of the ten broker-dealers that engaged as principal in the largest dollar amount of portfolio transactions of the fund during the fund's most recent fiscal year; or (3) one of the ten broker-dealers that sold the largest amount of securities of the fund during the fund's most recent fiscal year. During the fund's most recent fiscal year, the fund's regular broker-- The Investment Company of America - Page 46 dealers were: Bank of America Securities LLC, J.P. Morgan Chase & Co. and Wachovia Corp.. As of the close of its most recent fiscal year, the fund held equity securities of Bank of America Securities LLC, in the amount of $632,686,000, J.P. Morgan Chase & Co. in the amount of $596,400,000 and Wachovia Corp. in the amount of $73,244,000 GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as Custodian. If the fund holds non-U.S. securities, the Custodian may hold these securities pursuant to sub-custodial arrangements in non-U.S. banks or non-U.S. branches of U.S. banks. TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of the Investment Adviser, maintains the records of each shareholder's account, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. American Funds Service Company was paid a fee of $47,118,000 for Class A shares and $1,915,000 for Class B shares for the 2002 fiscal year. INDEPENDENT ACCOUNTANTS - PricewaterhouseCoopers LLP, 350 South Grand Avenue, Los Angeles, CA 90071, serves as the fund's independent accountants 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 from the Annual Report have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent accountants is reviewed and determined annually by the Board of Directors. INDEPENDENT LEGAL COUNSEL - O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, CA 90071, currently serves as counsel for the fund and for Directors who are not interested persons (as defined by the 1940 Act) of the fund. Certain legal matters in connection with the capital shares offered by the prospectus have been passed upon for the fund by O'Melveny & Myers LLP. Counsel does not currently provide legal services to the fund's Investment Adviser or any of its affiliated companies, but provides an immaterial amount of estate planning and similar work for a limited number of Investment Adviser personnel. A determination with respect to the independence of the fund's "independent legal counsel" will be made at least annually by the independent Directors of the fund, as prescribed by the 1940 Act and the rules thereunder. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS - The fund's fiscal year ends on December 31. Shareholders are provided updated prospectuses annually and at least semiannually with reports showing the investment portfolio, financial statements and other information. The fund's annual financial statements are audited by the fund's independent accountants, PricewaterhouseCoopers LLP. In addition, shareholders may also receive proxy statements for the fund. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of prospectuses, shareholder reports and proxy statements. To receive additional copies of a prospectus, report or proxy statement, shareholders should contact the Transfer Agent. The Investment Company of America - Page 47 PERSONAL INVESTING POLICY - The fund and Capital Research and Management Company and its affiliated companies, including the fund's principal underwriter, have adopted codes of ethics which allow for personal investments, including securities in which the fund may invest from time to time. 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; 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. OTHER INFORMATION - The financial statements including the investment portfolio and the report of Independent Accountants 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 FOR CLASS A SHARES -- DECEMBER 31, 2002
Net asset value and redemption price per share (Net assets divided by shares outstanding). . $23.48 Maximum offering price per share (100/94.25 of net asset value per share, which takes into account the fund's current maximum sales charge). . . . . . . . . . . . . . . . $24.91
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was 2.15% based on a 30-day (or one month) period ended December 31, 2002, 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 as required by the Securities and Exchange Commission: 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 fund may also calculate a distribution rate on a taxable and tax equivalent basis. The distribution rate is computed by dividing the dividends paid by the fund over the last 12 months by the sum of the month-end net asset value or maximum offering price and the capital gains paid over the last 12 months. The distribution rate may differ from the yield. The fund's one-year total return and five- and ten-year average annual total returns at the maximum offering price for the periods ended December 31, 2002 were -19.39%, 2.74% and The Investment Company of America - Page 48 9.98%, respectively. The fund's one-year total return and five- and ten-year average annual total returns at net asset value for the periods ended December 31, 2002 were -14.47%, 3.96% and 10.63%, respectively. The average 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. In calculating average annual total return at the maximum offering price, the fund assumes: (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 fund will provide lifetime average total return figures. From time to time, the fund may calculate investment results for Class B, C, F, 529 and R shares. The fund 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. These total returns may be calculated over periods in addition to those described above. 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 fund 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 and Poor's 500 Composite Stock Index) or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present or prospective shareholders. The fund may also, from time to time, combine its results with those of other funds in The American Funds Group for purposes of illustrating investment strategies involving multiple funds. The fund may refer to results and surveys compiled by organizations such as CDA/ Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar, Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer to results published in various newspapers and 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 fund may illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans. The fund may compare its investment results with 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, fuels, transportation, and other goods and services that people buy for day-to-day living). The Investment Company of America - Page 49 APPENDIX DESCRIPTION OF BOND RATINGS BOND RATINGS - The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("Standard & Poor's") are based on the analysis and represents a judgment expressed in shorthand terms of the strengths and weaknesses of the bonds which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Moody's rates the long-term debt securities issued by various entities from - ------- "Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Ratings are described as follows: "Bonds which are 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 which are 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 which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. 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." "Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class." "Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." The Investment Company of America - Page 50 "Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest." "Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings." "Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing." Standard & Poor's rates the long-term debt securities of various entities in - ----------------- categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Ratings are described as follows: AAA "An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong." AA "An obligation rated 'AA' differs from the highest rated obligations only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong." A "An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong." BBB "An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions." BB "An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation." B "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation." The Investment Company of America - Page 51 CCC "An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation." CC "An obligation rated 'CC' is currently highly vulnerable to nonpayment." C "A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying." D "An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized." The Investment Company of America - Page 52 Investment portfolio, December 31, 2002 Percent of Largest investment categories net assets Food, beverage & tobacco 7.44 Pharmaceuticals & biotechnology 6.73 Telecommunication services 6.71 Largest industry holdings Pharmaceuticals 6.66 % Diversified telecommunication services 5.79 Beverages and tobacco 5.24 Oil & gas 5.13 Media 4.20 Percent of Largest equity holdings net assets Altria Group (formerly Philip Morris) 3.44 % Eli Lilly 2.34 SBC Communications 1.56 Viacom 1.52 Pharmacia 1.49 Fannie Mae 1.45 Dow Chemical 1.40 Lowe's 1.39 Bank of America 1.27 ChevronTexaco 1.27 Shares or Market principal value Equity securities (common and preferred stocks and convertible debentures) amount (000) ENERGY ENERGY EQUIPMENT & SERVICES - 0.96% Baker Hughes Inc. 8,225,000 $264,763 Schlumberger Ltd. 5,100,000 214,659 OIL & GAS - 5.13% ChevronTexaco Corp. 9,495,500 631,261 ConocoPhillips (formed by the merger of Conoco Inc. and Phillips Petroleum Co.) 3,050,000 147,589 ENI SpA 18,000,000 286,199 Exxon Mobil Corp. 3,500,000 122,290 Marathon Oil Corp. 12,550,000 267,189 Murphy Oil Corp. 2,050,000 87,842 Royal Dutch Petroleum Co. (New York registered) 7,620,000 335,432 "Shell" Transport and Trading Co., PLC (ADR) (New York registered) 4,500,000 175,140 "Shell" Transport and Trading Co., PLC 2,900,000 19,095 TOTAL FINA ELF SA, Class B 900,000 128,553 Unocal Corp. 11,440,000 349,835 3,029,847 MATERIALS CHEMICALS - 1.61% Air Products and Chemicals, Inc. 200,000 8,550 Dow Chemical Co. 23,450,000 696,465 Rohm and Haas Co. 3,000,000 97,440 METALS & MINING - 1.99% Alcoa Inc. 10,246,400 233,413 Alumina Ltd. (formerly WMC Ltd.) 19,804,346 54,285 Barrick Gold Corp. 9,250,000 142,542 BHP Billiton Ltd. 9,412,655 53,444 Newmont Mining Corp. 8,000,000 232,240 Phelps Dodge Corp. (1) 1,000,000 31,650 Placer Dome Inc. 10,000,000 115,000 Rio Tinto PLC 4,000,000 79,851 WMC Resources Ltd (1) 19,804,346 46,751 PAPER & FOREST PRODUCTS - 1.53% Georgia-Pacific Corp., Georgia-Pacific Group 9,599,298 155,125 International Paper Co. 7,097,235 248,190 MeadWestvaco Corp. 3,800,000 93,898 Weyerhaeuser Co. 5,375,000 264,504 2,553,348 CAPITAL GOODS AEROSPACE & DEFENSE - 1.37% Boeing Co. 3,700,000 122,063 Honeywell International Inc. 4,000,000 96,000 Lockheed Martin Corp. 87,400 5,047 Northrop Grumman Corp. 500,000 48,500 Raytheon Co. 13,334,735 410,043 CONSTRUCTION & ENGINEERING - 0.05% Fluor Corp. 824,300 23,080 INDUSTRIAL CONGLOMERATES - 2.44% 3M Co. 700,000 86,310 General Electric Co. 21,000,000 511,350 Siemens AG 4,600,000 195,522 Tyco International Ltd. 24,728,000 422,354 MACHINERY - 2.13% Caterpillar Inc. 8,900,000 406,908 Cummins Inc. 1,700,000 47,821 Deere & Co. 7,900,000 362,215 Illinois Tool Works Inc. 2,200,000 142,692 Parker Hannifin Corp. 2,200,000 101,486 2,981,391 COMMERCIAL SERVICES & SUPPLIES COMMERCIAL SERVICES & SUPPLIES - 0.75% Cendant Corp. (1) 2,500,000 26,200 Concord EFS, Inc. (1) 2,666,600 41,972 Pitney Bowes Inc. 2,000,000 65,320 Sabre Holdings Corp., Class A (1) 6,009,680 108,835 Waste Management, Inc. 5,652,600 129,558 371,885 TRANSPORTATION AIR FREIGHT & LOGISTICS - 0.31% FedEx Corp. 2,870,000 155,611 AIRLINES - 0.27% AMR Corp. (1) 2,000,000 13,200 Delta Air Lines, Inc. 942,100 11,399 Southwest Airlines Co. 8,000,000 111,200 ROAD & RAIL - 0.25% Burlington Northern Santa Fe Corp. 3,000,000 78,030 Canadian Pacific Railway Ltd. 1,150,000 22,655 Norfolk Southern Corp. 1,200,000 23,988 416,083 AUTOMOBILES & COMPONENTS AUTOMOBILES - 1.55% Ford Motor Co. 2,500,000 23,250 Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 $ 170,000,000 138,890 General Motors Corp. 13,155,900 484,926 General Motors Corp., Series B, 5.25% convertible debentures 2032 $ 61,025,000 56,387 Honda Motor Co., Ltd. 1,825,000 67,473 770,926 CONSUMER DURABLES & APPAREL HOUSEHOLD DURABLES - 0.18% Newell Rubbermaid Inc. 3,000,000 90,990 LEISURE EQUIPMENT & PRODUCTS - 0.10% Eastman Kodak Co. 1,425,000 49,932 TEXTILES, APPAREL & LUXURY GOODS - 0.12% NIKE, Inc., Class B 1,300,000 57,811 198,733 HOTELS, RESTAURANTS & LEISURE HOTELS, RESTAURANTS & LEISURE - 0.49% Carnival Corp. 8,647,100 215,745 McDonald's Corp. 1,600,000 25,728 241,473 MEDIA MEDIA - 4.20% AOL Time Warner Inc. (1) 44,100,000 577,710 Clear Channel Communications, Inc. (1) 784,100 29,239 Comcast Corp., Class A (1) 13,845,800 326,346 Comcast Corp., Class A, nonvoting (1) 3,000,000 67,770 Dow Jones & Co., Inc. 1,687,000 72,929 General Motors Corp., Class H (1) 2,200,000 23,540 Interpublic Group of Companies, Inc. 9,600,000 135,168 Knight-Ridder, Inc. 550,500 34,819 Liberty Media Corp., Class A (1) 7,280,000 65,083 Viacom Inc., Class A (1) 2,392,800 97,650 Viacom Inc., Class B, nonvoting (1) 16,150,000 658,274 2,088,528 RETAILING INTERNET & CATALOG RETAIL - 0.17% eBay Inc. (1) 1,250,000 84,775 MULTILINE RETAIL - 0.68% Dollar General Corp. 6,126,100 73,207 Kohl's Corp. (1) 2,800,000 156,660 May Department Stores Co. 4,800,000 110,304 SPECIALTY RETAIL - 1.95% Limited Brands, Inc. 20,149,400 280,681 Lowe's Companies, Inc. 18,430,000 691,125 1,396,752 FOOD & DRUG RETAILING FOOD & DRUG RETAILING - 0.56% Albertson's, Inc. 2,976,500 66,257 Walgreen Co. 7,220,000 210,752 277,009 FOOD, BEVERAGE & TOBACCO BEVERAGES AND TOBACCO - 5.24% Anheuser-Busch Companies, Inc. 3,000,000 145,200 Coca-Cola Co. 3,750,000 164,325 PepsiCo, Inc. 9,400,000 396,868 Altria Group (formerly Philip Morris Companies Inc.) 42,250,000 1,712,392 R.J. Reynolds Tobacco Holdings, Inc. (2) 4,461,666 187,881 FOOD PRODUCTS - 2.20% General Mills, Inc. 6,035,000 283,343 H.J. Heinz Co. 5,990,900 196,921 Sara Lee Corp. 9,316,100 209,705 Unilever NV (New York registered) 6,575,000 405,743 3,702,378 HOUSEHOLD & PERSONAL PRODUCTS HOUSEHOLD PRODUCTS - 0.14% Kimberly-Clark Corp. 1,500,000 71,205 PERSONAL PRODUCTS - 0.70% Avon Products, Inc. 4,935,000 265,848 Gillette Co. 2,800,000 85,008 422,061 HEALTH CARE EQUIPMENT & SERVICES HEALTH CARE EQUIPMENT & SUPPLIES - 0.40% Applera Corp. - Applied Biosystems Group 5,170,500 90,691 Becton, Dickinson and Co. 1,500,000 46,035 Guidant Corp. (1) 2,020,000 62,317 HEALTH CARE PROVIDERS & SERVICES - 0.81% Aetna Inc. 5,000,000 205,600 HCA Inc. 4,150,000 172,225 IMS Health Inc. 1,500,000 24,000 600,868 PHARMACEUTICALS & BIOTECHNOLOGY BIOTECHNOLOGY - 0.07% Genentech, Inc. (1) 1,000,000 33,160 PHARMACEUTICALS - 6.66% Abbott Laboratories 1,500,000 60,000 AstraZeneca PLC 5,485,000 193,423 AstraZeneca PLC 5,800,900 207,323 AstraZeneca PLC (ADR) 199,000 6,983 Bristol-Myers Squibb Co. 11,907,600 275,661 Eli Lilly and Co. 18,316,700 1,163,110 Merck & Co., Inc. 1,700,000 96,237 Novartis AG 1,366,000 49,898 Novartis AG (ADR) 256,556 9,423 Pfizer Inc 9,300,000 284,301 Pharmacia Corp. 17,710,000 740,278 Schering-Plough Corp. 3,900,000 86,580 Wyeth 3,777,800 141,290 3,347,667 BANKS BANKS - 3.67% Bank of America Corp. 9,094,240 632,686 BANK ONE CORP. 7,415,000 271,018 FleetBoston Financial Corp. 11,013,400 267,626 National City Corp. 3,850,000 105,182 Wachovia Corp. 2,010,000 73,244 Washington Mutual, Inc. 7,000,000 241,710 Wells Fargo & Co. 5,000,000 234,350 1,825,816 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIALS - 3.63% Capital One Financial Corp. 5,250,000 156,030 Capital One Financial Corp. 6.25% Upper DECS 2005 $ 72,500,000 41,543 Fannie Mae 11,200,000 720,496 Freddie Mac 1,100,000 64,955 Household International, Inc. 5,550,000 154,346 J.P. Morgan Chase & Co. 24,850,000 596,400 SLM Corp. 693,200 71,996 1,805,766 INSURANCE INSURANCE - 3.29% Allstate Corp. 11,750,000 434,633 American International Group, Inc. 10,363,900 599,552 Aon Corp. 2,183,800 41,252 Berkshire Hathaway Inc., Class A (1) 1,500 109,125 Hartford Financial Services Group, Inc. 2,200,000 99,946 Lincoln National Corp. 2,200,000 69,476 Marsh & McLennan Companies, Inc. 574,200 26,534 SAFECO Corp. 4,150,000 143,881 St. Paul Companies, Inc. 3,300,000 112,365 1,636,764 SOFTWARE & SERVICES IT CONSULTING & SERVICES - 0.54% Computer Sciences Corp. (1) 3,178,300 109,492 Electronic Data Systems Corp. 8,600,000 158,498 SOFTWARE - 0.83% Microsoft Corp. (1) 7,237,300 374,168 Oracle Corp. (1) 3,683,300 39,780 681,938 TECHNOLOGY HARDWARE & EQUIPMENT COMMUNICATIONS EQUIPMENT - 1.14% Cisco Systems, Inc. (1) 22,550,000 295,405 Motorola, Inc. 4,500,000 38,925 Motorola, Inc. 7.00% convertible preferred 2004, units $ 120,000,000 76,800 Nokia Corp. (ADR) 10,150,000 157,325 COMPUTERS & PERIPHERALS - 1.74% Dell Computer Corp. (1) 1,700,000 45,458 EMC Corp. (1) 5,500,000 33,770 Hewlett-Packard Co. 10,500,000 182,280 International Business Machines Corp. 7,195,000 557,613 Sun Microsystems, Inc. (1) 15,000,000 46,650 ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.49% Agilent Technologies, Inc. (1) 3,000,000 53,880 Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) (4) $ 4,445,000 4,284 Sanmina-SCI Corp. (1) 11,850,000 53,207 Solectron Corp. (1) 23,500,000 83,425 Solectron Corp. 7.25% convertible preferred 2004, units $ 100,000,000 46,800 SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.24% Altera Corp. (1) 3,500,000 43,155 Applied Materials, Inc. (1) 6,770,000 88,213 Intel Corp. 2,140,000 33,320 KLA-Tencor Corp. (1) 1,425,000 50,402 Linear Technology Corp. 4,950,000 127,314 LSI Logic Corp. (1) 2,200,000 12,694 Maxim Integrated Products, Inc. 3,200,000 105,728 Micron Technology, Inc. (1) 1,500,000 14,610 Taiwan Semiconductor Manufacturing Co. Ltd. (1) 80,300,000 98,866 Texas Instruments Inc. 29,810,000 447,448 Xilinx, Inc. (1) 4,500,000 92,700 2,790,272 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 5.79% ALLTEL Corp. 6,450,000 328,950 ALLTEL Corp. 7.75% 2005, units $ 57,200,000 58,722 AT&T Corp. 13,780,000 359,796 Deutsche Telekom AG 13,186,200 169,112 SBC Communications Inc. 28,550,000 773,991 Sprint Corp. - FON Group (formerly Sprint FON Group) 43,300,000 626,984 Telefonos de Mexico, SA de CV, Class L (ADR) 3,000,000 95,940 Verizon Communications Inc. 12,100,000 468,875 WIRELESS TELECOMMUNICATION SERVICES - 0.92% AT&T Wireless Services, Inc. (1) 43,723,700 247,039 Sprint Corp. 7.125% convertible preferred 2004, units $ 172,500,000 50,439 Vodafone Group PLC (ADR) 8,750,000 158,550 3,338,398 UTILITIES ELECTRIC UTILITIES - 1.70% Ameren Corp. 2,000,000 83,140 American Electric Power Co., Inc. 4,850,000 132,551 Consolidated Edison, Inc. 166,900 7,147 Dominion Resources, Inc. 7,131,912 391,542 FPL Group, Inc. 1,000,000 60,130 Southern Co. 4,386,500 124,533 TXU Corp. 2,400,000 44,832 MULTI-UTILITIES & UNREGULATED POWER - 1.25% Calpine Corp. (1) 5,000,000 16,300 Duke Energy Corp. 25,000,000 488,500 El Paso Corp. 17,155,900 119,405 1,468,080 Miscellaneous - 2.14% Other equity securities in initial period of acquisition 1,063,664 Total equity securities (cost: $33,664,301,000) 37,009,647 Principal Market amount value Corporate bonds & notes (000) (000) AUTOMOBILES & COMPONENTS AUTOMOBILES - 0.33% Ford Motor Credit Co. 6.875% 2006 $ 30,000 $30,073 General Motors Acceptance Corp.: 6.15% 2007 30,000 30,550 6.875% 2011 50,000 49,944 7.25% 2011 50,000 51,029 161,596 MEDIA MEDIA - 0.04% AOL Time Warner Inc. 5.625% 2005 21,045 21,534 HEALTH CARE EQUIPMENT & SERVICES HEALTH CARE EQUIPMENT & SERVICES - 0.06% Columbia/HCA Healthcare Corp. 6.91% 2005 15,000 15,770 HCA Inc. 7.125% 2006 15,000 15,908 31,678 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIALS - 0.17% Capital One Financial Corp.: 7.25% 2006 17,385 16,698 8.75% 2007 14,750 14,433 Household Finance Corp. 5.75% 2007 50,000 52,378 83,509 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 2.15% AT&T Corp.: (4) 6.50% 2006 (3) Euro 9,815 10,311 7.00% 2006 $ 80,065 85,661 7.80% 2011 257,425 281,914 Deutsche Telekom International Finance B.V. 8.125% 2012 Euro 30,000 35,227 VoiceStream Wireless Corp. 10.375% 2009 $ 50,000 52,750 Sprint Capital Corp.: 5.875% 2004 104,518 103,513 7.90% 2005 242,710 245,285 7.125% 2006 19,500 19,321 6.00% 2007 2,000 1,892 6.125% 2008 23,050 21,006 7.625% 2011 15,500 14,751 8.375% 2012 197,500 196,886 WIRELESS TELECOMMUNICATION SERVICES - 0.54% AT&T Wireless Services, Inc.: 6.875% 2005 15,500 15,975 7.35% 2006 59,690 61,532 7.50% 2007 134,530 138,718 7.875% 2011 22,000 22,150 8.125% 2012 30,000 30,209 1,337,101 UTILITIES UTILITIES - 0.05% The Williams Companies, Inc.: 6.625% 2004 3,550 2,663 9.25% 2004 12,500 10,000 8.125% 2012 (3) 5,450 3,733 Williams Holdings of Delaware, Inc. 6.50% 2008 11,000 7,095 23,491 Total corporate bonds & notes (cost: $1,524,228,000) 1,658,909 Principal Market amount value U.S. Treasury & agency obligations (000) (000) FEDERAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 6.13% Fannie Mae 6.00%-6.50% due 4/1/2017-5/1/2032 (5) $ 2,902,884 $3,050,984 NON-PASS-THROUGH OBLIGATIONS - 3.31% Fannie Mae 5.25%-7.125% due 8/15/2004-5/15/2011 1,316,000 1,442,780 Freddie Mac 7.00% due 7/15/2005 183,000 205,258 4,699,022 U.S. TREASURY NOTES & BONDS U.S. TREASURY NOTES & BONDS - 3.60% 4.25% March 2003 580,000 584,304 5.25% August 2003 580,000 594,430 3.00% February 2004 600,000 611,964 1,790,698 Total U.S. Treasury & agency obligations (cost: $6,248,440,000) 6,489,720 Principal Market amount value Short-term securities (000) (000) Federal agency discount notes - 5.99% Fannie Mae 1.25%-1.77% due 1/8-4/28/2003 $ 1,088,565 $1,086,608 Federal Home Loan Bank 1.24%-1.692% due 1/2-4/30/2003 842,116 840,598 Freddie Mac 1.24%-1.70% due 1/2-4/14/2003 1,057,366 1,055,337 Corporate short-term notes - 2.92% Abbott Laboratories Inc. 1.28% due 1/7-1/16/2003 (3) 87,200 87,167 American Express Credit Corp. 1.29% due 1/10/2003 50,000 49,982 Archer Daniels Midland Co. 1.32%-1.34% due 2/26-3/3/2003 (3) 37,300 37,218 BellSouth Corp. 1.27%-1.31% due 1/7-1/14/2003 (3) 46,000 45,982 Citicorp 1.33%-1.37% due 1/6-4/29/2003 125,000 124,718 Coca-Cola Co. 1.29%-1.52% due 1/17-3/4/2003 74,300 74,189 E.I. DuPont de Nemours & Co. 1.50% due 1/14-1/30/2003 64,400 64,332 Gannett Co. 1.28% due 1/8-1/10/2003 (3) 77,700 77,674 General Dynamics Corp. 1.74% due 1/23/2003 (3) 25,000 24,972 General Electric Capital Corp. 1.32%-1.36% due 1/6-1/29/2003 150,000 149,893 Johnson & Johnson 1.28% due 3/10/2003 (3) 35,000 34,912 Kraft Foods Inc. 1.30%-1.35% due 1/27-2/26/2003 148,917 148,696 Medtronic Inc. 1.61% due 1/16/2003 (3) 35,000 34,975 Merck & Co. Inc. 1.29%-1.30% due 1/14-1/31/2003 117,800 117,719 Minnesota Mining and Manufacturing Co. 1.28% due 1/31/2003 28,415 28,384 Pfizer Inc 1.27%-1.31% due 1/13-3/3/2003 (3) 150,000 149,789 Procter & Gamble Co. 1.31% due 1/13/2003 (3) 25,000 24,988 Schering Corp. 1.29%-1.30% due 1/23-2/13/2003 50,000 49,940 United Parcel Service Inc. 1.27%-1.29% due 1/21-1/31/2003 100,000 99,907 Wells Fargo & Co. 1.31% due 1/24/2003 30,000 29,974 U.S. Treasuries - 0.10% U.S. Treasury Bills 1.245% due 4/24/2003 50,000 49,813 Total short-term securities (cost: $4,487,675,000) 4,487,767 Total investment securities (cost: $45,924,644,000) 49,646,043 New Taiwanese Dollar (cost: $7,652,000) NT$263,187 7,607 Other assets less liabilities 106,976 Net assets $49,760,626 (1) Security did not produce income during the last 12 months. (2) The fund owns 5.06% of the outstanding voting securities of R.J. Reynolds Tobacco Holdings, Inc. and thus is considered an affiliate of this company under the Investment Company Act of 1940. (3) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. (4) Coupon rate may change periodically. (5) 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
Equity Securities appearing in the portfolio Since June 30, 2002 Calpine Capital One Concord EFS eBay KLA-Tencor MeadWestvaco Norfolk Southern Northrop Grumman WMC Resources Equity Securities eliminated from the portfolio Since June 30, 2002 America Movil AutoZone Chubb Comerica ConAgra Foods Corning Edison International EnCana Fuji Photo Film Fujitsu Gap Halliburton Jefferson-Pilot Johnson & Johnson Pinnacle West Capital PMC-Sierra Sumitomo Mitsui Banking Thermo Electron Toronto-Dominion Bank United Technologies Williams Companies The Investment Company of America Financial statements Statement of assets and liabilities at December 31, 2002 (dollars and shares in thousands, except per-share amounts) Assets: Investment securities at market: Unaffiliated issuers (cost: $45,787,993) $49,458,162 Affiliated issuers (cost: $136,651) 187,881 $49,646,043 Cash denominated in non-U.S. currencies (cost: $7,652) 7,607 Cash 201 Receivables for: Sales of investments 17,377 Sales of fund's shares 82,082 Dividends and interest 190,458 289,917 49,943,768 Liabilities: Payables for: Purchases of investments 74,841 Repurchases of fund's shares 79,636 Investment advisory services 10,140 Services provided by affiliates 16,486 Deferred Directors' and Advisory Board compensation 1,924 Other fees and expenses 115 183,142 Net assets at December 31, 2002 $49,760,626 Net assets consist of: Capital paid in on shares of capital stock $45,878,912 Undistributed net investment income 161,948 Distributions in excess of net realized gain (1,757) Net unrealized appreciation 3,721,523 Net assets at December 31, 2002 $49,760,626 Authorized shares of capital stock - Net asset value $.001 par value Net assets Shares outstanding per share (1) Class A 2,500,000 $46,128,884 1,964,419 $23.48 Class B 250,000 1,841,136 78,635 23.41 Class C 250,000 1,024,864 43,830 23.38 Class F 250,000 414,956 17,685 23.46 Class 529-A 325,000 153,204 6,526 23.48 Class 529-B 75,000 40,460 1,725 23.45 Class 529-C 150,000 45,065 1,922 23.45 Class 529-E 75,000 5,699 243 23.45 Class 529-F 75,000 382 16 23.47 Class R-1 75,000 1,028 44 23.46 Class R-2 100,000 23,887 1,018 23.46 Class R-3 300,000 24,397 1,039 23.47 Class R-4 75,000 8,839 377 23.47 Class R-5 150,000 47,825 2,037 23.48 (1) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for classes A and 529-A, for which the maximum offering prices per share were $24.91 for each. See Notes to Financial Statements Statement of operations for the year ended December 31, 2002 (dollars in thousands) Investment income: Income: Dividends (net of non-U.S. withholding tax of $14,387; also includes $16,620 from affiliates) $912,800 Interest (net of non-U.S. withholding tax of $20) 416,637 $1,329,437 Fees and expenses: Investment advisory services 129,674 Distribution services 142,403 Transfer agent services 49,033 Administrative services 2,452 Reports to shareholders 2,334 Registration statement and prospectus 1,706 Postage, stationery and supplies 7,253 Directors' and Advisory Board compensation 588 Auditing and legal 150 Custodian 1,454 State and local taxes 632 Other 113 Total expenses before reimbursement 337,792 Reimbursement of expenses 12 337,780 Net investment income 991,657 Net realized gain and unrealized depreciation on investments and non-U.S. currency: Net realized gain (loss) on: Investments 838,303 Non-U.S. currency transactions (1,572) 836,731 Net unrealized (depreciation) appreciation on: Investments (10,409,716) Non-U.S. currency translations 251 (10,409,465) Net realized gain and unrealized depreciation on investments and non-U.S. currency (9,572,734) Net decrease in net assets resulting from operations $(8,581,077) Statement of changes in net assets (dollars in thousands) Year ended December 31 2002 2001 Operations: Net investment income $991,657 $819,564 Net realized gain on investments and non-U.S. currency transactions 836,731 972,412 Net unrealized depreciation on investments and non-U.S. currency translations (10,409,465) (4,453,803) Net decrease in net assets resulting from operations (8,581,077) (2,661,827) Dividends and distributions paid to shareholders: Dividends from net investment income (1,050,322) (972,633) Distributions from net realized gain on investments (948,702) (1,116,727) Total dividends and distributions paid to shareholders (1,999,024) (2,089,360) Capital share transactions 4,053,315 4,387,730 Total decrease in net assets (6,526,786) (363,457) Net assets: Beginning of year 56,287,412 56,650,869 End of year (including undistributed net investment income: $161,948 and $224,805,respectively) $49,760,626 $56,287,412 See Notes to Financial Statements
Notes to financial statements 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 (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 (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 sales charge Contingent deferred sales Conversion feature charge upon redemption - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes A and 529-A Up to 5.75% None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes B and 529-B None Declines from 5% Classes B and 529-B to zero convert to for redemptions within classes A and 529-A, six years of respectively, after purchase eight years - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class C None 1% for redemptions within Class C converts to Class F one year of purchase after 10 years - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class 529-C None 1% for redemptions within None one year of purchase - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class 529-E None None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes F and 529-F None None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes R-1, R-2, R-3, None None None R-4 and R-5 - ---------------------------------------------------------------------------------------------------------
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 paid to shareholders 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 differing treatment for items such as non-U.S. currency gains and losses; expenses deferred for tax purposes; and cost of investments 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 December 31, 2002, the cost of investment securities and cash denominated in non-U.S. currencies for federal income tax purposes was $45,929,757,000. During the year ended December 31, 2002, the fund reclassified $116,042,000 from undistributed net realized gains to additional paid-in capital to align financial reporting with tax reporting. As of December 31, 2002, the components of distributable earnings on a tax basis were as follows: (dollars in thousands) Undistributed net investment income and currency gains $164,138 Loss deferrals related to non-U.S. currency that were realized during the period November 1, 2002 through December 31, 2002 (267) Gross unrealized appreciation on investment securities 8,027,930 Gross unrealized depreciation on investment securities (4,304,037)
The tax character of distributions paid to shareholders was as follows (dollars in thousands): Year ended December 31, 2002 Distributions from ordinary income Net investment income and Short-term Distributions from long-term Total distributions Share class currency gains capital gains capital gains paid Class A $ 1,008,396 - $ 887,548 $ 1,895,944 Class B 21,641 - 32,496 54,137 Class C 10,712 - 17,283 27,995 Class F 6,321 - 6,593 12,914 Class 529-A(1) 1,613 - 2,082 3,695 Class 529-B(1) 269 - 555 824 Class 529-C(1) 303 - 611 914 Class 529-E(1) 47 - 74 121 Class 529-F(1) 2 - 4 6 Class R-1(2) 5 - 15 20 Class R-2(2) 114 - 321 435 Class R-3(2) 112 - 309 421 Class R-4(2) 46 - 112 158 Class R-5(2) 741 - 699 1,440 Total $ 1,050,322 - $ 948,702 $ 1,999,024 Year ended December 31, 2001 Distributions from ordinary income Net investment income and Short-term Distributions from long-term Total 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 (1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning February 15, 2002. (2) Class R-1, R-2, R-3, R-4 and R-5 shares were offered beginning May 15, 2002. (3) Class C and 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 year ended December 31, 2002, the investment advisory services fee was equivalent to an annualized rate of 0.242% 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 that 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 approved limits Plan limits ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class A 0.25% 0.25% ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class 529-A 0.25 0.50 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes B and 529-B 1.00 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes C, 529-C and R-1 1.00 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class R-2 0.75 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes 529-E and R-3 0.50 0.75 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes F, 529-F and 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 classes A and 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 December 31, 2002, there were no unreimbursed expenses which remain subject to reimbursement for Class A or for Class 529-A. Transfer agent services - The fund has a transfer agent agreement with AFS for Class A and B shares. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent 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 agent and other related shareholder services for all classes of shares other than classes A and 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 agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. During the start-up period for classes R-1, R-2, R-3 and R-4, CRMC has voluntarily agreed to pay a portion of these fees. 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. Administrative services fees are presented gross of any payments made by CRMC. Expenses under the agreements described above for the year ended December 31, 2002, were as follows (dollars in thousands): - ----------------------------------------------------------------------- Share class Distribution Transfer agent Administrative services services services - ----------------------------------------------------------------------- Class A $116,270 $47,118 Not applicable - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class B 16,571 1,915 Not applicable - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class C 8,184 Included in $1,472 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class F 775 Included in 584 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-A 129 Included in 193 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-B 188 Included in 59 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-C 213 Included in 63 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-E 11 Included in 5 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-F -* Included in -* administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-1 3 Included in 3 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-2 36 Included in 27 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-3 19 Included in 14 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-4 4 Included in 4 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-5 Not applicable Included in 28 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Total $142,403 $49,033 $2,452 - ----------------------------------------------------------------------- * 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 December 31, 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 December 31, 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): Year ended December 31, 2002 Share class Sales(1) Sales(1) Reinvestments of dividends and distributions Amount Shares Amount Shares Class A $ 6,693,985 255,431 $ 1,756,908 69,477 Class B 1,057,376 40,132 52,386 2,107 Class C 837,810 31,926 26,931 1,092 Class F 381,789 14,772 11,110 448 Class 529-A(2) 168,803 6,496 3,695 152 Class 529-B(2) 44,496 1,722 824 34 Class 529-C(2) 50,297 1,938 913 38 Class 529-E(2) 6,158 243 121 5 Class 529-F(2) 385 16 6 -* Class R-1(3) 1,100 46 20 1 Class R-2(3) 28,401 1,199 434 18 Class R-3(3) 27,920 1,172 419 17 Class R-4(3) 9,005 390 157 7 Class R-5(3) 57,752 2,155 1,273 52 Total net increase (decrease) in fund $ 9,365,277 357,638 $ 1,855,197 73,448 Year ended December 31, 2001 Share class Sales(1) Sales(1) Reinvestments of dividends and distributions Amount Shares Amount Shares Class A $ 6,534,080 221,910 $ 1,884,217 64,925 Class B 976,698 33,294 28,010 978 Class C(4) 501,953 17,317 7,161 254 Class F(4) 198,978 6,922 2,696 95 Total net increase (decrease) in fund $ 8,211,709 279,443 $ 1,922,084 66,252 Year ended December 31, 2002 Share class Repurchases(1) Repurchases(1) Net increase Net increase Amount Shares Amount Shares Class A $ (6,665,696) (264,017) $ 1,785,197 60,891 Class B (230,619) (9,342) 879,143 32,897 Class C (148,918) (6,075) 715,823 26,943 Class F (103,788) (4,193) 289,111 11,027 Class 529-A(2) (2,983) (122) 169,515 6,526 Class 529-B(2) (737) (31) 44,583 1,725 Class 529-C(2) (1,301) (54) 49,909 1,922 Class 529-E(2) (112) (5) 6,167 243 Class 529-F(2) (1) -* 390 16 Class R-1(3) (77) (3) 1,043 44 Class R-2(3) (4,693) (199) 24,142 1,018 Class R-3(3) (3,568) (150) 24,771 1,039 Class R-4(3) (451) (20) 8,711 377 Class R-5(3) (4,215) (170) 54,810 2,037 Total net increase (decrease) in fund $ (7,167,159) (284,381) $ 4,053,315 146,705 Year ended December 31, 2001 Share class Repurchases(1) Repurchases(1) Net increase Net increase 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, 529-B, 529-C, 529-E and 529-F shares were offered beginning February 15, 2002. (3) Class R-1, R-2, R-3, R-4 and R-5 shares were offered beginning May 15, 2002. (4) Class C and 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 December 31, 2002, the total value of restricted securities was $536,005,000, which represents 1.08% 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 $21,891,306,000 and $12,967,078,000, respectively, during the year ended December 31, 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 year ended December 31, 2002, the custodian fee of $1,454,000 includes $111,000 that was offset by this reduction, rather than paid in cash. Financial Highlights (1) Income (loss) from investment operations(2) Net Net asset (losses)gains value, Net on securities Total from beginning investment (both realized investment of period income and unrealized) operations Class A: Year ended 12/31/2002 $28.53 $.49 $(4.56) $(4.07) 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 Class B: Year ended 12/31/2002 28.47 .30 (4.57) (4.27) 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: Year ended 12/31/2002 28.44 .30 (4.58) (4.28) Period from 3/15/2001 to 12/31/2001 29.05 .09 (.14) (.05) Class F: Year ended 12/31/2002 28.52 .49 (4.59) (4.10) Period from 3/15/2001 to 12/31/2001 29.10 .27 (.13) .14 Class 529-A: Period from 2/15/2002 to 12/31/2002 27.88 .46 (3.91) (3.45) Class 529-B: Period from 2/15/2002 to 12/31/2002 27.88 .28 (3.92) (3.64) Class 529-C: Period from 2/19/2002 to 12/31/2002 27.47 .28 (3.50) (3.22) Class 529-E: Period from 3/1/2002 to 12/31/2002 28.27 .38 (4.52) (4.14) Class 529-F: Period from 9/16/2002 to 12/31/2002 23.98 .16 (.19) (.03) Class R-1: Period from 6/6/2002 to 12/31/2002 27.27 .20 (3.36) (3.16) Class R-2: Period from 5/21/2002 to 12/31/2002 28.23 .23 (4.34) (4.11) Class R-3: Period from 6/4/2002 to 12/31/2002 27.58 .27 (3.69) (3.42) Class R-4: Period from 5/28/2002 to 12/31/2002 28.22 .32 (4.33) (4.01) Class R-5: Period from 5/15/2002 to 12/31/2002 28.37 .39 (4.50) (4.11) Dividends and distributions Dividends (from net Distributions Total investment (from capital dividends and income) gains) distributions Class A: Year ended 12/31/2002 $(.52) $(.46) $(.98) Year ended 12/31/2001 (.52) (.59) (1.11) Year ended 12/31/2000 (.52) (2.08) (2.60) Year ended 12/31/1999 (.51) (3.04) (3.55) Year ended 12/31/1998 (.51) (2.94) (3.45) Class B: Year ended 12/31/2002 (.33) (.46) (.79) Year ended 12/31/2001 (.31) (.59) (.90) Period from 3/15/2000 to 12/31/2000 (.25) (1.68) (1.93) Class C: Year ended 12/31/2002 (.32) (.46) (.78) Period from 3/15/2001 to 12/31/2001 (.21) (.35) (.56) Class F: Year ended 12/31/2002 (.50) (.46) (.96) Period from 3/15/2001 to 12/31/2001 (.37) (.35) (.72) Class 529-A: Period from 2/15/2002 to 12/31/2002 (.49) (.46) (.95) Class 529-B: Period from 2/15/2002 to 12/31/2002 (.33) (.46) (.79) Class 529-C: Period from 2/19/2002 to 12/31/2002 (.34) (.46) (.80) Class 529-E: Period from 3/1/2002 to 12/31/2002 (.33) (.35) (.68) Class 529-F: Period from 9/16/2002 to 12/31/2002 (.13) (.35) (.48) Class R-1: Period from 6/6/2002 to 12/31/2002 (.30) (.35) (.65) Class R-2: Period from 5/21/2002 to 12/31/2002 (.31) (.35) (.66) Class R-3: Period from 6/4/2002 to 12/31/2002 (.34) (.35) (.69) Class R-4: Period from 5/28/2002 to 12/31/2002 (.39) (.35) (.74) Class R-5: Period from 5/15/2002 to 12/31/2002 (.43) (.35) (.78)
Ratio of Ratio of Net asset Net assets, expenses net income value, end Total end of period to average to average of period return(3) (in millions) net assets net assets Class A: Year ended 12/31/2002 $23.48 (14.47)% $46,129 .59% 1.89% Year ended 12/31/2001 28.53 (4.59) 54,315 .57 1.49 Year ended 12/31/2000 31.07 3.84 56,212 .56 1.74 Year ended 12/31/1999 32.46 16.55 56,095 .55 1.54 Year ended 12/31/1998 31.07 22.93 48,498 .55 1.65 Class B: Year ended 12/31/2002 23.41 (15.18) 1,841 1.39 1.18 Year ended 12/31/2001 28.47 (5.30) 1,302 1.35 .66 Period from 3/15/2000 to 12/31/2000 31.01 5.87 439 1.34 (5) 1.06 (5) Class C: Year ended 12/31/2002 23.38 (15.20) 1,025 1.45 1.17 Period from 3/15/2001 to 12/31/2001 28.44 (.19) 480 1.52 (5) .38 (5) Class F: Year ended 12/31/2002 23.46 (14.59) 415 .70 1.92 Period from 3/15/2001 to 12/31/2001 28.52 .48 190 .72 (5) 1.17 (5) Class 529-A: Period from 2/15/2002 to 12/31/2002 23.48 (12.57) 153 .71 (5) 2.17 (5) Class 529-B: Period from 2/15/2002 to 12/31/2002 23.45 (13.22) 41 1.58 (5) 1.30 (5) Class 529-C: Period from 2/19/2002 to 12/31/2002 23.45 (11.91) 45 1.57 (5) 1.32 (5) Class 529-E: Period from 3/1/2002 to 12/31/2002 23.45 (14.72) 6 1.03 (5) 1.90 (5) Class 529-F: Period from 9/16/2002 to 12/31/2002 23.47 (.14) - (4) .23 .68 Class R-1: Period from 6/6/2002 to 12/31/2002 23.46 (11.68) 1 1.47 (5),(6) 1.49 (5) Class R-2: Period from 5/21/2002 to 12/31/2002 23.46 (14.64) 24 1.43 (5),(6) 1.61 (5) Class R-3: Period from 6/4/2002 to 12/31/2002 23.47 (12.49) 24 1.05 (5),(6) 2.00 (5) Class R-4: Period from 5/28/2002 to 12/31/2002 23.47 (14.31) 9 .69 (5),(6) 2.25 (5) Class R-5: Period from 5/15/2002 to 12/31/2002 23.48 (14.59) 48 .37 (5) 2.56 (5)
Year ended December 31 2002 2001 2000 1999 1998 Portfolio turnover rate for all classes of shares 27% 22% 25% 28% 24%
(1) Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. (2) Years ended 1999 and 1998 are based on shares outstanding on the last day of the year; all other periods are based on average shares outstanding. (3) Total returns exclude all sales charges, including contingent deferred sales charges. (4) Amount less than 1 million. (5) Annualized. (6) During the start-up period for this class, CRMC voluntarily agreed to pay a portion of the fees relating to transfer agent services. Had CRMC not paid such fees, expense ratios would have been 2.43%, 1.57%, 1.11% and .73% for classes R-1, R-2, R-3 and R-4, respectively. Such expense ratios are the result of higher expenses during the start-up period and are not indicative of expense ratios expected in the future. Report of independent accountants To the Board of Directors and Shareholders of The Investment Company of America: In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Investment Company of America (the "Fund") at December 31, 2002, and the results of its operations, the changes in its net assets and its financial highlights for each of the periods presented in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (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 auditing standards generally accepted in the United States of America, 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 owned at December 31, 2002, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Los Angeles, California January 31, 2003 Tax Information (unaudited) We are required to advise you within 60 days of the fund's fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. During the fiscal year ended December 31, 2002, the fund paid a long-term capital gain distribution of $948,702,000. The fund also designated as a capital gain distribution a portion of earnings and profits paid to shareholders in redemption of their shares. Corporate shareholders may exclude up to 70% of qualifying dividends received during the year. For purposes of computing this exclusion, 83% of the dividends paid by the fund from net investment income represent qualifying dividends. Certain states may exempt from income taxation that portion of the dividends paid from net investment income that was derived from direct U.S. Treasury obligations. For purposes of computing this exclusion, 4% of the dividends paid by the fund from net investment income were derived from interest on direct U.S. Treasury obligations. Dividends and distributions received by retirement plans such as IRAs, Keogh-type plans and 403(b) plans need not be reported as taxable income. However, many retirement plan trusts may need this information for their annual information reporting. SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH WAS MAILED IN JANUARY 2003 TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR 2002 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. [logo - American Funds (sm)] The right choice for the long term/SM/ The Investment Company of America/(R)/
TABLE OF CONTENTS 1 Risk/Return Summary 4 Fees and Expenses of the Fund 6 Investment Objectives, Strategies and Risks 9 Management and Organization 11 Purchase, Exchange and Sale of Shares 13 Sales Charges 14 Sales Charge Reductions 15 Individual Retirement Account (IRA) Rollovers 16 Plans of Distribution 17 Distributions and Taxes 18 Financial Highlights
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. RETIREMENT PLAN PROSPECTUS March 1, 2003 Risk/Return Summary The fund seeks to make your investment grow and provide you with income over time by investing primarily in common stocks that offer growth and dividend potential. The fund is designed for investors seeking both capital appreciation and income. Your investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to events specifically involving the companies in which the fund invests, as well as economic, political or social events in the U.S. or abroad. The fund's equity investments are limited to securities of companies that are included on its eligible list. The eligible list is reviewed and approved by the fund's board of directors at the recommendation of Capital Research and Management Company, the fund's investment adviser. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 The Investment Company of America / Prospectus HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual total returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, results would be lower.) [bar chart] 1993 11.62% 1994 0.16 1995 30.62 1996 19.35 1997 29.81 1998 22.93 1999 16.55 2000 3.84 2001 -4.59 2002 -14.47 [end chart] Highest/lowest quarterly results during this time period were:
HIGHEST 17.34% (quarter ended December 31, 1998) LOWEST -14.51% (quarter ended September 30, 2002)
2 The Investment Company of America / Prospectus Unlike the bar chart on the previous page, the Investment Results Table below reflects, as required by Securities and Exchange Commission rules, the fund's investment results with the maximum initial sales charge imposed. Class A share results reflect the maximum initial sales charge of 5.75%. Sales charges are reduced for purchases of $25,000 or more. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividends and capital gain distributions. Because the fund's Class R shares were first available on May 15, 2002, comparable results for these classes are not available for the 2002 calendar year. Unlike the Investment Results Table below, the Investment Results Table on page 7 reflects the fund's results calculated without a sales charge.
INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - ------------------------------------------------------------------------------- CLASS A - BEGAN 1/1/34 -19.39% 2.74% 9.98% 12.72% S&P 500/2/ -22.09% -0.58% 9.34% 11.14% Lipper Growth and Income -17.89% -0.62% 8.31% N/A Index/3/ Lipper Large-Cap Value -19.68% -0.39% 8.72% N/A Index/4/ - ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2002: 2.15% (For current yield information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are measured from the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted performance of 500 widely held common stocks. This index is unmanaged. 3 The Lipper Growth and Income Fund Index is an equally weighted performance index that represents funds that combine a growth-of-earnings orientation and an income requirement for level and/or rising dividends. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 4 The Lipper Large-Cap Value Index is an equally weighted performance index that represents funds which, by practice, invest at least 75% of their equity assets in companies with large market capitalizations. Large-cap value funds seek long-term growth of capital by investing in companies that are considered to be undervalued relative to a major unmanaged stock index based on price-to-current earnings or other factors. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 3 The Investment Company of America / Prospectus Fees and Expenses of the Fund
SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A ALL R SHARE CLASSES - ------------------------------------------------------------------------------- Maximum sales charge imposed on purchases 5.75%/1/ none (as a percentage of offering price) - ------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested none none dividends - ------------------------------------------------------------------------------- Maximum deferred sales charge none none - ------------------------------------------------------------------------------- Redemption or exchange fees none none
1 Sales charges are reduced or eliminated for purchases of $25,000 or more.
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A R-1/1/ R-2/1/ R-3/1/ R-4/1/ R-5/1/ - --------------------------------------------------------------------------------- Management Fees 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% - --------------------------------------------------------------------------------- Distribution and/or 0.23% 1.00% 0.75% 0.50% 0.25% none Service (12b-1) Fees/2/ - --------------------------------------------------------------------------------- Other Expenses/3/ 0.12% 1.19% 0.58% 0.37% 0.24% 0.13% - --------------------------------------------------------------------------------- Total Annual Fund 0.59% 2.43% 1.57% 1.11% 0.73% 0.37% Operating Expenses - --------------------------------------------------------------------------------- Expense Reimbursement N/A 0.96%/4/ 0.14%/4/ 0.06%/4/ 0.04%/4/ N/A - --------------------------------------------------------------------------------- Net Expenses 0.59% 1.47% 1.43% 1.05% 0.69% 0.37% - ---------------------------------------------------------------------------------
1 Annualized. 2 Class A, R-2, R-3 and R-4 12b-1 fees may not exceed 0.25%, 1.00%, 0.75%, and 0.50%, respectively, of the class' average net assets annually. Class R-1 fees will always be 1.00% of the class' average net assets annually. 3 A portion of the fund's expenses may be used to pay third parties (including affiliates of the fund's investment adviser) that provide recordkeeping services to retirement plans invested in the fund. 4 During the start-up period for this class, Capital Research and Management Company voluntarily agreed to pay a portion of the fees relating to transfer agent services. These reimbursements are the result of higher expenses during the start-up period. The resulting expense ratios are not indicative of expense ratios expected in the future. 4 The Investment Company of America / Prospectus EXAMPLES The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividends and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown above. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS - ------------------------------------------------------------------------ Class A/1/ $632 $753 $885 $1,270 - ------------------------------------------------------------------------ R-1/2/ $150 $465 $803 $1,757 - ------------------------------------------------------------------------ R-2/2/ $146 $452 $782 $1,713 - ------------------------------------------------------------------------ R-3/2/ $107 $334 $579 $1,283 - ------------------------------------------------------------------------ R-4/2/ $ 70 $221 $384 $ 859 - ------------------------------------------------------------------------ R-5 $ 38 $119 $208 $ 468 - ------------------------------------------------------------------------
1 Reflects the maximum initial sales charge in the first year. 2 Reflects expenses paid by Capital Research and Management Company. 5 The Investment Company of America / Prospectus Investment Objectives, Strategies and Risks The fund's investment objectives are to achieve long-term growth of capital and income. The fund strives to accomplish these objectives through extensive U.S. and global research, careful selection, and broad diversification. In the selection of securities for investment, potential for capital appreciation and future dividends are given more weight than current yield. The fund invests primarily in common stocks. The fund's investments are limited to securities of companies that are included on its eligible list, which consists of securities deemed suitable by the fund's investment adviser in light of the fund's investment objectives and policies. Securities are added to, or deleted from, the eligible list by the board of directors, after reviewing and acting upon the recommendations of the investment adviser. The prices of and the income generated by securities held by the fund may decline in response to certain events, including: those directly involving the companies whose securities are owned in the fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate fluctuations. The fund may also hold cash or money market instruments. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objectives in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general market downturn and provide liquidity to make additional investments or to meet redemptions. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek attractively priced securities that represent above average long-term investment opportunities. The investment adviser believes that the best way to accomplish this is through fundamental analysis, including meeting with company executives and employees, suppliers, customers and competitors. Securities may be sold when the investment adviser believes they no longer represent good long-term value. OTHER IMPORTANT INVESTMENT PRACTICES In addition to the principal investment strategies described above, the fund has other investment practices that are described in this prospectus and in the statement of additional information. The fund may invest up to 15% of its assets, at the time of purchase, in securities of issuers domiciled outside the U.S. and not included in the Standard & Poor's 500 Composite Index. Investments outside the U.S. may be subject to certain risks. For example, the prices of non-U.S. securities can decline in response to currency fluctuations or political, social or economic instability. 6 The Investment Company of America / Prospectus ADDITIONAL INVESTMENT RESULTS Unlike the investment results table shown on an earlier page, the table below reflects the fund's results calculated without a sales charge.
INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - -------------------------------------------------------------------------------------- CLASS A - BEGAN -14.47% 3.96% 10.63% 12.82% 1/1/34 S&P 500/2/ -22.09% -0.58% 9.34% 11.14% Lipper Growth and -17.89% -0.62% 8.31% N/A Income Index/3/ Lipper Large-Cap -19.68% -0.39% 8.72% N/A Value Index/4/ - -------------------------------------------------------------------------------------- Class A distribution rate at December 31, 2002: 2.17%/5/ (For current distribution rate information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are measured from the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted performance of 500 widely held common stocks. This index is unmanaged. 3 The Lipper Growth and Income Fund Index is an equally weighted performance index that represents funds that combine a growth-of-earnings orientation and an income requirement for level and/or rising dividends. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 4 The Lipper Large-Cap Value Index is an equally weighted performance index that represents funds which, by practice, invest at least 75% of their equity assets in companies with large market capitalizations. Large-cap value funds seek long-term growth of capital by investing in companies that are considered to be undervalued relative to a major unmanaged stock index based on price-to-current earnings or other factors. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 5 The distribution rate is based on actual distributions paid to shareholders over a 12-month period. Capital gain distributions are added back to the net asset value to determine the rate. 7 The Investment Company of America / Prospectus
LARGEST INVESTMENT CATEGORIES AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Food, beverage & tobacco 7.44% - ------------------------------------------------------------------ Pharmaceuticals & biotechnology 6.73 - ------------------------------------------------------------------ Telecommunication services 6.71 - ------------------------------------------------------------------
LARGEST INDUSTRY HOLDINGS AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Pharmaceuticals 6.66% - ------------------------------------------------------------------ Diversified telecommunication services 5.79 - ------------------------------------------------------------------ Beverages & tobacco 5.24 - ------------------------------------------------------------------ Oil & gas 5.13 - ------------------------------------------------------------------ Media 4.20 - ------------------------------------------------------------------
LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Altria Group (formerly Philip Morris) 3.44% - ------------------------------------------------------------------ Eli Lilly 2.34 - ------------------------------------------------------------------ SBC Communications 1.56 - ------------------------------------------------------------------ Viacom 1.52 - ------------------------------------------------------------------ Pharmacia 1.49 - ------------------------------------------------------------------ Fannie Mae 1.45 - ------------------------------------------------------------------ Dow Chemical 1.40 - ------------------------------------------------------------------ Lowe's 1.39 - ------------------------------------------------------------------ Bank of America 1.27 - ------------------------------------------------------------------ ChevronTexaco 1.27 - ------------------------------------------------------------------
Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 8 The Investment Company of America / Prospectus Management and Organization INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier in the Annual Fund Operating Expenses Table. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach, the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for The Investment Company of America are:
PORTFOLIO COUNSELOR/ FUND PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE - ----------------------------------------------------------------------------------------------------------- R. MICHAEL SHANAHAN 12 years Chairman of the Board and Principal Executive Chairman of the Board and (plus 7 years prior Officer, Capital Research and Management Company Chief Executive Officer experience as a research professional for the fund) Investment professional for 38 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES F. ROTHENBERG 9 years President and Director, Capital Research and President and Director (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 33 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES B. LOVELACE 11 years Senior Vice President and Director, Capital Senior Vice President and (plus 3 years prior Research and Management Company Director experience as a research professional for the fund) Investment professional for 21 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DONALD D. O'NEAL 11 years Senior Vice President, Capital Research and Senior Vice President and (plus 4 years prior Management Company Director experience as a research professional for the fund) Investment professional for 18 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- GREGG E. IRELAND 11 years Senior Vice President, Capital Research and Senior Vice President (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 30 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JOYCE E. GORDON 2 years Senior Vice President, Capital Research Company Vice President (plus 12 years prior experience as a research Investment professional for 27 years, all with professional for the fund) Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES E. DRASDO 16 years Senior Vice President, Capital Research and (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 31 years in total; 26 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DINA N. PERRY 9 years Senior Vice President, Capital Research and (plus 2 years prior Management Company experience as a research professional for the fund) Investment professional for 25 years in total; 11 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- C. ROSS SAPPENFIELD 3 years Vice President and Director, Capital Research (plus 6 years prior Company experience as a research professional for the fund) Investment professional for 11 years, all with Capital Research and Management Company or affiliate - -----------------------------------------------------------------------------------------------------------
9 The Investment Company of America / Prospectus [This page is intentionally left blank for this filing.] 10 The Investment Company of America / Prospectus Purchase, Exchange and Sale of Shares PURCHASES AND EXCHANGES Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares also are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the fund. In addition, Class R-5 shares generally are available only to retirement plans with $1 million or more in plan assets. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans generally may open an account and purchase Class A or R shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. Some or all R share classes may not be available through certain investment dealers. Additional shares may be purchased through a plan's administrator or recordkeeper. Shares of the fund offered through this prospectus generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchanges of Class A shares from money market funds purchased without a sales charge generally will be subject to the appropriate sales charge. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM FLUCTUATIONS IN THE SECURITIES MARKETS. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND OR AMERICAN FUNDS DISTRIBUTORS HAS DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. THE FUND'S TRANSFER AGENT, ON BEHALF OF THE FUND AND AMERICAN FUNDS DISTRIBUTORS, IS REQUIRED BY LAW TO OBTAIN CERTAIN PERSONAL INFORMATION FROM YOU OR PERSONS ACTING ON YOUR BEHALF IN ORDER TO VERIFY YOUR OR SUCH PERSON'S IDENTITY. IF YOU DO NOT PROVIDE THE INFORMATION, THE TRANSFER AGENT MAY NOT BE ABLE TO OPEN YOUR ACCOUNT. IF THE TRANSFER AGENT IS UNABLE TO VERIFY YOUR IDENTITY OR THAT OF ANOTHER PERSON(S) AUTHORIZED TO ACT ON YOUR BEHALF, OR IF IT BELIEVES IT HAS IDENTIFIED POTENTIALLY CRIMINAL ACTIVITY, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO CLOSE YOUR ACCOUNT OR TAKE ANY OTHER ACTION THEY DEEM REASONABLE OR REQUIRED BY LAW. 11 The Investment Company of America / Prospectus SALES Please contact your plan administrator or recordkeeper in order to sell shares from your retirement plan. If you notify American Funds Service Company, you may reinvest proceeds from a redemption, dividend payment or capital gain distribution without a sales charge in any of the American Funds within 90 days after the date of the redemption or distribution. Proceeds will be reinvested in the same share class from which the original redemption or distribution was made. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by American Funds Service Company. VALUING SHARES The net asset value of each share class of the fund is the value of a single share. The fund calculates the net asset values, each day the New York Stock Exchange is open, as of approximately 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. 12 The Investment Company of America / Prospectus Sales Charges CLASS A SHARES The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below. Any applicable sales charge will be deducted directly from your investment.
SALES CHARGE AS A PERCENTAGE OF DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE - --------------------------------------------------------------------------- Less than $25,000 5.75% 6.10% 5.00% - --------------------------------------------------------------------------- $25,000 but less than $50,000 5.00% 5.26% 4.25% - --------------------------------------------------------------------------- $50,000 but less than $100,000 4.50% 4.71% 3.75% - --------------------------------------------------------------------------- $100,000 but less than $250,000 3.50% 3.63% 2.75% - --------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% - --------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% - --------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% - --------------------------------------------------------------------------- $1 million or more and certain other none none see below investments described below - ---------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE Employer-sponsored defined contribution-type plans, including certain 403(b) plans, investing $1 million or more or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). Certain other investors may qualify to purchase shares without a sales charge, such as employees of broker-dealer firms and registered investment advisers authorized to sell American Funds, and employees of The Capital Group Companies. Please see the statement of additional information for more information. 13 The Investment Company of America / Prospectus CLASS R SHARES Class R shares are sold with no initial or deferred sales charges. The distributor will pay dealers annually, asset-based compensation of 1.00% for sales of Class R-1 shares, 0.75% for Class R-2 shares, 0.50% for Class R-3 shares, and 0.25% for Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). Sales Charge Reductions TO RECEIVE A REDUCTION IN YOUR CLASS A INITIAL SALES CHARGE, YOU MUST LET YOUR INVESTMENT DEALER OR AMERICAN FUNDS SERVICE COMPANY KNOW AT THE TIME YOU PURCHASE SHARES THAT YOU QUALIFY FOR SUCH A REDUCTION. IF YOU DO NOT LET YOUR DEALER OR AMERICAN FUNDS SERVICE COMPANY KNOW YOU ARE ELIGIBLE FOR A REDUCTION, YOU MAY NOT RECEIVE A SALES CHARGE DISCOUNT TO WHICH YOU ARE OTHERWISE ENTITLED. REDUCING YOUR CLASS A INITIAL SALES CHARGE Consistent with the policies described in this prospectus two or more retirement plans of an employer or employer's affiliates may combine all of their American Funds investments to reduce their Class A sales charge. CONCURRENT PURCHASES Simultaneous purchases of any class of shares of two or more American Funds may be combined to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION The current value (or if greater, the amount invested less any withdrawals) of existing holdings in any class of shares of the American Funds may be taken into account to determine Class A sales charges. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION Class A sales charges may be reduced by establishing a Statement of Intention. A Statement of Intention allows all non-money market fund purchases of all share classes intended to be made over a 13-month period to be combined in order to determine the applicable sales charge. At the request of a plan, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of the account may be held in escrow to cover additional Class A sales charges which may be due if total investments over the 13-month period do not qualify for the applicable sales charge reduction. 14 The Investment Company of America / Prospectus Individual Retirement Account (IRA) Rollovers Assets from a retirement plan may be invested in Class A, B, C or F shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information covering these share classes. An IRA rollover involving retirement plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: . Class A shares at net asset value; . Class A shares subject to the applicable initial sales charge; . Class B shares; . Class C shares; or . Class F shares. Retirement plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Retirement plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees. Dealer commissions on such assets will be paid only on rollovers of $1 million or more. 15 The Investment Company of America / Prospectus Plans of Distribution The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. The plans provide for annual expenses of up to 0.25% for Class A shares, 1.00% for Class R-1 shares, and up to 1.00%, 0.75% and 0.50% for Class R-2, R-3 and R-4 shares, respectively. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The amount remaining for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier in the Annual Fund Operating Expenses Table. Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 16 The Investment Company of America / Prospectus Distributions and Taxes DIVIDENDS AND DISTRIBUTIONS The fund intends to distribute dividends to you, usually in March, June, September and December. Capital gains, if any, are usually distributed in December. When a dividend or capital gain is distributed, the net asset value per share is reduced by the amount of the payment. All dividends and capital gain distributions paid to retirement plan shareholders will automatically be reinvested. TAXES ON DIVIDENDS AND DISTRIBUTIONS Dividends and capital gains distributed by the fund to retirement plan accounts currently are not taxable. TAXES ON TRANSACTIONS Distributions taken from a retirement plan account generally are taxable as ordinary income. PLEASE SEE YOUR TAX ADVISER FOR FURTHER INFORMATION. 17 The Investment Company of America / Prospectus [This page is intentionally left blank for this filing.] 18 Financial Highlights/1/ The financial highlights table is intended to help you understand the fund's results for the past five years. Certain information reflects financial results for a single share of a particular class. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and capital gain distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
INCOME (LOSS) FROM INVESTMENT OPERATIONS/2/ Net (losses) gains on Net asset securities value, Net (both realized Total from beginning investment and investment of period income unrealized) operations - ----------------------------------------------------------------------------------------------- CLASS A: Year ended 12/31/2002 $28.53 $.49 $(4.56) $(4.07) 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 - ----------------------------------------------------------------------------------------------- CLASS R-1: Period from 6/6/2002 to 12/31/2002 27.27 .20 (3.36) (3.16) - ----------------------------------------------------------------------------------------------- CLASS R-2: Period from 5/21/2002 to 12/31/2002 28.23 .23 (4.34) (4.11) - ----------------------------------------------------------------------------------------------- CLASS R-3: Period from 6/4/2002 to 12/31/2002 27.58 .27 (3.69) (3.42) - ----------------------------------------------------------------------------------------------- CLASS R-4: Period from 5/28/2002 to 12/31/2002 28.22 .32 (4.33) (4.01) - ----------------------------------------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 28.37 .39 (4.50) (4.11) DIVIDENDS AND DISTRIBUTIONS Dividends Total Net assets, (from net Distributions dividends Net asset end of investment (from and value, end of Total period income) capital gains) distributions period return/3/ (in millions) - -------------------------------------------------------------------------------------------------------------------------- CLASS A: Year ended 12/31/2002 $(.52) $ (.46) $ (.98) $23.48 (14.47)% $46,129 Year ended 12/31/2001 (.52) (.59) (1.11) 28.53 (4.59) 54,315 Year ended 12/31/2000 (.52) (2.08) (2.60) 31.07 3.84 56,212 Year ended 12/31/1999 (.51) (3.04) (3.55) 32.46 16.55 56,095 Year ended 12/31/1998 (.51) (2.94) (3.45) 31.07 22.93 48,498 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-1: Period from 6/6/2002 to 12/31/2002 (.30) (.35) (.65) 23.46 (11.68) 1 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-2: Period from 5/21/2002 to 12/31/2002 (.31) (.35) (.66) 23.46 (14.64) 24 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-3: Period from 6/4/2002 to 12/31/2002 (.34) (.35) (.69) 23.47 (12.49) 24 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-4: Period from 5/28/2002 to 12/31/2002 (.39) (.35) (.74) 23.47 (14.31) 9 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 (.43) (.35) (.78) 23.48 (14.59) 48 Ratio of Ratio of net expenses to income to average net average net assets assets - ----------------------------------------------------------------- CLASS A: Year ended 12/31/2002 .59 % 1.89 % Year ended 12/31/2001 .57 1.49 Year ended 12/31/2000 .56 1.74 Year ended 12/31/1999 .55 1.54 Year ended 12/31/1998 .55 1.65 - ----------------------------------------------------------------- CLASS R-1: Period from 6/6/2002 to 12/31/2002 1.47/4,5/ 1.49/4/ - ----------------------------------------------------------------- CLASS R-2: Period from 5/21/2002 to 12/31/2002 1.43/4,5/ 1.61/4/ - ----------------------------------------------------------------- CLASS R-3: Period from 6/4/2002 to 12/31/2002 1.05/4,5/ 2.00/4/ - ----------------------------------------------------------------- CLASS R-4: Period from 5/28/2002 to 12/31/2002 .69/4,//5/ 2.25/4/ - ----------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 .37/4/ 2.56/4/
The Investment Company of America / Prospectus
YEAR ENDED DECEMBER 31 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE FOR ALL CLASSES 27% 22% 25% 28% 24% OF SHARES
1 Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Years ended 1999 and 1998 are based on shares outstanding on the last day of the year; all other periods are based on average shares outstanding. 3 Total returns exclude all sales charges. 4 Annualized. 5 During the start-up period for this class, Capital Research and Management Company voluntarily agreed to pay a portion of the fees relating to transfer agent services. Had Capital Research and Management Company not paid such fees, expense ratios would have been 2.43%, 1.57%, 1.11% and .73% for Class R-1, Class R-2, Class R-3 and Class R-4, respectively. Such expense ratios are the result of higher expenses during the start-up period and are not indicative of expense ratios expected in the future. The Investment Company of America / Prospectus 19 NOTES 20 The Investment Company of America / Prospectus NOTES 21 The Investment Company of America / Prospectus [logo - American Funds (sm)] The right choice for the long term/SM/
FOR SHAREHOLDER American Funds Service Company SERVICES 800/421-0180 FOR RETIREMENT PLAN Call your employer or plan SERVICES administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 American FundsLine(R) FOR 24 800/325-3590 -HOUR INFORMATION American FundsLine OnLine(R) www.americanfunds.com Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. - -----------------------------------------------------------------------------------
MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The shareholder reports contain additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The Retirement Plan SAI contains more detailed information on all aspects of the fund, including the fund's financial statements, and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the Retirement Plan SAI or Codes of Ethics, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. [LOGO-recycled bug]
Printed on recycled paper Investment Company File No. 811-116 RPICA-010-0303/RRD - ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
THE FUND PROVIDES SPANISH TRANSLATION IN CONNECTION WITH THE PUBLIC OFFERING AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND. /s/ VINCENT P. CORTI VINCENT P. CORTI SECRETARY [logo - American Funds (sm)] The right choice for the long term/SM/ The Investment Company of America/(R)/
TABLE OF CONTENTS 1 Risk/Return Summary 4 Fees and Expenses of the Fund 6 Investment Objectives, Strategies and Risks 9 Management and Organization 11 Purchase, Exchange and Sale of Shares 13 Sales Charges 14 Sales Charge Reductions 15 Individual Retirement Account (IRA) Rollovers 16 Plans of Distribution 17 Distributions and Taxes 18 Financial Highlights
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. RETIREMENT PLAN PROSPECTUS March 1, 2003 Risk/Return Summary The fund seeks to make your investment grow and provide you with income over time by investing primarily in common stocks that offer growth and dividend potential. The fund is designed for investors seeking both capital appreciation and income. Your investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to events specifically involving the companies in which the fund invests, as well as economic, political or social events in the U.S. or abroad. The fund's equity investments are limited to securities of companies that are included on its eligible list. The eligible list is reviewed and approved by the fund's board of directors at the recommendation of Capital Research and Management Company, the fund's investment adviser. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 The Investment Company of America / Prospectus HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual total returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, results would be lower.) [bar chart] 1993 11.62% 1994 0.16 1995 30.62 1996 19.35 1997 29.81 1998 22.93 1999 16.55 2000 3.84 2001 -4.59 2002 -14.47 [end chart] Highest/lowest quarterly results during this time period were:
HIGHEST 17.34% (quarter ended December 31, 1998) LOWEST -14.51% (quarter ended September 30, 2002)
2 The Investment Company of America / Prospectus Unlike the bar chart on the previous page, the Investment Results Table below reflects, as required by Securities and Exchange Commission rules, the fund's investment results with the maximum initial sales charge imposed. Class A share results reflect the maximum initial sales charge of 5.75%. Sales charges are reduced for purchases of $25,000 or more. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividends and capital gain distributions. Because the fund's Class R shares were first available on May 15, 2002, comparable results for these classes are not available for the 2002 calendar year. Unlike the Investment Results Table below, the Investment Results Table on page 7 reflects the fund's results calculated without a sales charge.
INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - ------------------------------------------------------------------------------- CLASS A - BEGAN 1/1/34 -19.39% 2.74% 9.98% 12.72% S&P 500/2/ -22.09% -0.58% 9.34% 11.14% Lipper Growth and Income -17.89% -0.62% 8.31% N/A Index/3/ Lipper Large-Cap Value -19.68% -0.39% 8.72% N/A Index/4/ - ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2002: 2.15% (For current yield information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are measured from the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted performance of 500 widely held common stocks. This index is unmanaged. 3 The Lipper Growth and Income Fund Index is an equally weighted performance index that represents funds that combine a growth-of-earnings orientation and an income requirement for level and/or rising dividends. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 4 The Lipper Large-Cap Value Index is an equally weighted performance index that represents funds which, by practice, invest at least 75% of their equity assets in companies with large market capitalizations. Large-cap value funds seek long-term growth of capital by investing in companies that are considered to be undervalued relative to a major unmanaged stock index based on price-to-current earnings or other factors. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 3 The Investment Company of America / Prospectus Fees and Expenses of the Fund
SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A ALL R SHARE CLASSES - ------------------------------------------------------------------------------- Maximum sales charge imposed on purchases 5.75%/1/ none (as a percentage of offering price) - ------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested none none dividends - ------------------------------------------------------------------------------- Maximum deferred sales charge none none - ------------------------------------------------------------------------------- Redemption or exchange fees none none
1 Sales charges are reduced or eliminated for purchases of $25,000 or more.
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A R-1/1/ R-2/1/ R-3/1/ R-4/1/ R-5/1/ - --------------------------------------------------------------------------------- Management Fees 0.24% 0.24% 0.24% 0.24% 0.24% 0.24% - --------------------------------------------------------------------------------- Distribution and/or 0.23% 1.00% 0.75% 0.50% 0.25% none Service (12b-1) Fees/2/ - --------------------------------------------------------------------------------- Other Expenses/3/ 0.12% 1.19% 0.58% 0.37% 0.24% 0.13% - --------------------------------------------------------------------------------- Total Annual Fund 0.59% 2.43% 1.57% 1.11% 0.73% 0.37% Operating Expenses - --------------------------------------------------------------------------------- Expense Reimbursement N/A 0.96%/4/ 0.14%/4/ 0.06%/4/ 0.04%/4/ N/A - --------------------------------------------------------------------------------- Net Expenses 0.59% 1.47% 1.43% 1.05% 0.69% 0.37% - ---------------------------------------------------------------------------------
1 Annualized. 2 Class A, R-2, R-3 and R-4 12b-1 fees may not exceed 0.25%, 1.00%, 0.75%, and 0.50%, respectively, of the class' average net assets annually. Class R-1 fees will always be 1.00% of the class' average net assets annually. 3 A portion of the fund's expenses may be used to pay third parties (including affiliates of the fund's investment adviser) that provide recordkeeping services to retirement plans invested in the fund. 4 During the start-up period for this class, Capital Research and Management Company voluntarily agreed to pay a portion of the fees relating to transfer agent services. These reimbursements are the result of higher expenses during the start-up period. The resulting expense ratios are not indicative of expense ratios expected in the future. 4 The Investment Company of America / Prospectus EXAMPLES The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividends and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown above. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS - ------------------------------------------------------------------------ Class A/1/ $632 $753 $885 $1,270 - ------------------------------------------------------------------------ R-1/2/ $150 $465 $803 $1,757 - ------------------------------------------------------------------------ R-2/2/ $146 $452 $782 $1,713 - ------------------------------------------------------------------------ R-3/2/ $107 $334 $579 $1,283 - ------------------------------------------------------------------------ R-4/2/ $ 70 $221 $384 $ 859 - ------------------------------------------------------------------------ R-5 $ 38 $119 $208 $ 468 - ------------------------------------------------------------------------
1 Reflects the maximum initial sales charge in the first year. 2 Reflects expenses paid by Capital Research and Management Company. 5 The Investment Company of America / Prospectus Investment Objectives, Strategies and Risks The fund's investment objectives are to achieve long-term growth of capital and income. The fund strives to accomplish these objectives through extensive U.S. and global research, careful selection, and broad diversification. In the selection of securities for investment, potential for capital appreciation and future dividends are given more weight than current yield. The fund invests primarily in common stocks. The fund's investments are limited to securities of companies that are included on its eligible list, which consists of securities deemed suitable by the fund's investment adviser in light of the fund's investment objectives and policies. Securities are added to, or deleted from, the eligible list by the board of directors, after reviewing and acting upon the recommendations of the investment adviser. The prices of and the income generated by securities held by the fund may decline in response to certain events, including: those directly involving the companies whose securities are owned in the fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate fluctuations. The fund may also hold cash or money market instruments. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objectives in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general market downturn and provide liquidity to make additional investments or to meet redemptions. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek attractively priced securities that represent above average long-term investment opportunities. The investment adviser believes that the best way to accomplish this is through fundamental analysis, including meeting with company executives and employees, suppliers, customers and competitors. Securities may be sold when the investment adviser believes they no longer represent good long-term value. OTHER IMPORTANT INVESTMENT PRACTICES In addition to the principal investment strategies described above, the fund has other investment practices that are described in this prospectus and in the statement of additional information. The fund may invest up to 15% of its assets, at the time of purchase, in securities of issuers domiciled outside the U.S. and not included in the Standard & Poor's 500 Composite Index. Investments outside the U.S. may be subject to certain risks. For example, the prices of non-U.S. securities can decline in response to currency fluctuations or political, social or economic instability. 6 The Investment Company of America / Prospectus ADDITIONAL INVESTMENT RESULTS Unlike the investment results table shown on an earlier page, the table below reflects the fund's results calculated without a sales charge.
INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ - -------------------------------------------------------------------------------------- CLASS A - BEGAN -14.47% 3.96% 10.63% 12.82% 1/1/34 S&P 500/2/ -22.09% -0.58% 9.34% 11.14% Lipper Growth and -17.89% -0.62% 8.31% N/A Income Index/3/ Lipper Large-Cap -19.68% -0.39% 8.72% N/A Value Index/4/ - -------------------------------------------------------------------------------------- Class A distribution rate at December 31, 2002: 2.17%/5/ (For current distribution rate information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are measured from the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted performance of 500 widely held common stocks. This index is unmanaged. 3 The Lipper Growth and Income Fund Index is an equally weighted performance index that represents funds that combine a growth-of-earnings orientation and an income requirement for level and/or rising dividends. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 4 The Lipper Large-Cap Value Index is an equally weighted performance index that represents funds which, by practice, invest at least 75% of their equity assets in companies with large market capitalizations. Large-cap value funds seek long-term growth of capital by investing in companies that are considered to be undervalued relative to a major unmanaged stock index based on price-to-current earnings or other factors. The results of the underlying funds in the index include the reinvestment of dividends, capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. This index was not in existence as of the date the fund began investment operations in 1934; therefore, lifetime results are not available. 5 The distribution rate is based on actual distributions paid to shareholders over a 12-month period. Capital gain distributions are added back to the net asset value to determine the rate. 7 The Investment Company of America / Prospectus
LARGEST INVESTMENT CATEGORIES AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Food, beverage & tobacco 7.44% - ------------------------------------------------------------------ Pharmaceuticals & biotechnology 6.73 - ------------------------------------------------------------------ Telecommunication services 6.71 - ------------------------------------------------------------------
LARGEST INDUSTRY HOLDINGS AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Pharmaceuticals 6.66% - ------------------------------------------------------------------ Diversified telecommunication services 5.79 - ------------------------------------------------------------------ Beverages & tobacco 5.24 - ------------------------------------------------------------------ Oil & gas 5.13 - ------------------------------------------------------------------ Media 4.20 - ------------------------------------------------------------------
LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 2002 PERCENT OF NET ASSETS - ------------------------------------------------------------------ Altria Group (formerly Philip Morris) 3.44% - ------------------------------------------------------------------ Eli Lilly 2.34 - ------------------------------------------------------------------ SBC Communications 1.56 - ------------------------------------------------------------------ Viacom 1.52 - ------------------------------------------------------------------ Pharmacia 1.49 - ------------------------------------------------------------------ Fannie Mae 1.45 - ------------------------------------------------------------------ Dow Chemical 1.40 - ------------------------------------------------------------------ Lowe's 1.39 - ------------------------------------------------------------------ Bank of America 1.27 - ------------------------------------------------------------------ ChevronTexaco 1.27 - ------------------------------------------------------------------
Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 8 The Investment Company of America / Prospectus Management and Organization INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier in the Annual Fund Operating Expenses Table. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach, the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for The Investment Company of America are:
PORTFOLIO COUNSELOR/ FUND PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE - ----------------------------------------------------------------------------------------------------------- R. MICHAEL SHANAHAN 12 years Chairman of the Board and Principal Executive Chairman of the Board and (plus 7 years prior Officer, Capital Research and Management Company Chief Executive Officer experience as a research professional for the fund) Investment professional for 38 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES F. ROTHENBERG 9 years President and Director, Capital Research and President and Director (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 33 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES B. LOVELACE 11 years Senior Vice President and Director, Capital Senior Vice President and (plus 3 years prior Research and Management Company Director experience as a research professional for the fund) Investment professional for 21 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DONALD D. O'NEAL 11 years Senior Vice President, Capital Research and Senior Vice President and (plus 4 years prior Management Company Director experience as a research professional for the fund) Investment professional for 18 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- GREGG E. IRELAND 11 years Senior Vice President, Capital Research and Senior Vice President (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 30 years, all with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JOYCE E. GORDON 2 years Senior Vice President, Capital Research Company Vice President (plus 12 years prior experience as a research Investment professional for 27 years, all with professional for the fund) Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- JAMES E. DRASDO 16 years Senior Vice President, Capital Research and (plus 9 years prior Management Company experience as a research professional for the fund) Investment professional for 31 years in total; 26 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- DINA N. PERRY 9 years Senior Vice President, Capital Research and (plus 2 years prior Management Company experience as a research professional for the fund) Investment professional for 25 years in total; 11 years with Capital Research and Management Company or affiliate - ----------------------------------------------------------------------------------------------------------- C. ROSS SAPPENFIELD 3 years Vice President and Director, Capital Research (plus 6 years prior Company experience as a research professional for the fund) Investment professional for 11 years, all with Capital Research and Management Company or affiliate - -----------------------------------------------------------------------------------------------------------
9 The Investment Company of America / Prospectus [This page is intentionally left blank for this filing.] 10 The Investment Company of America / Prospectus Purchase, Exchange and Sale of Shares PURCHASES AND EXCHANGES Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares also are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the fund. In addition, Class R-5 shares generally are available only to retirement plans with $1 million or more in plan assets. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans generally may open an account and purchase Class A or R shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. Some or all R share classes may not be available through certain investment dealers. Additional shares may be purchased through a plan's administrator or recordkeeper. Shares of the fund offered through this prospectus generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchanges of Class A shares from money market funds purchased without a sales charge generally will be subject to the appropriate sales charge. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM FLUCTUATIONS IN THE SECURITIES MARKETS. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND OR AMERICAN FUNDS DISTRIBUTORS HAS DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. THE FUND'S TRANSFER AGENT, ON BEHALF OF THE FUND AND AMERICAN FUNDS DISTRIBUTORS, IS REQUIRED BY LAW TO OBTAIN CERTAIN PERSONAL INFORMATION FROM YOU OR PERSONS ACTING ON YOUR BEHALF IN ORDER TO VERIFY YOUR OR SUCH PERSON'S IDENTITY. IF YOU DO NOT PROVIDE THE INFORMATION, THE TRANSFER AGENT MAY NOT BE ABLE TO OPEN YOUR ACCOUNT. IF THE TRANSFER AGENT IS UNABLE TO VERIFY YOUR IDENTITY OR THAT OF ANOTHER PERSON(S) AUTHORIZED TO ACT ON YOUR BEHALF, OR IF IT BELIEVES IT HAS IDENTIFIED POTENTIALLY CRIMINAL ACTIVITY, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO CLOSE YOUR ACCOUNT OR TAKE ANY OTHER ACTION THEY DEEM REASONABLE OR REQUIRED BY LAW. 11 The Investment Company of America / Prospectus SALES Please contact your plan administrator or recordkeeper in order to sell shares from your retirement plan. If you notify American Funds Service Company, you may reinvest proceeds from a redemption, dividend payment or capital gain distribution without a sales charge in any of the American Funds within 90 days after the date of the redemption or distribution. Proceeds will be reinvested in the same share class from which the original redemption or distribution was made. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by American Funds Service Company. VALUING SHARES The net asset value of each share class of the fund is the value of a single share. The fund calculates the net asset values, each day the New York Stock Exchange is open, as of approximately 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. 12 The Investment Company of America / Prospectus Sales Charges CLASS A SHARES The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below. Any applicable sales charge will be deducted directly from your investment.
SALES CHARGE AS A PERCENTAGE OF DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE - --------------------------------------------------------------------------- Less than $25,000 5.75% 6.10% 5.00% - --------------------------------------------------------------------------- $25,000 but less than $50,000 5.00% 5.26% 4.25% - --------------------------------------------------------------------------- $50,000 but less than $100,000 4.50% 4.71% 3.75% - --------------------------------------------------------------------------- $100,000 but less than $250,000 3.50% 3.63% 2.75% - --------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% - --------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% - --------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% - --------------------------------------------------------------------------- $1 million or more and certain other none none see below investments described below - ---------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE Employer-sponsored defined contribution-type plans, including certain 403(b) plans, investing $1 million or more or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). Certain other investors may qualify to purchase shares without a sales charge, such as employees of broker-dealer firms and registered investment advisers authorized to sell American Funds, and employees of The Capital Group Companies. Please see the statement of additional information for more information. 13 The Investment Company of America / Prospectus CLASS R SHARES Class R shares are sold with no initial or deferred sales charges. The distributor will pay dealers annually, asset-based compensation of 1.00% for sales of Class R-1 shares, 0.75% for Class R-2 shares, 0.50% for Class R-3 shares, and 0.25% for Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). Sales Charge Reductions TO RECEIVE A REDUCTION IN YOUR CLASS A INITIAL SALES CHARGE, YOU MUST LET YOUR INVESTMENT DEALER OR AMERICAN FUNDS SERVICE COMPANY KNOW AT THE TIME YOU PURCHASE SHARES THAT YOU QUALIFY FOR SUCH A REDUCTION. IF YOU DO NOT LET YOUR DEALER OR AMERICAN FUNDS SERVICE COMPANY KNOW YOU ARE ELIGIBLE FOR A REDUCTION, YOU MAY NOT RECEIVE A SALES CHARGE DISCOUNT TO WHICH YOU ARE OTHERWISE ENTITLED. REDUCING YOUR CLASS A INITIAL SALES CHARGE Consistent with the policies described in this prospectus two or more retirement plans of an employer or employer's affiliates may combine all of their American Funds investments to reduce their Class A sales charge. CONCURRENT PURCHASES Simultaneous purchases of any class of shares of two or more American Funds may be combined to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION The current value (or if greater, the amount invested less any withdrawals) of existing holdings in any class of shares of the American Funds may be taken into account to determine Class A sales charges. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION Class A sales charges may be reduced by establishing a Statement of Intention. A Statement of Intention allows all non-money market fund purchases of all share classes intended to be made over a 13-month period to be combined in order to determine the applicable sales charge. At the request of a plan, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of the account may be held in escrow to cover additional Class A sales charges which may be due if total investments over the 13-month period do not qualify for the applicable sales charge reduction. 14 The Investment Company of America / Prospectus Individual Retirement Account (IRA) Rollovers Assets from a retirement plan may be invested in Class A, B, C or F shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information covering these share classes. An IRA rollover involving retirement plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: . Class A shares at net asset value; . Class A shares subject to the applicable initial sales charge; . Class B shares; . Class C shares; or . Class F shares. Retirement plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Retirement plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees. Dealer commissions on such assets will be paid only on rollovers of $1 million or more. 15 The Investment Company of America / Prospectus Plans of Distribution The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. The plans provide for annual expenses of up to 0.25% for Class A shares, 1.00% for Class R-1 shares, and up to 1.00%, 0.75% and 0.50% for Class R-2, R-3 and R-4 shares, respectively. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The amount remaining for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier in the Annual Fund Operating Expenses Table. Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 16 The Investment Company of America / Prospectus Distributions and Taxes DIVIDENDS AND DISTRIBUTIONS The fund intends to distribute dividends to you, usually in March, June, September and December. Capital gains, if any, are usually distributed in December. When a dividend or capital gain is distributed, the net asset value per share is reduced by the amount of the payment. All dividends and capital gain distributions paid to retirement plan shareholders will automatically be reinvested. TAXES ON DIVIDENDS AND DISTRIBUTIONS Dividends and capital gains distributed by the fund to retirement plan accounts currently are not taxable. TAXES ON TRANSACTIONS Distributions taken from a retirement plan account generally are taxable as ordinary income. PLEASE SEE YOUR TAX ADVISER FOR FURTHER INFORMATION. 17 The Investment Company of America / Prospectus [This page is intentionally left blank for this filing.] 18 Financial Highlights/1/ The financial highlights table is intended to help you understand the fund's results for the past five years. Certain information reflects financial results for a single share of a particular class. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and capital gain distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
INCOME (LOSS) FROM INVESTMENT OPERATIONS/2/ Net (losses) gains on Net asset securities value, Net (both realized Total from beginning investment and investment of period income unrealized) operations - ----------------------------------------------------------------------------------------------- CLASS A: Year ended 12/31/2002 $28.53 $.49 $(4.56) $(4.07) 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 - ----------------------------------------------------------------------------------------------- CLASS R-1: Period from 6/6/2002 to 12/31/2002 27.27 .20 (3.36) (3.16) - ----------------------------------------------------------------------------------------------- CLASS R-2: Period from 5/21/2002 to 12/31/2002 28.23 .23 (4.34) (4.11) - ----------------------------------------------------------------------------------------------- CLASS R-3: Period from 6/4/2002 to 12/31/2002 27.58 .27 (3.69) (3.42) - ----------------------------------------------------------------------------------------------- CLASS R-4: Period from 5/28/2002 to 12/31/2002 28.22 .32 (4.33) (4.01) - ----------------------------------------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 28.37 .39 (4.50) (4.11) DIVIDENDS AND DISTRIBUTIONS Dividends Total Net assets, (from net Distributions dividends Net asset end of investment (from and value, end of Total period income) capital gains) distributions period return/3/ (in millions) - -------------------------------------------------------------------------------------------------------------------------- CLASS A: Year ended 12/31/2002 $(.52) $ (.46) $ (.98) $23.48 (14.47)% $46,129 Year ended 12/31/2001 (.52) (.59) (1.11) 28.53 (4.59) 54,315 Year ended 12/31/2000 (.52) (2.08) (2.60) 31.07 3.84 56,212 Year ended 12/31/1999 (.51) (3.04) (3.55) 32.46 16.55 56,095 Year ended 12/31/1998 (.51) (2.94) (3.45) 31.07 22.93 48,498 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-1: Period from 6/6/2002 to 12/31/2002 (.30) (.35) (.65) 23.46 (11.68) 1 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-2: Period from 5/21/2002 to 12/31/2002 (.31) (.35) (.66) 23.46 (14.64) 24 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-3: Period from 6/4/2002 to 12/31/2002 (.34) (.35) (.69) 23.47 (12.49) 24 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-4: Period from 5/28/2002 to 12/31/2002 (.39) (.35) (.74) 23.47 (14.31) 9 - -------------------------------------------------------------------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 (.43) (.35) (.78) 23.48 (14.59) 48 Ratio of Ratio of net expenses to income to average net average net assets assets - ----------------------------------------------------------------- CLASS A: Year ended 12/31/2002 .59 % 1.89 % Year ended 12/31/2001 .57 1.49 Year ended 12/31/2000 .56 1.74 Year ended 12/31/1999 .55 1.54 Year ended 12/31/1998 .55 1.65 - ----------------------------------------------------------------- CLASS R-1: Period from 6/6/2002 to 12/31/2002 1.47/4,5/ 1.49/4/ - ----------------------------------------------------------------- CLASS R-2: Period from 5/21/2002 to 12/31/2002 1.43/4,5/ 1.61/4/ - ----------------------------------------------------------------- CLASS R-3: Period from 6/4/2002 to 12/31/2002 1.05/4,5/ 2.00/4/ - ----------------------------------------------------------------- CLASS R-4: Period from 5/28/2002 to 12/31/2002 .69/4,//5/ 2.25/4/ - ----------------------------------------------------------------- CLASS R-5: Period from 5/15/2002 to 12/31/2002 .37/4/ 2.56/4/
The Investment Company of America / Prospectus
YEAR ENDED DECEMBER 31 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE FOR ALL CLASSES 27% 22% 25% 28% 24% OF SHARES
1 Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Years ended 1999 and 1998 are based on shares outstanding on the last day of the year; all other periods are based on average shares outstanding. 3 Total returns exclude all sales charges. 4 Annualized. 5 During the start-up period for this class, Capital Research and Management Company voluntarily agreed to pay a portion of the fees relating to transfer agent services. Had Capital Research and Management Company not paid such fees, expense ratios would have been 2.43%, 1.57%, 1.11% and .73% for Class R-1, Class R-2, Class R-3 and Class R-4, respectively. Such expense ratios are the result of higher expenses during the start-up period and are not indicative of expense ratios expected in the future. The Investment Company of America / Prospectus 19 NOTES 20 The Investment Company of America / Prospectus NOTES 21 The Investment Company of America / Prospectus [logo - American Funds (sm)] The right choice for the long term/SM/
FOR SHAREHOLDER American Funds Service Company SERVICES 800/421-0180 FOR RETIREMENT PLAN Call your employer or plan SERVICES administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 American FundsLine(R) FOR 24 800/325-3590 -HOUR INFORMATION American FundsLine OnLine(R) www.americanfunds.com Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. - -----------------------------------------------------------------------------------
MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The shareholder reports contain additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The Retirement Plan SAI contains more detailed information on all aspects of the fund, including the fund's financial statements, and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the Retirement Plan SAI or Codes of Ethics, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. [LOGO-recycled bug]
Printed on recycled paper Investment Company File No. 811-116 RPICA-010-0303/RRD - ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
THE INVESTMENT COMPANY OF AMERICA Part B Retirement Plan Statement of Additional Information March 1, 2003 This document is not a prospectus but should be read in conjunction with the current Retirement Plan Prospectus of The Investment Company of America (the "fund" or "ICA") dated March 1, 2003. The prospectus may be obtained from your investment dealer or financial adviser or by writing to the fund at the following address: The Investment Company of America Attention: Secretary 333 South Hope Street Los Angeles, California 90071 (213) 486-9200 TABLE OF CONTENTS
Item Page No. - ---- -------- Certain Investment Limitations and Guidelines . . . . . . . . . . . 2 Description of Certain Securities and Investment Techniques . . . . 2 Fundamental Policies and Investment Restrictions. . . . . . . . . . 5 Management of the Fund. . . . . . . . . . . . . . . . . . . . . . . 7 Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 23 Purchase, Exchange and Sale of Shares . . . . . . . . . . . . . . . 28 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Class A Sales Charge Reductions . . . . . . . . . . . . . . . . . . 32 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 34 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Shareholder Account Services and Privileges . . . . . . . . . . . . 36 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 37 General Information . . . . . . . . . . . . . . . . . . . . . . . . 38 Class A Share Investment Results and Related Statistics . . . . . . 39 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Financial Statements
The Investment Company of America - Page 1 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES The following limitations and guidelines are considered at the time of purchase, under normal circumstances, and are based on a percentage of the fund's net assets unless otherwise noted. This summary is not intended to reflect all of the fund's investment limitations. GENERAL GUIDELINE .. The fund may only invest in securities included on its eligible list (does not apply to securities issued or guaranteed by the U.S. government). DEBT SECURITIES .. The fund's investments in straight debt securities (i.e., not convertible into equity) will generally consist of investment grade securities. The fund may, however, invest up to 5% of its assets in straight debt securities rated Ba or below by Moody's Investors Service, Inc. and BB or below by Standard & Poor's Corporation or unrated but determined to be of equivalent quality. NON-U.S. SECURITIES .. The fund may invest up to 15% of its securities in issuers domiciled outside the U.S. and not included in the Standard & Poor's 500 Composite Index. * * * * * * The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES The descriptions below are intended to supplement the material in the prospectus under "Investment Objectives, Strategies and Risks." EQUITY SECURITIES - Equity securities represent an ownership position in a company. These securities may include common stocks and securities with equity conversion or purchase rights. The prices of equity securities fluctuate based on changes in the financial condition of their issuers and on market and economic conditions. DEBT SECURITIES - Debt securities are used by issuers to borrow money. Issuers pay investors interest and generally must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values. The prices of debt securities fluctuate depending on such factors as interest rates, credit quality and maturity. In general, prices of debt securities decline when interest rates rise and increase when interest rates fall. SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in securities that have a combination of equity and debt characteristics. These securities may at times behave more like equity than debt and vice versa. Some types of convertible bonds or preferred stock automatically convert into common stock. The prices and yields of non-convertible preferred The Investment Company of America - Page 2 stock generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. Convertible bonds, convertible preferred stock, and other securities may sometimes be converted into common stock or other securities at a stated conversion ratio. These securities, prior to conversion, pay a fixed rate of interest or a dividend. Because convertible securities have both debt and equity characteristics, their value varies in response to many factors, including the value of the underlying assets, general market and economic conditions, and convertible market valuations, as well as changes in interest rates, credit spreads, and the credit quality of the issuer. U.S. TREASURY SECURITIES - U.S. Treasury securities include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For 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. U.S. AGENCY SECURITIES - U.S. agency securities include those securities issued by certain U.S. government instrumentalities and certain federal agencies. These securities are neither direct obligations of, nor guaranteed by, the Treasury. However, they generally involve some form of federal sponsorship: 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 Home Loan Bank, Federal Home Loan Mortgage Corporation ("Freddie Mac"), Federal National Mortgage Association ("Fannie Mae"), Tennessee Valley Authority, and Federal Farm Credit Bank System. INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. may involve special risks, caused by, among other things: currency controls and fluctuating currency values; different accounting, auditing, financial reporting and legal standards and practices in some countries; changing local, regional and global economic, political, and social conditions; expropriation or confiscatory taxation; greater market volatility; differing securities market structures; and various administrative difficulties such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. However, in the opinion of the Investment Adviser, investing outside the U.S. also can reduce certain portfolio risks due to greater diversification opportunities. The risks described above are potentially heightened in connection with investments in developing countries. Although there is no universally accepted definition, a developing country is generally considered to be a country in the initial stages of its industrialization cycle with a low per capita gross national product. For example, political and/or economic structures in these countries may be in their infancy and developing rapidly. Historically, the markets of developing countries have been more volatile than the markets of developed countries. The fund may invest in securities of issuers in developing countries only to a limited extent. Additional costs could be incurred in connection with the fund's investment activities outside the U.S. Brokerage commissions may be higher outside the U.S., and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with the maintenance of assets in certain jurisdictions. The Investment Company of America - Page 3 CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency exchange rates. A forward currency contract is 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. Forward currency contracts entered into by the fund will involve the purchase or sale of one currency against the U.S. dollar. While entering into forward currency transactions could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain which might result from an increase in the value of the currency. The fund will not generally attempt to protect against all potential changes in exchange rates. The fund will segregate liquid assets which will be marked to market daily to meet its forward contract commitments to the extent required by the Securities and Exchange Commission. Certain provisions of the Internal Revenue Code may affect the extent to which the fund may enter into forward contracts. Such transactions may also affect the character and timing of income, gain or loss recognized by the fund for U.S. federal income tax purposes. RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject to restrictions on resale. Securities not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures adopted by the fund's Board of Directors, taking into account factors such as the frequency and volume of trading, the commitment of dealers to make markets and the availability of qualified investors, all of which can change from time to time. The fund may incur certain additional costs in disposing of illiquid securities. CASH AND CASH EQUIVALENTS - These include: (i) commercial paper (e.g., short-term notes up to 9 months in maturity issued by corporations, governmental bodies or bank/corporation sponsored conduits (asset-backed commercial paper)), (ii) commercial bank obligations (e.g., certificates of deposit, bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)), (iii) savings association and savings bank obligations (e.g., bank notes and certificates of deposit issued by savings banks or savings associations), (iv) securities of the U.S. government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (v) corporate bonds and notes that mature, or that may be redeemed, in one year or less. * * * * * * PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. Short-term trading profits are not the fund's objective, and changes in its investments are generally accomplished gradually, though short-term transactions may occasionally be made. High portfolio turnover (100% or more) involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions, and may result in the realization of net capital gains, which are taxable when distributed to shareholders. A fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio was replaced once per year. The fund's portfolio turnover rate for the fiscal year ended 2002 was 27%. See "Financial Highlights" in the prospectus for the fund's annual portfolio turnover for each of the last five fiscal periods. The Investment Company of America - Page 4 FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies and investment restrictions which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is defined in the Investment Company Act of 1940, as amended (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. All percentage limitations are considered at the time securities are purchased and are based on the fund's net assets unless otherwise indicated. None of the following investment restrictions involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. These restrictions (which do not apply to the purchase of securities issued or guaranteed by the U.S. government) provide that the fund shall make no investment: Which involves promotion or business management by the fund; 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 fund, 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 fund to be invested in the securities in any one industry; If the investment would cause the fund 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 fund's total assets; or In any security which has not been placed on the fund's Eligible List. (See the prospectus). The fund 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 fund to make such investments (and it has no current intention of doing so at least for the next 12 months), the fund may invest in the securities of real estate investment trusts.) The fund has also adopted other fundamental policies which cannot be changed without shareholder approval. These policies require the fund 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 fund 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. The Investment Company of America - Page 5 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 fund 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. NON-FUNDAMENTAL POLICIES - The following non-fundamental policies may be changed without shareholder approval: 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 judgment makes such action seem advisable. Purchase or retain the securities of any issuer if those officers and directors of the fund 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 fund (restricted securities), or other securities that are not readily marketable. The Investment Company of America - Page 6 MANAGEMENT OF THE FUND BOARD OF DIRECTORS AND OFFICERS
YEAR FIRST NUMBER OF BOARDS POSITION ELECTED WITHIN THE FUND WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH OTHER DIRECTORSHIPS/3/ HELD NAME AND AGE FUND OF THE FUND/1/ PAST 5 YEARS DIRECTOR SERVES BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS - ----------------------------------------------------------------------------------------------------------------------------------- Louise H. Bryson Director 1999 Executive Vice President, 1 None Age: 58 Distribution and Business Development, Lifetime Television; Director and former Chairman of the Board, KCET - Los Angeles (public television station); former Senior Vice President, fx Networks, Inc: Fox Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Mary Anne Dolan Director 2000 Founder and President, 3 None Age: 55 M.A.D., Inc. (communications company); Former Editor-in-Chief, Los Angeles ----------- Herald Examiner --------------- - ----------------------------------------------------------------------------------------------------------------------------------- Martin Fenton Director 2000 Managing Director, Senior 17 None Age: 67 Resource Group LLC (development and management of senior living communities) - ----------------------------------------------------------------------------------------------------------------------------------- Leonard R. Fuller Director 2002 President, Fuller Consulting 14 None Age: 56 (financial management consulting firm) - ----------------------------------------------------------------------------------------------------------------------------------- Claudio X. Gonzalez Director 2001 Chairman and Chief Executive 1 America Movil, SA; Grupo Laporte Officer, Kimberly Clark de Carso; Grupo Alfa; Age: 68 Mexico, SA Kimberly Clark Corp.; Kellogg Company; General Electric Company; The Home Depot; The Mexico Fund - ----------------------------------------------------------------------------------------------------------------------------------- John G. McDonald Director 1976 The IBJ Professor of 8 Plum Creek Timber Co.; Age: 65 Finance, Graduate School of Scholastic Corporation; Business, Stanford iStar Financial, Inc.; University Varian, Inc.; Capstone Turbine Corp. - ----------------------------------------------------------------------------------------------------------------------------------- Bailey Morris-Eck Director 1993 Senior Associate, Reuters 3 None Age: 58 Foundation; Senior Fellow, Institute for International Economics; Consultant, The --- Independent of London --------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Newman Director 1996 Chairman and CEO, AECOM 13 Sempra Energy; Age: 68 Technology Corporation Southwest Water Company (engineering, consulting and professional services) - ----------------------------------------------------------------------------------------------------------------------------------- Olin C. Robison Director 1987 President of the Salzburg 3 None Age: 66 Seminar; President Emeritus, Middlebury College - ----------------------------------------------------------------------------------------------------------------------------------- William J. Spencer Director 1997 Chairman and Chief Executive 1 None Age: 72 Officer, SEMATECH (research and development consortium); Trustee, William Jewell College; Associated Universities, Inc. - -----------------------------------------------------------------------------------------------------------------------------------
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PRINCIPAL OCCUPATION(S) DURING YEAR FIRST PAST 5 YEARS AND ELECTED POSITIONS HELD NUMBER OF BOARDS POSITION A DIRECTOR WITH AFFILIATED ENTITIES WITHIN THE FUND OTHER DIRECTORSHIPS/3/ WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER COMPLEX/2/ ON WHICH HELD NAME AND AGE FUND OF THE FUND/1/ OF THE FUND DIRECTOR SERVES BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/4//,//5/ - ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Haaga, Jr. Director 2002 Executive Vice President and 17 None Age: 54 Director, Capital Research and Management Company; Director, American Funds Distributors, Inc.* - ----------------------------------------------------------------------------------------------------------------------------------- James B. Lovelace Senior Vice 1994 Senior Vice President and 2 None Age: 46 President Director, Capital Research and and Management Company Director - ----------------------------------------------------------------------------------------------------------------------------------- Donald D. O'Neal Senior Vice 1994 Senior Vice President, 2 None Age: 42 President Capital Research and and Management Company Director - ----------------------------------------------------------------------------------------------------------------------------------- James F. President 2000 President and Director, 3 None Rothenberg and Capital Research and Age: 56 Director Management Company; Director, American Funds Distributors, Inc.*; Director, American Funds Service Company*; Director, The Capital Group Companies, Inc.*; Director, Capital Group Research, Inc.*; Director, Capital Management Services, Inc.* - ----------------------------------------------------------------------------------------------------------------------------------- R. Michael Chairman of 1994 Chairman of the Board and 2 None Shanahan the Board Principal Executive Officer, Age: 64 and Chief Capital Research and Executive Management Company; Director, Officer American Funds Distributors, Inc.*; Director, The Capital Group Companies, Inc.*; Chairman of the Board, Capital Management Services, Inc.*; Director, Capital Strategy Research, Inc.* - -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 9
PRINCIPAL OCCUPATION(S) DURING POSITION YEAR FIRST ELECTED PAST 5 YEARS AND POSITIONS HELD WITH THE AN OFFICER WITH AFFILIATED ENTITIES NAME AND AGE FUND OF THE FUND/1/ OR THE PRINCIPAL UNDERWRITER OF THE FUND - ----------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS/5/ - ----------------------------------------------------------------------------------------------------------------------------------- Gregg E. Ireland Senior Vice President 1994 Senior Vice President, Capital Research and Management Company Age: 53 - ----------------------------------------------------------------------------------------------------------------------------------- Joyce E. Gordon Vice President 1998 Senior Vice President, Capital Research Company* Age: 46 - ----------------------------------------------------------------------------------------------------------------------------------- Anne M. Llewellyn Vice President 1984 Associate, Capital Research and Management Company Age: 55 - ----------------------------------------------------------------------------------------------------------------------------------- Vincent P. Corti Secretary 1994 Vice President - Fund Business Management Group, Capital Age: 46 Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Thomas M. Rowland Treasurer 1998 Senior Vice President, Capital Research and Management Company; Age: 61 Director, American Funds Service Company* - ----------------------------------------------------------------------------------------------------------------------------------- R. Marcia Gould Assistant Treasurer 1993 Vice President - Fund Business Management Group, Capital Age: 48 Research and Management Company - ----------------------------------------------------------------------------------------------------------------------------------- Anthony W. Hynes, Assistant Treasurer 1998 Vice President - Fund Business Management Group, Capital Jr. Research and Management Company Age: 40 - -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 10 * Company affiliated with Capital Research and Management Company. 1 Directors and officers of the fund are elected annually. 2 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 This includes all directorships (other than those in the American Funds Group) that are held by each director as a director of a public company or a registered investment company. 4 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). 5 All of the officers listed, with the exception of Anne M. Llewellyn and Thomas M. Rowland, are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as Investment Adviser. THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET - - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. The Investment Company of America - Page 11 FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2002
AGGREGATE DOLLAR RANGE/1/ OF SHARES OWNED IN ALL FUNDS IN THE AMERICAN FUNDS DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN NAME SHARES OWNED BY DIRECTOR - ------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS - ------------------------------------------------------------------------------- Louise H. Bryson $10,001 - $50,000 $10,001 - $50,000 - ------------------------------------------------------------------------------- Mary Anne Dolan $50,001 - $100,000 Over $100,000 - ------------------------------------------------------------------------------- Martin Fenton $50,001 - $100,000 Over $100,000 - ------------------------------------------------------------------------------- Leonard R. Fuller $10,001 - $50,000 $50,001 - $100,000 - ------------------------------------------------------------------------------- Claudio X. Gonzalez $50,001 - $100,000 $50,001 - $100,000 Laporte - ------------------------------------------------------------------------------- John G. McDonald Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- Bailey Morris-Eck $50,001 - $100,000 $50,001 - $100,000 - ------------------------------------------------------------------------------- Richard G. Newman Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- Olin C. Robison $50,001 - $100,000 Over $100,000 - ------------------------------------------------------------------------------- William J. Spencer Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/2/ - ------------------------------------------------------------------------------- Paul G. Haaga, Jr. Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- James B. Lovelace $10,001 - $50,000 Over $100,000 - ------------------------------------------------------------------------------- Donald D. O'Neal Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- James F. Rothenberg Over $100,000 Over $100,000 - ------------------------------------------------------------------------------- R. Michael Shanahan Over $100,000 Over $100,000 - -------------------------------------------------------------------------------
1 Ownership disclosure is made using the following ranges: None; $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000 and Over $100,000. The amounts listed for "interested" Directors include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan. 2 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2002 No compensation is paid by the fund to any officer or Director who is a director, officer or employee of the Investment Adviser or its affiliates. The fund pays annual fees of $50,000 to Directors who are not affiliated with the Investment Adviser, $2,000 for each Board of Directors meeting attended, and $1,000 for each meeting attended as a member of a committee of the Board of Directors. The Investment Company of America - Page 12 No pension or retirement benefits are accrued as part of fund expenses. The Directors may elect, on a voluntary basis, to defer all or a portion of their fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the Directors who are not affiliated with the Investment Adviser.
TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ - ------------------------------------------------------------------------------------------ Louise H. Bryson $64,000/3/ $ 64,000/3/ - ------------------------------------------------------------------------------------------ Mary Anne Dolan 63,000 105,000 - ------------------------------------------------------------------------------------------ Martin Fenton 62,190 210,230 - ------------------------------------------------------------------------------------------ Leonard R. Fuller 29,050 130,050 - ------------------------------------------------------------------------------------------ Claudio X. Gonzalez 61,000/3/ 68,500/3/ Laporte - ------------------------------------------------------------------------------------------ John G. McDonald 79,380/3/ 269,830/3/ - ------------------------------------------------------------------------------------------ Bailey Morris-Eck 61,000 105,000 - ------------------------------------------------------------------------------------------ Richard G. Newman 76,230 136,730 - ------------------------------------------------------------------------------------------ Olin C. Robison 66,000/3/ 109,500/3/ - ------------------------------------------------------------------------------------------ William J. Spencer 79,000/3/ 79,000/3/ - ------------------------------------------------------------------------------------------
1 Amounts may be deferred by eligible Directors under a non-qualified deferred compensation plan adopted by the fund 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 Directors. 2 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the 2002 fiscal year for participating Directors is as follows: Louise H. Bryson ($159,801), Claudio X. Gonzalez Laporte ($68,446), John G. McDonald ($785,161), Olin C. Robison ($153,280) and William J. Spencer ($390,134). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Directors. As of February 1, 2003, the officers and Directors of the fund and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. FUND ORGANIZATION AND THE BOARD OF DIRECTORS The fund, an open-end, diversified management investment company, was organized as a Delaware corporation on August 28, 1933. All fund operations are supervised by the fund's Board of Directors, which meets periodically and performs duties required by applicable state and federal laws. The Investment Company of America - Page 13 Delaware law provides that the business and affairs of the fund are managed by or under the direction of the Board of Directors. Directors are charged with fiduciary duties of care and loyalty to the fund and its shareholders. Generally, a Director will satisfy his or her duties if he or she acts with the care of an ordinarily prudent person under similar circumstances and refrains from self-dealing. Members of the Board who are not employed by Capital Research and Management Company or its affiliates are paid certain fees for services rendered to the fund as described above. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund has several different classes of shares, including Class A, B, C, F, 529-A, 529-B, 529-C, 529-E, 529-F, R-1, R-2, R-3, R-4 and R-5 shares. Class R shares are generally only available to employer-sponsored retirement plans. The B, C, F and 529 share classes are described in more detail in the fund's retail Statement of Additional Information. The shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Directors and set forth in the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 Plans adopted in connection with the distribution of shares and on other matters in which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. The fund holds annual meetings of shareholders for the purpose of electing directors. Significant matters which require shareholder approval, such as a change in a fundamental investment policy, will be presented to shareholders at a meeting called for such purpose. Shareholders have one vote per share owned. At the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the Board could be removed by a majority vote. COMMITTEES OF THE BOARD OF DIRECTORS The fund has an Audit Committee comprised of Louise H. Bryson, Mary Anne Dolan, Martin Fenton, Leonard R. Fuller, Claudio X. Gonzalez Laporte, John G. McDonald, Bailey Morris-Eck, Richard G. Newman, Olin C. Robison and William J. Spencer, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee oversees the fund's accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund's principal service providers. The Committee acts as a liaison between the fund's independent accountants and the full Board of Directors. Three Audit Committee meetings were held during the 2002 fiscal year. The fund has a Contracts Committee comprised of Louise H. Bryson, Mary Anne Dolan, Martin Fenton, Leonard R. Fuller, Claudio X. Gonzalez Laporte, John G. McDonald, Bailey Morris-Eck, Richard G. Newman, Olin C. Robison and William J. Spencer, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee's function is to request, review and consider the information deemed necessary to evaluate the terms of certain agreements between the fund and its Investment Adviser or the Investment Adviser's affiliates, such as the Investment Advisory and Service Agreement, Principal Underwriting Agreement, Administrative Services Agreement and Plans of Distribution under rule 12b-1, that the fund may The Investment Company of America - Page 14 enter into, renew or continue, and to make its recommendations to the full Board of Directors on these matters. One Contracts Committee meeting was held during the 2002 fiscal year. The fund has a Nominating Committee comprised of Louise H. Bryson, John G. McDonald and Olin C. Robison, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee periodically reviews such issues as the Board's composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates independent director and Advisory Board member candidates to the full Board of Directors. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating Committee of the fund, c/o the fund's Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee. Four Nominating Committee meetings were held during the 2002 fiscal year. The fund has a Proxy Committee comprised of John G. McDonald, Richard G. Newman and William J. Spencer, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. Donald D. O'Neal is also a member of the Committee and is an "interested person" of the fund due to his affiliation with the Investment Adviser. The Committee's functions include establishing and reviewing procedures and policies for voting of proxies of companies held in the fund's portfolio, making determinations with regard to certain contested proxy voting issues, and discussing related current issues. Five Proxy Committee meetings were held during the 2002 fiscal year. The Investment Company of America - Page 15 ADVISORY BOARD MEMBERS The Board of Directors has established an Advisory Board whose members are, in the judgment of the Directors, highly knowledgeable about world 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 world trade and business conditions. Members of the Advisory Board, however, possess no authority or responsibility with respect to the fund's investments or management. The chart below sets out additional information about the Advisory Board Members.
YEAR FIRST NUMBER OF BOARDS ELECTED AN WITHIN THE FUND ADVISORY BOARD MEMBER PRINCIPAL OCCUPATION(S) DURING COMPLEX/1/ ON WHICH NAME AND AGE OF THE FUND PAST 5 YEARS MEMBER SERVES OTHER DIRECTORSHIPS/2/ HELD - ----------------------------------------------------------------------------------------------------------------------------------- Thomas M. Crosby, 1995 Partner, Faegre & Benson (law 1 None Jr. firm) Age: 64 - ----------------------------------------------------------------------------------------------------------------------------------- Ellen H. Goldberg 1998 President, Santa Fe Institute; 1 None Age: 57 Research Professor, University of New Mexico - ----------------------------------------------------------------------------------------------------------------------------------- William H. Kling 1985 President, American Public 6 Irwin Financial Corporation; Age: 60 Media Group St. Paul Companies - ----------------------------------------------------------------------------------------------------------------------------------- Robert J. O'Neill 1988 Chairman of the Council, 3 None Age: 66 Australian Strategic Policy Institute; former Chairman of the Council, the International Institute for Strategic Studies; former Chichele Professor of the History of War and former Fellow, All Souls College, University of Oxford - ----------------------------------------------------------------------------------------------------------------------------------- Norman R. Weldon 1977 Managing Director, Partisan 3 Novoste Corporation Age: 68 Management Group, Inc.; former Chairman of the Board, Novoste Corporation; former President and Director, Corvita Corporation - -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 16 1 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 2 This includes all directorships (other than those in the American Funds Group) that are held by each Advisory Board member as a director of a public company or a registered investment company. THE ADDRESS FOR ALL ADVISORY BOARD MEMBERS OF THE FUND IS 333 SOUTH HOPE STREET - - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. The Investment Company of America - Page 17 ADVISORY BOARD MEMBER COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2002 The fund pays fees of $5,500 per annum to Advisory Board members who are not affiliated with the Investment Adviser, plus $1,500 for each meeting attended in conjunction with meetings with the Board of Directors.
TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ - ------------------------------------------------------------------------------------------ Thomas M. Crosby, $10,000 $10,000 Jr. - ------------------------------------------------------------------------------------------ Ellen H. Goldberg 10,000 10,000 - ------------------------------------------------------------------------------------------ William H. Kling 10,000/3/ 28,580/3/ - ------------------------------------------------------------------------------------------ Robert J. O'Neill 8,500 55,500 - ------------------------------------------------------------------------------------------ Norman R. Weldon 8,500 53,250 - ------------------------------------------------------------------------------------------
1 Amounts may be deferred by eligible Advisory Board members under a non-qualified deferred compensation plan adopted by the fund 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 Advisory Board member. 2 Capital Research and Management Company manages the American Funds, consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) as of the fiscal year ended December 31, 2002 for participating Advisory Board members is as follows: William H. Kling ($64,952). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Advisory Board member. INVESTMENT ADVISER - The Investment Adviser, Capital Research and Management Company, founded in 1931, maintains research facilities in the U.S. and abroad (Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo) with a staff of professionals, many of whom have significant investment experience. The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment Adviser's research 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. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. The Investment Adviser is responsible for managing more than $350 billion of stocks, bonds and money market instruments and serves over 11 million shareholder accounts of all types throughout the world. These investors include individuals, privately owned businesses and large corporations as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. The Investment Company of America - Page 18 INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the "Agreement") between the fund and the Investment Adviser will continue in effect until April 30, 2004, 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 of the fund, and (ii) the vote of a majority of Directors who are not parties to the Agreement or interested persons (as defined in the 1940 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 fund for its acts or omissions in the performance of its obligations to the fund 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). In determining whether to renew the Agreement each year, the Contracts Committee of the Board of Directors evaluates information provided by the Investment Adviser in accordance with Section 15(c) of the 1940 Act, and presents its recommendations to the full Board of Directors. At its most recent meeting, the Committee reviewed and considered a number of factors in recommending renewal of the existing Agreement, including the quality of services provided to the fund (primarily measured by investment results), fees and expenses borne by the fund, financial results of the Investment Adviser (including comparisons to a group of publicly held mutual fund managers) and comparative data for other mutual funds and selected indexes. Members of the Committee discussed the quality of services provided to the fund and noted that while absolute results have been negative during the more recent period, its results versus its peers were favorable during comparative periods as well as for longer periods of time. The Committee recognized that the fund's research-based long-term approach helped it to resist the overall stock market weakness during the year. The Committee considered the quality and depth of the Investment Adviser's organization in general and of the investment professionals currently providing services to the fund. The Committee observed that the fund's expenses for the most recent fiscal year and earlier periods compared favorably to its peer group. The Committee also considered steps taken in recent years by the Investment Adviser to help control transfer agent expenses borne by the fund. Based on their review, the Committee and the Board concluded that the advisory fees and other expenses of the fund are fair, both absolutely and in comparison with those of other funds in the industry, and that shareholders have received reasonable value in return for paying such fees and expenses. The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to: custodian, stock transfer and dividend disbursing fees and expenses; shareholder recordkeeping and administrative expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its The Investment Company of America - Page 19 shareholders; taxes; expenses of the issuance and redemption of shares of the fund (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's Plans of Distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to Directors and members of the advisory board unaffiliated with the Investment Adviser; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data. As compensation for its services, the Investment Adviser receives a monthly fee which is based on prior month-end net assets, calculated at the annual rate of 0.39% on the first $1 billion of 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 over $13 billion to $21 billion, plus 0.234% on net assets over $21 billion to $34 billion, plus 0.231% on net assets over $34 billion to $44 billion, plus 0.228% on net assets over $44 billion to $55 billion, plus 0.225% on net assets over $55 billion to $71 billion, plus 0.222% on net assets in excess of $71 billion. The Agreement provides for a management fee reduction to the extent that the annual ordinary operating expenses of the fund's Class A shares exceed 1 1/2% of the first $30 million of the net assets of the fund and 1% of the average net assets in excess thereof. Expenses which are not subject to these limitations are interest, taxes, and extraordinary expenses. 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. To the extent the fund's management fee must be waived due to Class A share expense ratios exceeding this limit, management fees will be reduced similarly for all classes of shares of the fund or other Class A fees will be waived in lieu of management fees. For the fiscal years ended 2002, 2001 and 2000, the Investment Adviser received from the fund advisory fees of $129,674,000, $134,899,000 and $135,760,000, respectively. ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the Investment Adviser relating to the fund's R share classes will continue in effect until April 30, 2004, 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 the vote of a majority of Directors who are not parties to the Administrative Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Administrative Agreement provides that the fund may terminate the agreement at any time by vote of a majority of Directors who are not interested persons of the fund. The Investment Adviser has the right to terminate the Administrative Agreement upon 60 days' written notice to the fund. The Administrative Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). Under the Administrative Agreement, the Investment Adviser provides certain transfer agent and administrative services for shareholders of the fund's R share classes. The Investment Adviser contracts with third parties, including American Funds Service Company, the fund's Transfer Agent, to provide these services. Services include, but are not limited to, shareholder account maintenance, transaction processing, tax information reporting, and shareholder and fund communications. In addition, the Investment Adviser monitors, coordinates and oversees the The Investment Company of America - Page 20 activities performed by third parties providing such services. During the start-up period for Class R-1, Class R-2, Class R-3 and Class R-4 shares, the Investment Adviser agreed to pay a portion of these fees. For the year ended December 31, 2002, the total fees paid by the Investment Adviser were $12,000. As compensation for its services, the Investment Adviser receives transfer agent fees for transfer agent services provided to the fund's applicable share classes. Transfer agent fees are paid monthly according to a fee schedule contained in a Shareholder Services Agreement between the fund and American Funds Service Company. The Investment Adviser also receives an administrative services fee for administrative services provided to the fund's applicable share classes. Administrative services fees are paid monthly, accrued daily and calculated at the annual rate of 0.15% of the average daily net assets for each R share class except Class R-5 shares. For Class R-5 shares, the administrative fee is paid monthly, accrued daily and calculated at the annual rate of 0.10% of the average daily net assets of Class R-5 shares. During the fiscal period ended 2002, administrative services fees, gross of any payments made by the Investment Adviser, were:
ADMINISTRATIVE SERVICES FEE - ----------------------------------------------------------------------------------------- CLASS R-1 $ 1,000 - ----------------------------------------------------------------------------------------- CLASS R-2 21,000 - ----------------------------------------------------------------------------------------- CLASS R-3 11,000 - ----------------------------------------------------------------------------------------- CLASS R-4 3,000 - ----------------------------------------------------------------------------------------- CLASS R-5 28,000 - -----------------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION - American Funds Distributors, Inc. (the "Principal Underwriter") is the principal underwriter of the fund's shares. The Principal Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071; 135 South State College Boulevard, Brea, CA 92821; 3500 Wiseman Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513. The Principal Underwriter receives revenues from sales of the fund's shares. For Class A shares, the Principal Underwriter receives commission revenue consisting of that portion of the Class A sales charge remaining after the allowances by the Principal Underwriter to investment dealers. For Class R-1, R-2, R-3 and R-4 shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers who sell the shares. The Investment Company of America - Page 21 Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were:
COMMISSIONS, ALLOWANCE OR REVENUE COMPENSATION FISCAL YEAR OR FEES RETAINED TO DEALERS - ---------------------------------------------------------------------------------------------------- CLASS A 2002 $26,701,000 $131,273,000 2001 25,295,000 123,707,000 2000 19,507,000 94,128,000 - ----------------------------------------------------------------------------------------------------
The fund has adopted Plans of Distribution (the "Plans") pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plans (see below). As required by rule 12b-1 and the 1940 Act, the Plans (together with the Principal Underwriting Agreement) have been approved by the full Board of Directors and separately by a majority of the Directors who are not "interested persons" of the fund and who have no direct or indirect financial interest in the operation of the Plans or the Principal Underwriting Agreement. Potential benefits of the Plans to the fund include: shareholder services; savings to the fund in transfer agency costs; savings to the fund 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 fund are committed to the discretion of the Directors who are not "interested persons" during the existence of the Plans. The Plans may not be amended to increase materially the amount spent for distribution without shareholder approval. Plan expenses are reviewed quarterly and the Plans must be renewed annually by the Board of Directors. Under the Plans, the fund may annually expend the following amounts to finance any activity primarily intended to result in the sale of fund shares, provided the fund's Board of Directors has approved the category of expenses for which payment is being made: (i) for Class A shares, up to 0.25% of the average daily net assets attributable to Class A shares; (ii) for Class R-1 shares, 1.00% of the average daily net assets attributable to Class R-1 shares; (iii) for Class R-2 shares, up to 1.00% of the average daily net assets attributable to Class R-2 shares; (iv) for Class R-3 shares, up to 0.75% of the average daily net assets attributable to Class R-3 shares; and (v) for Class R-4 shares, up to 0.50% of its average daily net assets attributable to Class R-4 shares. The fund has not adopted a Plan for Class R-5 shares; accordingly, no 12b-1 fees are paid from Class R-5 share assets. For Class A shares: (i) up to 0.25% is reimbursed to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) up to the amount allowable under the fund's Class A 12b-1 limit is reimbursed to the Principal Underwriter for paying distribution-related expenses, including for Class A shares dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge (including purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees, and retirement plans, endowments and foundations with $50 million or more in assets) ("no load purchases"). Commissions on no load purchases of Class A shares, in excess of the Class A Plan limitations not reimbursed to the Principal Underwriter during the most recent fiscal quarter are recoverable The Investment Company of America - Page 22 for five quarters, provided that such commissions do not exceed the annual expense limit. After five quarters these commissions are not recoverable. For Class R-1 shares: (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including the financing of commissions paid to qualified dealers. For Class R-2 shares: currently (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.50% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class R-3 shares: currently (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.25% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class R-4 shares, currently 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers or advisers. During the 2002 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:
12B-1 EXPENSES 12B-1 LIABILITY ACCRUED OUTSTANDING - ------------------------------------------------------------------------------ CLASS A $116,270,000 $8,339,000 - ------------------------------------------------------------------------------ CLASS R-1 3,000 1,000 - ------------------------------------------------------------------------------ CLASS R-2 36,000 14,000 - ------------------------------------------------------------------------------ CLASS R-3 19,000 9,000 - ------------------------------------------------------------------------------ CLASS R-4 4,000 2,000 - ------------------------------------------------------------------------------
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from a designated percentage of its income), currently provides additional compensation to dealers. Currently, these payments are limited to the top 100 dealers who have sold shares of the fund or other funds in The American Funds Group. These payments are based principally on a pro rata share of a qualifying dealer's sales. The Principal Underwriter will, on an annual basis, determine the advisability of continuing these payments. TAXES AND DISTRIBUTIONS FUND TAXATION - The fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code (the "Code"). A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including the excess of net short-term capital gain over net long-term capital losses) and generally is not subject to federal income tax to the extent that it distributes annually 100% of its investment company taxable income and net The Investment Company of America - Page 23 realized capital gains in the manner required under the Code. The fund intends to distribute annually all of its investment company taxable income and net realized capital gains and therefore does not expect to pay federal income tax, although in certain circumstances the fund may determine that it is in the interest of shareholders to distribute less than that amount. To be treated as a regulated investment company under Subchapter M of the Code, the fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such securities or currencies, and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the fund'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 two or more issuers which the fund controls and which are determined to be engaged in the same or similar 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 gain (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 fund from its current year's ordinary income and capital gain net income and (ii) any amount on which the fund pays income tax during the periods described above. Although the fund intends to distribute its net investment income and net capital gains so as to avoid excise tax liability, the fund may determine that it is the interest of shareholders to distribute a lesser amount. The following information may not apply to you if you hold fund shares in a non-taxable account, such as a qualified retirement plan. Please see your tax adviser for more information. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS - Dividends and capital gain distributions on fund shares will be reinvested in shares of the fund of the same class. Dividends and capital gains distributed by the fund to a retirement plan currently are not taxable. DIVIDENDS - The fund intends to follow the practice of distributing substantially all of its investment company taxable income, which includes any excess of net realized short-term gains over net realized long-term capital losses. Investment company taxable income generally includes dividends, interest, net short-term capital gains in excess of net long-term capital losses, and certain foreign currency gains, if any, less expenses and certain foreign currency losses. The Investment Company of America - Page 24 Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the fund accrues receivables or liabilities denominated in a foreign currency and the time the fund actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of the fund's investment company taxable income to be distributed to its shareholders as ordinary income. If the fund invests in stock of certain passive foreign investment companies, the fund may be subject to U.S. federal income taxation on a portion of any "excess distribution" with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the fund's holding period for the stock. The distribution or gain so allocated to any taxable year of the fund, other than the taxable year of the excess distribution or disposition, would be taxed to the fund at the highest ordinary income rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company's stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the fund's investment company taxable income and, accordingly, would not be taxable to the fund to the extent distributed by the fund as a dividend to its shareholders. To avoid such tax and interest, the fund intends to elect to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time. Under this election, deductions for losses are allowable only to the extent of any prior recognized gains, and both gains and losses will be treated as ordinary income or loss. The fund will be required to distribute any resulting income, even though it has not sold the security and received cash to pay such distributions. Upon disposition of these securities, any gain recognized is treated as ordinary income and loss is treated as ordinary loss to the extent of any prior recognized gain. Dividends from domestic corporations are expected to comprise some portion of the fund's gross income. To the extent that such dividends constitute any of the fund's gross income, a portion of the income distributions of the fund will be eligible for the deduction for dividends received by corporations. Shareholders will be informed of the portion of dividends which so qualify. The dividends-received deduction is reduced to the extent that either the fund shares, or the underlying shares of stock held by the fund, with respect to which dividends are received, are treated as debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held by the shareholder or the fund, as the case may be, for less than 46 days during the 90-day period beginning on the date which is 45 days before the date on which the shares become ex-dividend. Capital gain distributions are not eligible for the dividends-received deduction. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to the fund each year, even though the fund will not receive cash interest payments from these securities. This original issue discount (imputed income) will comprise a part of the investment company The Investment Company of America - Page 25 taxable income of the fund which must be distributed to shareholders in order to maintain the qualification of the fund as a regulated investment company and to avoid federal income taxation at the level of the fund. In addition, some of the bonds may be purchased by the fund at a discount that exceeds the original issue discount on such bonds, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any bond having a market discount may be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond or a fund may elect to include the market discount in income in tax years to which it is attributable. Generally, accrued market discount may be figured under either the ratable accrual method or constant interest method. If the fund has paid a premium over the face amount of a bond, the fund has the option of either amortizing the premium until bond maturity and reducing the fund's basis in the bond by the amortized amount, or not amortizing and treating the premium as part of the bond's basis. In the case of any debt security having a fixed maturity date of not more than one year from its date of issue, the gain realized on disposition generally will be treated as a short-term capital gain. In general, any gain realized on disposition of a security held less than one year is treated as a short-term capital gain. Dividend and interest income received by the fund from sources outside the U.S. may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the U.S. may reduce or eliminate these foreign taxes, however. Most foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. CAPITAL GAIN DISTRIBUTIONS - The fund also intends to follow the practice of distributing the entire excess of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carry-forward of the fund. If any net long-term capital gains in excess of net short-term capital losses are retained by the fund for reinvestment, requiring federal income taxes to be paid thereon by the fund, the fund intends to elect to treat such capital gains as having been distributed to shareholders. As a result, each shareholder will report such capital gains as long-term capital gains taxable to individual shareholders at a maximum 20% capital gains rate, will be able to claim a pro rata share of federal income taxes paid by the fund on such gains as a credit against personal federal income tax liability, and will be entitled to increase the adjusted tax basis on fund shares by the difference between a pro rata share of the retained gains and such shareholder's related tax credit. SHAREHOLDER TAXATION - In January of each year, individual shareholders of the fund will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also may be subject to state and local taxes on distributions received from the fund. Distributions of the excess of net long-term capital gains over net short-term capital losses which the fund properly designates as "capital gain dividends" generally will be taxable to individual shareholders at a maximum 20% capital gains rate, regardless of the length of time the shares of the fund have been held by such shareholders. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be The Investment Company of America - Page 26 treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gains during such six-month period. Distributions by the fund result in a reduction in the net asset value of the fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution would nevertheless be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of investment capital. For this reason, investors should consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive a partial return of investment capital upon the distribution, which will nevertheless be taxable to them. Redemptions of shares, including exchanges for shares of other American Funds, may result in federal, state and local tax consequences (gain or loss) to the shareholder. However, conversion from one class to another class in the same fund should not be a taxable event. If a shareholder exchanges or otherwise disposes of shares of the fund 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 fund, or of a different fund, the sales charge previously incurred in acquiring the fund's shares will not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purposes 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 funds. Also, any loss realized on a redemption or exchange of shares of the fund will be disallowed to the extent substantially identical shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. The fund will be required to report to the IRS all distributions of investment company taxable income and capital gains as well as gross proceeds from the redemption or exchange of fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of investment company taxable income and capital gains and proceeds from the redemption or exchange of a regulated investment company may be subject to withholding of federal income tax in the case of non-exempt U.S. shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law. Withholding may also be required if the fund is notified by the IRS or a broker that the taxpayer identification number furnished by the shareholder is incorrect or that the shareholder has previously failed to report interest or dividend income. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by the shareholder. The Investment Company of America - Page 27 Shareholders should consult their tax advisers about the application of federal, state and local tax law in light of their particular situation. PURCHASE, EXCHANGE AND SALE OF SHARES PURCHASES - Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares are generally only available to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares are also generally only available to retirement plans where plan level or omnibus accounts (i.e., no participant accounts) are held on the books of a fund. In addition, Class R-5 shares are generally only available to retirement plans with at least $1 million or more in plan assets. Class R shares are generally not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans and CollegeAmerica accounts. Eligible retirement plans may generally open an account and purchase Class A and R shares by contacting any investment dealer (who may impose transaction charges in addition to those described in the fund's prospectus and statement of additional information) authorized to sell the fund's shares. Additional shares may be purchased through a plan's administrator or recordkeeper. THE FUND AND THE PRINCIPAL UNDERWRITER RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER. EXCHANGES - Shares of the fund generally may be exchanged into shares of the same class of 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 Class A shares from the money market funds purchased without a sales charge generally will be subject to the appropriate sales charge, unless the money market fund shares were acquired by an exchange from a fund having a sales charge. Shares may be exchanged into other American Funds by contacting your plan administrator or recordkeeper. Shares held in corporate-type retirement plans for which Capital Bank and Trust Company serves as trustee may not be exchanged by telephone, Internet, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. EXCHANGE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. SALES - Shares of the fund may be sold by contacting your plan administrator or recordkeeper. Shares are sold at the net asset value next determined after the request is received in good order by the Transfer Agent, dealer or any of their designees. 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 1940 Act), sale proceeds will be paid on or before the seventh day following receipt and acceptance of an order. Interest will not accrue or be paid on amounts that represent uncashed distribution or redemption checks. The Investment Company of America - Page 28 If you notify the Transfer Agent, you may reinvest proceeds from a redemption, dividend payment or capital gain distribution without a sales charge in any of the American Funds within 90 days after the date of the redemption or distribution. Proceeds will be reinvested in the same share class from which the original redemption or distribution was made. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after the request is received and accepted by the Transfer Agent. FUND NUMBERS - Here are the fund numbers for use when making share transactions:
FUND NUMBERS ------------------------------------------ CLASS CLASS CLASS CLASS CLASS CLASS FUND A R-1 R-2 R-3 R-4 R-5 - -------------------------------------------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 002 2102 2202 2302 2402 2502 American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . 011 2111 2211 2311 2411 2511 American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 003 2103 2203 2303 2403 2503 Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . 012 2112 2212 2312 2412 2512 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . . . . . . . 033 2133 2233 2333 2433 2533 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 016 2116 2216 2316 2416 2516 Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . 010 2110 2210 2310 2410 2510 The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 005 2105 2205 2305 2405 2505 The Income Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 006 2106 2206 2306 2406 2506 The Investment Company of America/(R)/ . . . . . . . . . . . . . . . . . . . 004 2104 2204 2304 2404 2504 The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 014 2114 2214 2314 2414 2514 New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 007 2107 2207 2307 2407 2507 New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 036 2136 2236 2336 2436 2536 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 035 2135 2235 2335 2435 2535 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . . . . . . . 001 2101 2201 2301 2401 2501 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . . . . . . . . . . . . . . 040 N/A N/A N/A N/A 2540 American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . . . . . . . 021 2121 2221 2321 2421 2521 The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . . . . . 008 2108 2208 2308 2408 2508 Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 031 2131 2231 2331 2431 2531 Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . 023 2123 2223 2323 2423 2523 Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . . . . . . 043 N/A N/A N/A N/A 2543 The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . . . . . . . 019 N/A N/A N/A N/A 2519 The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . . . . . . . . . 020 N/A N/A N/A N/A 2520 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . . . . . . . . . 024 N/A N/A N/A N/A 2524 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . . . . . . . . . 025 N/A N/A N/A N/A 2525 U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . . . . . . . . . 022 2122 2222 2322 2422 2522 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . . . . . . . . . . . . . . 009 2109 2209 2309 2409 2509 The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . . . . . . . 039 N/A N/A N/A N/A 2539 The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . . . . . . . . . 049 2149 2249 2349 2449 2549 ___________ *Available only in certain states.
The Investment Company of America - Page 29 SALES CHARGES CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares of 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 "Fund Numbers" above for a listing of the funds.)
DEALER SALES CHARGE AS COMMISSION PERCENTAGE OF THE: AS PERCENTAGE ------------------ OF THE AMOUNT OF PURCHASE AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING -INVESTED- PRICE PRICE - ------------------------------------------- -------- ----- ----- STOCK AND STOCK/BOND FUNDS Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00% $25,000 but less than $50,000 . . . 5.26 5.00 4.25 $50,000 but less than $100,000. . 4.71 4.50 3.75 BOND FUNDS Less than $100,000 . . . . . . . . 3.90 3.75 3.00 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 $750,000 . 2.04 2.00 1.60 $750,000 but less than $1 million 1.52 1.50 1.20 $1 million or more . . . . . . . . none none see below - --------------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are sold with no initial sales charge. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers from retirement plans with assets invested in the American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may invest with no sales charge and are not subject to a CDSC. 403(b) plans may be treated as employer-sponsored plans for sales charge purposes if: (i) the American Funds are principal investment options; (ii) the employer facilitates the enrollment process by, for example, allowing for onsite group enrollment meetings held during working hours; and (iii) there is only one dealer firm assigned to the plans. 403(b) plans meeting these criteria may invest with no sales charge and are not subject to a CDSC if investing $1 million or more or having 100 or more eligible employees. Investments made through accounts that purchased Class A shares of the fund before March 15, 2001 and are part of certain qualified fee-based programs, and retirement plans, endowments or foundations with $50 million or more in assets, may also be made with no sales charge and are not subject to a CDSC. A dealer concession of up to 1% may be paid by the fund under its Class A Plan of Distribution on investments made with no initial sales charge. The Investment Company of America - Page 30 In addition, Class A shares of the stock, stock/bond and bond funds may be sold at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to, the funds managed by Capital Research and Management Company, current or retired employees of Washington Management Corporation, current or retired employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members and employees of the above persons, and trusts or plans primarily for such persons; (2) current registered representatives and assistants directly employed by such representatives, retired registered representatives with respect to accounts established while active, or full-time employees (and their spouses, parents, and children) of dealers who have sales agreements with the Principal Underwriter (or who clear transactions through such dealers) and plans for such persons or the dealers; (3) current and retired registered investment advisers, with respect to accounts established while active, registered with the Principal Underwriter, or full-time employees (and their spouses, parents, and children) of registered investment advisers (including assistants directly employed by individual registered investment advisers) registered with the Principal Underwriter and plans for such persons; (4) companies exchanging securities with the fund through a merger, acquisition or exchange offer; (5) insurance company separate accounts; (6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; (7) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation; (8) an individual or entity with a substantial business relationship with The Capital Group Companies, Inc. or its affiliates, as determined by a Vice President or more senior officer of the Capital Research and Management Company Fund Administration Unit; and (9) wholesalers and full-time employees directly supporting wholesalers involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. DEALER COMMISSIONS AND COMPENSATION - For Class A shares, commissions (up to 1%) are paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored defined contribution-type plan investing $1 million or more or with 100 or more eligible employees, IRA rollover accounts of $1 million or more (as described in "Individual Retirement Account (IRA) Rollovers" below), and for purchases made at net asset value by certain retirement plans, endowments and foundations with assets of $50 million or more. Commissions on investments in Class A shares are paid at the following rates: The Investment Company of America - Page 31 1.00% on amounts to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on amounts over $10 million. Commissions are based on cumulative investments and are not annually reset. For Class R-1 shares, annual asset-based compensation of 1.00% is paid by the Principal Underwriter to dealers who sell Class R-1 shares. For Class R-2 shares, annual asset-based compensation of 0.75% is paid by the Principal Underwriter to dealers who sell Class R-2 shares. For Class R-3 shares, annual asset-based compensation of 0.50% is paid by the Principal Underwriter to dealers who sell Class R-3 shares. For Class R-4 shares, annual asset-based compensation of 0.25% is paid by the Principal Underwriter to dealers who sell Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund has not adopted a plan for Class R-5 shares; accordingly no 12b-1 fee is paid from Class R-5 assets. CLASS A SALES CHARGE REDUCTIONS REDUCING YOUR CLASS A SALES CHARGE - You must let your investment dealer or American Funds Service Company (the "Transfer Agent") know at the time you purchase shares if you qualify for a reduction in your sales charge using one or any combination of the methods described below. STATEMENT OF INTENTION - You may enter into a non-binding commitment to purchase shares of a fund(s) over a 13-month period and receive the same sales charge as if all shares had been purchased at once. This includes purchases made during the previous 90 days, but does not include future appreciation of your investment or reinvested distributions. The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $25,000 or more for equity funds and $100,000 or more for bond funds made within a 13-month period subject to a statement of intention (the "Statement"). The Statement is not a binding obligation to purchase the indicated amount. When a shareholder elects to use 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 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 of such purchases had been made at a single time. The dealer assigned to the account at the end of the period will receive an appropriate commission adjustment. If the difference is not paid by the close of the Statement period, the appropriate number of shares held in escrow 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 Investment Company of America - Page 32 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. Accordingly, upon your request, the sales charge paid on investments made 90 days prior to the Statement revision will be adjusted to reflect the revised Statement. Existing holdings eligible for rights of accumulation (see below) may be credited toward satisfying the Statement. During the Statement period, reinvested dividends and capital gain distributions, investments in money market funds, and investments made under a right of reinstatement will not be credited toward satisfying the Statement. The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder's death. When the trustees of certain retirement plans purchase shares by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: the total monthly investment will be multiplied by 13 and then multiplied by 1.5. The current value of existing American Funds investments (other than money market fund investments) and any rollovers or transfers reasonably anticipated to be invested in non-money market American Funds during the 13-month period are added to the figure determined above. The sum is the Statement amount and applicable breakpoint level. 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 made during the 13-month period. Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms with their first purchase. AGGREGATION - Sales charge discounts are available for certain aggregated investments. Individual purchases by a trustee(s) or other fiduciary(ies) may be aggregated if the investments are: .for a fiduciary account, including employee benefit plans other than individual-type employee benefit plans, such as an IRA, 403(b) plan (except as described below), or single-participant Keogh-type plan; .made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding individual-type employee benefit plans described above; or .for participant accounts of a 403(b) plan that are treated as an employer-sponsored plan (see "Class A Purchases Not Subject to Sales Charges" above), or made for two or more 403(b) plans that are treated as employer-sponsored plans of a single employer or affiliated employers as defined in the 1940 Act. 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 The Investment Company of America - Page 33 aggregated with other nominee or street name accounts unless otherwise qualified as described above. CONCURRENT PURCHASES - You may combine purchases of all classes of shares of two or more funds in The American Funds Group. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of the money market funds are excluded. RIGHTS OF ACCUMULATION - Subject to the limitations described in the aggregation policy, you may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in all share classes of The American Funds Group, as well as your holdings in Endowments (shares of which may be owned only by tax-exempt organizations), to determine your sales charge on investments in accounts eligible to be aggregated, or when making a gift to an individual or charity. When determining your sales charge, you may also take into account the value of your individual holdings, as of the end of the week prior to your investment, in various American Legacy variable annuity contracts and variable life insurance policies. Direct purchases of the money market funds are excluded. INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the applicable fund's current prospectus and statement of additional information. An IRA rollover involving plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: (i) Class A shares at net asset value; (ii) Class A shares subject to the applicable initial sales charge; (iii) Class B shares; (iv) Class C shares; or (v) Class F shares. Plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees (i.e., shares do not have to age). Dealer commissions will be paid only on IRA rollovers of $1 million or more according to the schedule applicable to Class A share investments of $1 million or more (see "Dealer Commissions and Compensation" above). IRA rollovers that do not indicate in which share class plan assets should be invested and that do not have an adviser associated with the account will be invested in Class F shares. Additional plan assets may be rolled into the account holding F shares; however, subsequent contributions cannot be invested in F shares. PRICE OF SHARES Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received and accepted by the fund or the Transfer Agent; the The Investment Company of America - Page 34 offering or net asset value 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 or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase and sell orders to the Principal Underwriter. Orders received by the investment dealer or authorized designee, the Transfer Agent, or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Note that investment dealers or other intermediaries may have their own rules about share transactions and may have earlier cut-off times than those of the fund. For more information about how to purchase through your intermediary, contact your intermediary directly. Prices which appear in the newspaper do not always indicate prices at which you will be purchasing and redeeming shares of the fund, 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 as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange, each day the Exchange is open. If, for example, the Exchange closes at 1:00 p.m., the fund's share price would still be determined as of 4:00 p.m. New York time. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. All portfolio securities of funds managed by Capital Research and Management Company (other than money market funds) are valued, and the net asset value per share is determined as follows: 1. Equity securities, including depositary receipts, are valued at the last reported sale price on the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the Investment Adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Fixed-income securities are valued at prices obtained from a pricing service, when such prices are available; however, in circumstances where the Investment Adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. Short-term securities maturing within 60 days are valued at amortized cost which approximates market value. Assets or liabilities initially expressed in terms of non-U.S. currencies are translated prior to the next determination of the net asset value of the fund's shares into U.S. dollars at the prevailing market rates. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith under procedures adopted by authority of the fund's Board. The fair value of all other assets is added to the value of securities to arrive at the total assets. The fund's Board has delegated the obligation to make fair valuation determinations The Investment Company of America - Page 35 to a Valuation Committee established by the fund's Investment Adviser. The Board receives regular reports describing fair-valued securities and the valuation methods used. The Valuation Committee has adopted guidelines and procedures (consistent with SEC rules and guidance) to ensure that certain basic principles and factors are considered when making all fair value determinations. As a general principle, securities lacking readily available market quotations are valued in good faith by the Valuation Committee based upon what the fund might reasonably expect to receive upon their current sale. The Valuation Committee considers all indications of value available to it in determining the "fair value" to be assigned to a particular security, including, without limitation, the type of security, the existence of contractual or legal restrictions on resale, any relevant financial or business developments affecting the issuer or its business prospects, similar or related securities that are more actively traded, and changes in overall market conditions. The Valuation Committee employs additional fair value procedures to address issues related to investing substantial portions of applicable fund portfolios outside the United States. Securities owned by these funds trade in markets that open and close at different times, reflecting time zone differences. If events occur after the close of a market (and before the close of the New York Stock Exchange, when these funds' net asset values are next determined) which affect the value of portfolio securities, appropriate adjustments from closing market prices will be made to reflect these events. Events of this type could include earthquakes and other natural disasters or significant price changes in other markets (e.g., U.S. stock markets); 2. Liabilities, including accruals of taxes and other expense items, are deducted from total assets; and 3. Net assets so obtained are then divided by the total number of shares outstanding, 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 fund. The Principal Underwriter will not knowingly sell shares of the fund directly or indirectly to any person or entity, where, after the sale, such person or entity would own beneficially directly or indirectly more than 3.0% of the outstanding shares of the fund without the consent of a majority of the fund's Board of Directors. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES ACCOUNT STATEMENTS - Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments, will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments, and purchases through certain retirement plans, will be confirmed at least quarterly. REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder for their then current net asset value per share if at such time the shareholder of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the fund's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Directors of the fund may from time to time adopt. While payment of redemptions normally will be in cash, the fund's Articles of Incorporation permit payment of the redemption price wholly or partly in securities or other property included in the The Investment Company of America - Page 36 assets belonging to the fund when in the opinion of the fund's Board of Directors, which shall be conclusive, conditions exist which make payment wholly in cash unwise or undesirable. SHARE CERTIFICATES - Shares are credited to your account and certificates are not issued unless you request them by writing to the Transfer Agent. Certificates are not available for the R share classes. EXECUTION OF PORTFOLIO TRANSACTIONS The Investment Adviser places orders for the fund's portfolio securities transactions. The Investment Adviser strives to obtain the best available prices in its portfolio transactions taking into account the costs and quality of executions. When, in the opinion of the Investment Adviser, two or more brokers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the fund or who have provided investment research, statistical, or other related services to the Investment Adviser. The fund does not consider that it has an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. There are occasions on which portfolio transactions for the fund 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 fund, they are effected only when the Investment Adviser believes that to do so is in the interest of the fund. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The fund will not pay a mark-up for research in principal transactions. Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, if applicable, for the fiscal years ended 2002, 2001 and 2000, amounted to $45,817,000, $33,794,000 and $25,958,000. The volume of securities subject to brokerage commissions and dealer concessions purchased by the fund increased during the 2002 fiscal year, resulting in an increase in total commissions paid on portfolio transactions. The fund is required to disclose information regarding investments in the securities of its "regular" broker-dealers (or parent companies of its regular broker-dealers) that derive more than 15% of their revenue from broker-dealer activities. A regular broker-dealer is: (1) one of the ten broker-dealers that received from the fund the largest amount of brokerage commissions by participating, directly or indirectly, in the fund's portfolio transactions during the fund's most recent fiscal year; (2) one of the ten broker-dealers that engaged as principal in the largest dollar amount of portfolio transactions of the fund during the fund's most recent fiscal year; or (3) one of the ten broker-dealers that sold the largest amount of securities of the fund during the fund's most recent fiscal year. During the fund's most recent fiscal year, the fund's regular broker-dealers were: Bank of America Securities LLC, J.P. Morgan Chase & Co. and Wachovia Corp.. As of the close of its most recent fiscal year, the fund held equity securities of Bank of America Securities LLC, in the amount of $632,686,000, J.P. Morgan Chase & Co. in the amount of $596,400,000 and Wachovia Corp. in the amount of $73,244,000 The Investment Company of America - Page 37 GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as Custodian. If the fund holds non-U.S. securities, the Custodian may hold these securities pursuant to sub-custodial arrangements in non-U.S. banks or non-U.S. branches of U.S. banks. TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of the Investment Adviser, maintains the records of each shareholder's account, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. American Funds Service Company was paid a fee of $47,118,000 for Class A shares for the 2002 fiscal year. INDEPENDENT ACCOUNTANTS - PricewaterhouseCoopers LLP, 350 South Grand Avenue, Los Angeles, CA 90071, serves as the fund's independent accountants 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 from the Annual Report have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent accountants is reviewed and determined annually by the Board of Directors. INDEPENDENT LEGAL COUNSEL - O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, CA 90071, currently serves as counsel for the fund, and for Directors who are not interested persons (as defined by the 1940 Act) of the fund. Certain legal matters in connection with the capital shares offered by the prospectus have been passed upon for the fund by O'Melveny & Myers LLP. Counsel does not currently provide legal services to the fund's Investment Adviser or any of its affiliated companies, but provides an immaterial amount of estate planning and similar work for a limited number of Investment Adviser personnel. A determination with respect to the independence of the fund's "independent legal counsel" will be made at least annually by the independent Directors of the fund, as prescribed by the 1940 Act and the rules thereunder. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS - The fund's fiscal year ends on December 31. Shareholders are provided updated prospectuses annually and at least semiannually with reports showing the investment portfolio, financial statements and other information. The fund's annual financial statements are audited by the fund's independent accountants, PricewaterhouseCoopers LLP. In addition, shareholders may also receive proxy statements for the fund. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of prospectuses, shareholder reports and proxy statements. To receive additional copies of a prospectus, report or proxy statement, shareholders should contact the Transfer Agent. PERSONAL INVESTING POLICY - The fund and Capital Research and Management Company and its affiliated companies, including the fund's principal underwriter, have adopted codes of ethics which allow for personal investments, including securities in which the fund may invest from time to time. 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 The Investment Company of America - Page 38 with codes of ethics; 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. OTHER INFORMATION - The financial statements including the investment portfolio and the report of Independent Accountants 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 FOR CLASS A SHARES -- DECEMBER 31, 2002
Net asset value and redemption price per share (Net assets divided by shares outstanding). . $23.48 Maximum offering price per share (100/94.25 of net asset value per share, which takes into account the fund's current maximum sales charge). . . . . . . . . . . . . . . . $24.91
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was 2.15% based on a 30-day (or one month) period ended December 31, 2002, 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 as required by the Securities and Exchange Commission: 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 fund may also calculate a distribution rate on a taxable and tax equivalent basis. The distribution rate is computed by dividing the dividends paid by the fund over the last 12 months by the sum of the month-end net asset value or maximum offering price and the capital gains paid over the last 12 months. The distribution rate may differ from the yield. The fund's one-year total return and five- and ten-year average annual total returns at the maximum offering price for the periods ended December 31, 2002 were -19.39%, 2.74% and 9.98%, respectively. The fund's one-year total return and five- and ten-year average annual total returns at net asset value for the periods ended December 31, 2002 were -14.47%, 3.96% and 10.63%, respectively. The Investment Company of America - Page 39 The average 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. In calculating average annual total return at the maximum offering price, the fund assumes: (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 fund will provide lifetime average total return figures. From time to time, the fund may calculate investment results for Class B, C, F, 529 and R shares. The fund 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. These total returns may be calculated over periods in addition to those described above. 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 fund 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 and Poor's 500 Composite Stock Index) or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present or prospective shareholders. The fund may also, from time to time, combine its results with those of other funds in The American Funds Group for purposes of illustrating investment strategies involving multiple funds. The fund may refer to results and surveys compiled by organizations such as CDA/ Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar, Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer to results published in various newspapers and 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 fund may illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans. The fund may compare its investment results with 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, fuels, transportation, and other goods and services that people buy for day-to-day living). The Investment Company of America - Page 40 APPENDIX DESCRIPTION OF BOND RATINGS BOND RATINGS - The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("Standard & Poor's") are based on the analysis and represents a judgment expressed in shorthand terms of the strengths and weaknesses of the bonds which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Moody's rates the long-term debt securities issued by various entities from - ------- "Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Ratings are described as follows: "Bonds which are 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 which are 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 which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. 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." "Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class." "Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." The Investment Company of America - Page 41 "Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest." "Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings." "Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing." Standard & Poor's rates the long-term debt securities of various entities in - ----------------- categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Ratings are described as follows: AAA "An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong." AA "An obligation rated 'AA' differs from the highest rated obligations only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong." A "An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong." BBB "An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions." BB "An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation." B "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation." The Investment Company of America - Page 42 CCC "An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation." CC "An obligation rated 'CC' is currently highly vulnerable to nonpayment." C "A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying." D "An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized." The Investment Company of America - Page 43 Investment portfolio, December 31, 2002 Percent of Largest investment categories net assets Food, beverage & tobacco 7.44 Pharmaceuticals & biotechnology 6.73 Telecommunication services 6.71 Largest industry holdings Pharmaceuticals 6.66 % Diversified telecommunication services 5.79 Beverages and tobacco 5.24 Oil & gas 5.13 Media 4.20 Percent of Largest equity holdings net assets Altria Group (formerly Philip Morris) 3.44 % Eli Lilly 2.34 SBC Communications 1.56 Viacom 1.52 Pharmacia 1.49 Fannie Mae 1.45 Dow Chemical 1.40 Lowe's 1.39 Bank of America 1.27 ChevronTexaco 1.27 Shares or Market principal value Equity securities (common and preferred stocks and convertible debentures) amount (000) ENERGY ENERGY EQUIPMENT & SERVICES - 0.96% Baker Hughes Inc. 8,225,000 $264,763 Schlumberger Ltd. 5,100,000 214,659 OIL & GAS - 5.13% ChevronTexaco Corp. 9,495,500 631,261 ConocoPhillips (formed by the merger of Conoco Inc. and Phillips Petroleum Co.) 3,050,000 147,589 ENI SpA 18,000,000 286,199 Exxon Mobil Corp. 3,500,000 122,290 Marathon Oil Corp. 12,550,000 267,189 Murphy Oil Corp. 2,050,000 87,842 Royal Dutch Petroleum Co. (New York registered) 7,620,000 335,432 "Shell" Transport and Trading Co., PLC (ADR) (New York registered) 4,500,000 175,140 "Shell" Transport and Trading Co., PLC 2,900,000 19,095 TOTAL FINA ELF SA, Class B 900,000 128,553 Unocal Corp. 11,440,000 349,835 3,029,847 MATERIALS CHEMICALS - 1.61% Air Products and Chemicals, Inc. 200,000 8,550 Dow Chemical Co. 23,450,000 696,465 Rohm and Haas Co. 3,000,000 97,440 METALS & MINING - 1.99% Alcoa Inc. 10,246,400 233,413 Alumina Ltd. (formerly WMC Ltd.) 19,804,346 54,285 Barrick Gold Corp. 9,250,000 142,542 BHP Billiton Ltd. 9,412,655 53,444 Newmont Mining Corp. 8,000,000 232,240 Phelps Dodge Corp. (1) 1,000,000 31,650 Placer Dome Inc. 10,000,000 115,000 Rio Tinto PLC 4,000,000 79,851 WMC Resources Ltd (1) 19,804,346 46,751 PAPER & FOREST PRODUCTS - 1.53% Georgia-Pacific Corp., Georgia-Pacific Group 9,599,298 155,125 International Paper Co. 7,097,235 248,190 MeadWestvaco Corp. 3,800,000 93,898 Weyerhaeuser Co. 5,375,000 264,504 2,553,348 CAPITAL GOODS AEROSPACE & DEFENSE - 1.37% Boeing Co. 3,700,000 122,063 Honeywell International Inc. 4,000,000 96,000 Lockheed Martin Corp. 87,400 5,047 Northrop Grumman Corp. 500,000 48,500 Raytheon Co. 13,334,735 410,043 CONSTRUCTION & ENGINEERING - 0.05% Fluor Corp. 824,300 23,080 INDUSTRIAL CONGLOMERATES - 2.44% 3M Co. 700,000 86,310 General Electric Co. 21,000,000 511,350 Siemens AG 4,600,000 195,522 Tyco International Ltd. 24,728,000 422,354 MACHINERY - 2.13% Caterpillar Inc. 8,900,000 406,908 Cummins Inc. 1,700,000 47,821 Deere & Co. 7,900,000 362,215 Illinois Tool Works Inc. 2,200,000 142,692 Parker Hannifin Corp. 2,200,000 101,486 2,981,391 COMMERCIAL SERVICES & SUPPLIES COMMERCIAL SERVICES & SUPPLIES - 0.75% Cendant Corp. (1) 2,500,000 26,200 Concord EFS, Inc. (1) 2,666,600 41,972 Pitney Bowes Inc. 2,000,000 65,320 Sabre Holdings Corp., Class A (1) 6,009,680 108,835 Waste Management, Inc. 5,652,600 129,558 371,885 TRANSPORTATION AIR FREIGHT & LOGISTICS - 0.31% FedEx Corp. 2,870,000 155,611 AIRLINES - 0.27% AMR Corp. (1) 2,000,000 13,200 Delta Air Lines, Inc. 942,100 11,399 Southwest Airlines Co. 8,000,000 111,200 ROAD & RAIL - 0.25% Burlington Northern Santa Fe Corp. 3,000,000 78,030 Canadian Pacific Railway Ltd. 1,150,000 22,655 Norfolk Southern Corp. 1,200,000 23,988 416,083 AUTOMOBILES & COMPONENTS AUTOMOBILES - 1.55% Ford Motor Co. 2,500,000 23,250 Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 $ 170,000,000 138,890 General Motors Corp. 13,155,900 484,926 General Motors Corp., Series B, 5.25% convertible debentures 2032 $ 61,025,000 56,387 Honda Motor Co., Ltd. 1,825,000 67,473 770,926 CONSUMER DURABLES & APPAREL HOUSEHOLD DURABLES - 0.18% Newell Rubbermaid Inc. 3,000,000 90,990 LEISURE EQUIPMENT & PRODUCTS - 0.10% Eastman Kodak Co. 1,425,000 49,932 TEXTILES, APPAREL & LUXURY GOODS - 0.12% NIKE, Inc., Class B 1,300,000 57,811 198,733 HOTELS, RESTAURANTS & LEISURE HOTELS, RESTAURANTS & LEISURE - 0.49% Carnival Corp. 8,647,100 215,745 McDonald's Corp. 1,600,000 25,728 241,473 MEDIA MEDIA - 4.20% AOL Time Warner Inc. (1) 44,100,000 577,710 Clear Channel Communications, Inc. (1) 784,100 29,239 Comcast Corp., Class A (1) 13,845,800 326,346 Comcast Corp., Class A, nonvoting (1) 3,000,000 67,770 Dow Jones & Co., Inc. 1,687,000 72,929 General Motors Corp., Class H (1) 2,200,000 23,540 Interpublic Group of Companies, Inc. 9,600,000 135,168 Knight-Ridder, Inc. 550,500 34,819 Liberty Media Corp., Class A (1) 7,280,000 65,083 Viacom Inc., Class A (1) 2,392,800 97,650 Viacom Inc., Class B, nonvoting (1) 16,150,000 658,274 2,088,528 RETAILING INTERNET & CATALOG RETAIL - 0.17% eBay Inc. (1) 1,250,000 84,775 MULTILINE RETAIL - 0.68% Dollar General Corp. 6,126,100 73,207 Kohl's Corp. (1) 2,800,000 156,660 May Department Stores Co. 4,800,000 110,304 SPECIALTY RETAIL - 1.95% Limited Brands, Inc. 20,149,400 280,681 Lowe's Companies, Inc. 18,430,000 691,125 1,396,752 FOOD & DRUG RETAILING FOOD & DRUG RETAILING - 0.56% Albertson's, Inc. 2,976,500 66,257 Walgreen Co. 7,220,000 210,752 277,009 FOOD, BEVERAGE & TOBACCO BEVERAGES AND TOBACCO - 5.24% Anheuser-Busch Companies, Inc. 3,000,000 145,200 Coca-Cola Co. 3,750,000 164,325 PepsiCo, Inc. 9,400,000 396,868 Altria Group (formerly Philip Morris Companies Inc.) 42,250,000 1,712,392 R.J. Reynolds Tobacco Holdings, Inc. (2) 4,461,666 187,881 FOOD PRODUCTS - 2.20% General Mills, Inc. 6,035,000 283,343 H.J. Heinz Co. 5,990,900 196,921 Sara Lee Corp. 9,316,100 209,705 Unilever NV (New York registered) 6,575,000 405,743 3,702,378 HOUSEHOLD & PERSONAL PRODUCTS HOUSEHOLD PRODUCTS - 0.14% Kimberly-Clark Corp. 1,500,000 71,205 PERSONAL PRODUCTS - 0.70% Avon Products, Inc. 4,935,000 265,848 Gillette Co. 2,800,000 85,008 422,061 HEALTH CARE EQUIPMENT & SERVICES HEALTH CARE EQUIPMENT & SUPPLIES - 0.40% Applera Corp. - Applied Biosystems Group 5,170,500 90,691 Becton, Dickinson and Co. 1,500,000 46,035 Guidant Corp. (1) 2,020,000 62,317 HEALTH CARE PROVIDERS & SERVICES - 0.81% Aetna Inc. 5,000,000 205,600 HCA Inc. 4,150,000 172,225 IMS Health Inc. 1,500,000 24,000 600,868 PHARMACEUTICALS & BIOTECHNOLOGY BIOTECHNOLOGY - 0.07% Genentech, Inc. (1) 1,000,000 33,160 PHARMACEUTICALS - 6.66% Abbott Laboratories 1,500,000 60,000 AstraZeneca PLC 5,485,000 193,423 AstraZeneca PLC 5,800,900 207,323 AstraZeneca PLC (ADR) 199,000 6,983 Bristol-Myers Squibb Co. 11,907,600 275,661 Eli Lilly and Co. 18,316,700 1,163,110 Merck & Co., Inc. 1,700,000 96,237 Novartis AG 1,366,000 49,898 Novartis AG (ADR) 256,556 9,423 Pfizer Inc 9,300,000 284,301 Pharmacia Corp. 17,710,000 740,278 Schering-Plough Corp. 3,900,000 86,580 Wyeth 3,777,800 141,290 3,347,667 BANKS BANKS - 3.67% Bank of America Corp. 9,094,240 632,686 BANK ONE CORP. 7,415,000 271,018 FleetBoston Financial Corp. 11,013,400 267,626 National City Corp. 3,850,000 105,182 Wachovia Corp. 2,010,000 73,244 Washington Mutual, Inc. 7,000,000 241,710 Wells Fargo & Co. 5,000,000 234,350 1,825,816 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIALS - 3.63% Capital One Financial Corp. 5,250,000 156,030 Capital One Financial Corp. 6.25% Upper DECS 2005 $ 72,500,000 41,543 Fannie Mae 11,200,000 720,496 Freddie Mac 1,100,000 64,955 Household International, Inc. 5,550,000 154,346 J.P. Morgan Chase & Co. 24,850,000 596,400 SLM Corp. 693,200 71,996 1,805,766 INSURANCE INSURANCE - 3.29% Allstate Corp. 11,750,000 434,633 American International Group, Inc. 10,363,900 599,552 Aon Corp. 2,183,800 41,252 Berkshire Hathaway Inc., Class A (1) 1,500 109,125 Hartford Financial Services Group, Inc. 2,200,000 99,946 Lincoln National Corp. 2,200,000 69,476 Marsh & McLennan Companies, Inc. 574,200 26,534 SAFECO Corp. 4,150,000 143,881 St. Paul Companies, Inc. 3,300,000 112,365 1,636,764 SOFTWARE & SERVICES IT CONSULTING & SERVICES - 0.54% Computer Sciences Corp. (1) 3,178,300 109,492 Electronic Data Systems Corp. 8,600,000 158,498 SOFTWARE - 0.83% Microsoft Corp. (1) 7,237,300 374,168 Oracle Corp. (1) 3,683,300 39,780 681,938 TECHNOLOGY HARDWARE & EQUIPMENT COMMUNICATIONS EQUIPMENT - 1.14% Cisco Systems, Inc. (1) 22,550,000 295,405 Motorola, Inc. 4,500,000 38,925 Motorola, Inc. 7.00% convertible preferred 2004, units $ 120,000,000 76,800 Nokia Corp. (ADR) 10,150,000 157,325 COMPUTERS & PERIPHERALS - 1.74% Dell Computer Corp. (1) 1,700,000 45,458 EMC Corp. (1) 5,500,000 33,770 Hewlett-Packard Co. 10,500,000 182,280 International Business Machines Corp. 7,195,000 557,613 Sun Microsystems, Inc. (1) 15,000,000 46,650 ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.49% Agilent Technologies, Inc. (1) 3,000,000 53,880 Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) (4) $ 4,445,000 4,284 Sanmina-SCI Corp. (1) 11,850,000 53,207 Solectron Corp. (1) 23,500,000 83,425 Solectron Corp. 7.25% convertible preferred 2004, units $ 100,000,000 46,800 SEMICONDUCTOR EQUIPMENT & PRODUCTS - 2.24% Altera Corp. (1) 3,500,000 43,155 Applied Materials, Inc. (1) 6,770,000 88,213 Intel Corp. 2,140,000 33,320 KLA-Tencor Corp. (1) 1,425,000 50,402 Linear Technology Corp. 4,950,000 127,314 LSI Logic Corp. (1) 2,200,000 12,694 Maxim Integrated Products, Inc. 3,200,000 105,728 Micron Technology, Inc. (1) 1,500,000 14,610 Taiwan Semiconductor Manufacturing Co. Ltd. (1) 80,300,000 98,866 Texas Instruments Inc. 29,810,000 447,448 Xilinx, Inc. (1) 4,500,000 92,700 2,790,272 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 5.79% ALLTEL Corp. 6,450,000 328,950 ALLTEL Corp. 7.75% 2005, units $ 57,200,000 58,722 AT&T Corp. 13,780,000 359,796 Deutsche Telekom AG 13,186,200 169,112 SBC Communications Inc. 28,550,000 773,991 Sprint Corp. - FON Group (formerly Sprint FON Group) 43,300,000 626,984 Telefonos de Mexico, SA de CV, Class L (ADR) 3,000,000 95,940 Verizon Communications Inc. 12,100,000 468,875 WIRELESS TELECOMMUNICATION SERVICES - 0.92% AT&T Wireless Services, Inc. (1) 43,723,700 247,039 Sprint Corp. 7.125% convertible preferred 2004, units $ 172,500,000 50,439 Vodafone Group PLC (ADR) 8,750,000 158,550 3,338,398 UTILITIES ELECTRIC UTILITIES - 1.70% Ameren Corp. 2,000,000 83,140 American Electric Power Co., Inc. 4,850,000 132,551 Consolidated Edison, Inc. 166,900 7,147 Dominion Resources, Inc. 7,131,912 391,542 FPL Group, Inc. 1,000,000 60,130 Southern Co. 4,386,500 124,533 TXU Corp. 2,400,000 44,832 MULTI-UTILITIES & UNREGULATED POWER - 1.25% Calpine Corp. (1) 5,000,000 16,300 Duke Energy Corp. 25,000,000 488,500 El Paso Corp. 17,155,900 119,405 1,468,080 Miscellaneous - 2.14% Other equity securities in initial period of acquisition 1,063,664 Total equity securities (cost: $33,664,301,000) 37,009,647 Principal Market amount value Corporate bonds & notes (000) (000) AUTOMOBILES & COMPONENTS AUTOMOBILES - 0.33% Ford Motor Credit Co. 6.875% 2006 $ 30,000 $30,073 General Motors Acceptance Corp.: 6.15% 2007 30,000 30,550 6.875% 2011 50,000 49,944 7.25% 2011 50,000 51,029 161,596 MEDIA MEDIA - 0.04% AOL Time Warner Inc. 5.625% 2005 21,045 21,534 HEALTH CARE EQUIPMENT & SERVICES HEALTH CARE EQUIPMENT & SERVICES - 0.06% Columbia/HCA Healthcare Corp. 6.91% 2005 15,000 15,770 HCA Inc. 7.125% 2006 15,000 15,908 31,678 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIALS - 0.17% Capital One Financial Corp.: 7.25% 2006 17,385 16,698 8.75% 2007 14,750 14,433 Household Finance Corp. 5.75% 2007 50,000 52,378 83,509 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 2.15% AT&T Corp.: (4) 6.50% 2006 (3) Euro 9,815 10,311 7.00% 2006 $ 80,065 85,661 7.80% 2011 257,425 281,914 Deutsche Telekom International Finance B.V. 8.125% 2012 Euro 30,000 35,227 VoiceStream Wireless Corp. 10.375% 2009 $ 50,000 52,750 Sprint Capital Corp.: 5.875% 2004 104,518 103,513 7.90% 2005 242,710 245,285 7.125% 2006 19,500 19,321 6.00% 2007 2,000 1,892 6.125% 2008 23,050 21,006 7.625% 2011 15,500 14,751 8.375% 2012 197,500 196,886 WIRELESS TELECOMMUNICATION SERVICES - 0.54% AT&T Wireless Services, Inc.: 6.875% 2005 15,500 15,975 7.35% 2006 59,690 61,532 7.50% 2007 134,530 138,718 7.875% 2011 22,000 22,150 8.125% 2012 30,000 30,209 1,337,101 UTILITIES UTILITIES - 0.05% The Williams Companies, Inc.: 6.625% 2004 3,550 2,663 9.25% 2004 12,500 10,000 8.125% 2012 (3) 5,450 3,733 Williams Holdings of Delaware, Inc. 6.50% 2008 11,000 7,095 23,491 Total corporate bonds & notes (cost: $1,524,228,000) 1,658,909 Principal Market amount value U.S. Treasury & agency obligations (000) (000) FEDERAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 6.13% Fannie Mae 6.00%-6.50% due 4/1/2017-5/1/2032 (5) $ 2,902,884 $3,050,984 NON-PASS-THROUGH OBLIGATIONS - 3.31% Fannie Mae 5.25%-7.125% due 8/15/2004-5/15/2011 1,316,000 1,442,780 Freddie Mac 7.00% due 7/15/2005 183,000 205,258 4,699,022 U.S. TREASURY NOTES & BONDS U.S. TREASURY NOTES & BONDS - 3.60% 4.25% March 2003 580,000 584,304 5.25% August 2003 580,000 594,430 3.00% February 2004 600,000 611,964 1,790,698 Total U.S. Treasury & agency obligations (cost: $6,248,440,000) 6,489,720 Principal Market amount value Short-term securities (000) (000) Federal agency discount notes - 5.99% Fannie Mae 1.25%-1.77% due 1/8-4/28/2003 $ 1,088,565 $1,086,608 Federal Home Loan Bank 1.24%-1.692% due 1/2-4/30/2003 842,116 840,598 Freddie Mac 1.24%-1.70% due 1/2-4/14/2003 1,057,366 1,055,337 Corporate short-term notes - 2.92% Abbott Laboratories Inc. 1.28% due 1/7-1/16/2003 (3) 87,200 87,167 American Express Credit Corp. 1.29% due 1/10/2003 50,000 49,982 Archer Daniels Midland Co. 1.32%-1.34% due 2/26-3/3/2003 (3) 37,300 37,218 BellSouth Corp. 1.27%-1.31% due 1/7-1/14/2003 (3) 46,000 45,982 Citicorp 1.33%-1.37% due 1/6-4/29/2003 125,000 124,718 Coca-Cola Co. 1.29%-1.52% due 1/17-3/4/2003 74,300 74,189 E.I. DuPont de Nemours & Co. 1.50% due 1/14-1/30/2003 64,400 64,332 Gannett Co. 1.28% due 1/8-1/10/2003 (3) 77,700 77,674 General Dynamics Corp. 1.74% due 1/23/2003 (3) 25,000 24,972 General Electric Capital Corp. 1.32%-1.36% due 1/6-1/29/2003 150,000 149,893 Johnson & Johnson 1.28% due 3/10/2003 (3) 35,000 34,912 Kraft Foods Inc. 1.30%-1.35% due 1/27-2/26/2003 148,917 148,696 Medtronic Inc. 1.61% due 1/16/2003 (3) 35,000 34,975 Merck & Co. Inc. 1.29%-1.30% due 1/14-1/31/2003 117,800 117,719 Minnesota Mining and Manufacturing Co. 1.28% due 1/31/2003 28,415 28,384 Pfizer Inc 1.27%-1.31% due 1/13-3/3/2003 (3) 150,000 149,789 Procter & Gamble Co. 1.31% due 1/13/2003 (3) 25,000 24,988 Schering Corp. 1.29%-1.30% due 1/23-2/13/2003 50,000 49,940 United Parcel Service Inc. 1.27%-1.29% due 1/21-1/31/2003 100,000 99,907 Wells Fargo & Co. 1.31% due 1/24/2003 30,000 29,974 U.S. Treasuries - 0.10% U.S. Treasury Bills 1.245% due 4/24/2003 50,000 49,813 Total short-term securities (cost: $4,487,675,000) 4,487,767 Total investment securities (cost: $45,924,644,000) 49,646,043 New Taiwanese Dollar (cost: $7,652,000) NT$263,187 7,607 Other assets less liabilities 106,976 Net assets $49,760,626 (1) Security did not produce income during the last 12 months. (2) The fund owns 5.06% of the outstanding voting securities of R.J. Reynolds Tobacco Holdings, Inc. and thus is considered an affiliate of this company under the Investment Company Act of 1940. (3) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. (4) Coupon rate may change periodically. (5) 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
Equity Securities appearing in the portfolio Since June 30, 2002 Calpine Capital One Concord EFS eBay KLA-Tencor MeadWestvaco Norfolk Southern Northrop Grumman WMC Resources Equity Securities eliminated from the portfolio Since June 30, 2002 America Movil AutoZone Chubb Comerica ConAgra Foods Corning Edison International EnCana Fuji Photo Film Fujitsu Gap Halliburton Jefferson-Pilot Johnson & Johnson Pinnacle West Capital PMC-Sierra Sumitomo Mitsui Banking Thermo Electron Toronto-Dominion Bank United Technologies Williams Companies The Investment Company of America Financial statements Statement of assets and liabilities at December 31, 2002 (dollars and shares in thousands, except per-share amounts) Assets: Investment securities at market: Unaffiliated issuers (cost: $45,787,993) $49,458,162 Affiliated issuers (cost: $136,651) 187,881 $49,646,043 Cash denominated in non-U.S. currencies (cost: $7,652) 7,607 Cash 201 Receivables for: Sales of investments 17,377 Sales of fund's shares 82,082 Dividends and interest 190,458 289,917 49,943,768 Liabilities: Payables for: Purchases of investments 74,841 Repurchases of fund's shares 79,636 Investment advisory services 10,140 Services provided by affiliates 16,486 Deferred Directors' and Advisory Board compensation 1,924 Other fees and expenses 115 183,142 Net assets at December 31, 2002 $49,760,626 Net assets consist of: Capital paid in on shares of capital stock $45,878,912 Undistributed net investment income 161,948 Distributions in excess of net realized gain (1,757) Net unrealized appreciation 3,721,523 Net assets at December 31, 2002 $49,760,626 Authorized shares of capital stock - Net asset value $.001 par value Net assets Shares outstanding per share (1) Class A 2,500,000 $46,128,884 1,964,419 $23.48 Class B 250,000 1,841,136 78,635 23.41 Class C 250,000 1,024,864 43,830 23.38 Class F 250,000 414,956 17,685 23.46 Class 529-A 325,000 153,204 6,526 23.48 Class 529-B 75,000 40,460 1,725 23.45 Class 529-C 150,000 45,065 1,922 23.45 Class 529-E 75,000 5,699 243 23.45 Class 529-F 75,000 382 16 23.47 Class R-1 75,000 1,028 44 23.46 Class R-2 100,000 23,887 1,018 23.46 Class R-3 300,000 24,397 1,039 23.47 Class R-4 75,000 8,839 377 23.47 Class R-5 150,000 47,825 2,037 23.48 (1) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for classes A and 529-A, for which the maximum offering prices per share were $24.91 for each. See Notes to Financial Statements Statement of operations for the year ended December 31, 2002 (dollars in thousands) Investment income: Income: Dividends (net of non-U.S. withholding tax of $14,387; also includes $16,620 from affiliates) $912,800 Interest (net of non-U.S. withholding tax of $20) 416,637 $1,329,437 Fees and expenses: Investment advisory services 129,674 Distribution services 142,403 Transfer agent services 49,033 Administrative services 2,452 Reports to shareholders 2,334 Registration statement and prospectus 1,706 Postage, stationery and supplies 7,253 Directors' and Advisory Board compensation 588 Auditing and legal 150 Custodian 1,454 State and local taxes 632 Other 113 Total expenses before reimbursement 337,792 Reimbursement of expenses 12 337,780 Net investment income 991,657 Net realized gain and unrealized depreciation on investments and non-U.S. currency: Net realized gain (loss) on: Investments 838,303 Non-U.S. currency transactions (1,572) 836,731 Net unrealized (depreciation) appreciation on: Investments (10,409,716) Non-U.S. currency translations 251 (10,409,465) Net realized gain and unrealized depreciation on investments and non-U.S. currency (9,572,734) Net decrease in net assets resulting from operations $(8,581,077) Statement of changes in net assets (dollars in thousands) Year ended December 31 2002 2001 Operations: Net investment income $991,657 $819,564 Net realized gain on investments and non-U.S. currency transactions 836,731 972,412 Net unrealized depreciation on investments and non-U.S. currency translations (10,409,465) (4,453,803) Net decrease in net assets resulting from operations (8,581,077) (2,661,827) Dividends and distributions paid to shareholders: Dividends from net investment income (1,050,322) (972,633) Distributions from net realized gain on investments (948,702) (1,116,727) Total dividends and distributions paid to shareholders (1,999,024) (2,089,360) Capital share transactions 4,053,315 4,387,730 Total decrease in net assets (6,526,786) (363,457) Net assets: Beginning of year 56,287,412 56,650,869 End of year (including undistributed net investment income: $161,948 and $224,805,respectively) $49,760,626 $56,287,412 See Notes to Financial Statements
Notes to financial statements 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 (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 (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 sales charge Contingent deferred sales Conversion feature charge upon redemption - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes A and 529-A Up to 5.75% None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes B and 529-B None Declines from 5% Classes B and 529-B to zero convert to for redemptions within classes A and 529-A, six years of respectively, after purchase eight years - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class C None 1% for redemptions within Class C converts to Class F one year of purchase after 10 years - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class 529-C None 1% for redemptions within None one year of purchase - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Class 529-E None None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes F and 529-F None None None - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Classes R-1, R-2, R-3, None None None R-4 and R-5 - ---------------------------------------------------------------------------------------------------------
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 paid to shareholders 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 differing treatment for items such as non-U.S. currency gains and losses; expenses deferred for tax purposes; and cost of investments 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 December 31, 2002, the cost of investment securities and cash denominated in non-U.S. currencies for federal income tax purposes was $45,929,757,000. During the year ended December 31, 2002, the fund reclassified $116,042,000 from undistributed net realized gains to additional paid-in capital to align financial reporting with tax reporting. As of December 31, 2002, the components of distributable earnings on a tax basis were as follows: (dollars in thousands) Undistributed net investment income and currency gains $164,138 Loss deferrals related to non-U.S. currency that were realized during the period November 1, 2002 through December 31, 2002 (267) Gross unrealized appreciation on investment securities 8,027,930 Gross unrealized depreciation on investment securities (4,304,037)
The tax character of distributions paid to shareholders was as follows (dollars in thousands): Year ended December 31, 2002 Distributions from ordinary income Net investment income and Short-term Distributions from long-term Total distributions Share class currency gains capital gains capital gains paid Class A $ 1,008,396 - $ 887,548 $ 1,895,944 Class B 21,641 - 32,496 54,137 Class C 10,712 - 17,283 27,995 Class F 6,321 - 6,593 12,914 Class 529-A(1) 1,613 - 2,082 3,695 Class 529-B(1) 269 - 555 824 Class 529-C(1) 303 - 611 914 Class 529-E(1) 47 - 74 121 Class 529-F(1) 2 - 4 6 Class R-1(2) 5 - 15 20 Class R-2(2) 114 - 321 435 Class R-3(2) 112 - 309 421 Class R-4(2) 46 - 112 158 Class R-5(2) 741 - 699 1,440 Total $ 1,050,322 - $ 948,702 $ 1,999,024 Year ended December 31, 2001 Distributions from ordinary income Net investment income and Short-term Distributions from long-term Total 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 (1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning February 15, 2002. (2) Class R-1, R-2, R-3, R-4 and R-5 shares were offered beginning May 15, 2002. (3) Class C and 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 year ended December 31, 2002, the investment advisory services fee was equivalent to an annualized rate of 0.242% 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 that 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 approved limits Plan limits ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class A 0.25% 0.25% ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class 529-A 0.25 0.50 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes B and 529-B 1.00 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes C, 529-C and R-1 1.00 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Class R-2 0.75 1.00 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes 529-E and R-3 0.50 0.75 ------------------------------------------------ ----------------------------- ----------------------------- ------------------------------------------------ ----------------------------- ----------------------------- Classes F, 529-F and 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 classes A and 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 December 31, 2002, there were no unreimbursed expenses which remain subject to reimbursement for Class A or for Class 529-A. Transfer agent services - The fund has a transfer agent agreement with AFS for Class A and B shares. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent 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 agent and other related shareholder services for all classes of shares other than classes A and 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 agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. During the start-up period for classes R-1, R-2, R-3 and R-4, CRMC has voluntarily agreed to pay a portion of these fees. 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. Administrative services fees are presented gross of any payments made by CRMC. Expenses under the agreements described above for the year ended December 31, 2002, were as follows (dollars in thousands): - ----------------------------------------------------------------------- Share class Distribution Transfer agent Administrative services services services - ----------------------------------------------------------------------- Class A $116,270 $47,118 Not applicable - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class B 16,571 1,915 Not applicable - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class C 8,184 Included in $1,472 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class F 775 Included in 584 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-A 129 Included in 193 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-B 188 Included in 59 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-C 213 Included in 63 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-E 11 Included in 5 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class 529-F -* Included in -* administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-1 3 Included in 3 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-2 36 Included in 27 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-3 19 Included in 14 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-4 4 Included in 4 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Class R-5 Not applicable Included in 28 administrative services - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Total $142,403 $49,033 $2,452 - ----------------------------------------------------------------------- * 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 December 31, 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 December 31, 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): Year ended December 31, 2002 Share class Sales(1) Sales(1) Reinvestments of dividends and distributions Amount Shares Amount Shares Class A $ 6,693,985 255,431 $ 1,756,908 69,477 Class B 1,057,376 40,132 52,386 2,107 Class C 837,810 31,926 26,931 1,092 Class F 381,789 14,772 11,110 448 Class 529-A(2) 168,803 6,496 3,695 152 Class 529-B(2) 44,496 1,722 824 34 Class 529-C(2) 50,297 1,938 913 38 Class 529-E(2) 6,158 243 121 5 Class 529-F(2) 385 16 6 -* Class R-1(3) 1,100 46 20 1 Class R-2(3) 28,401 1,199 434 18 Class R-3(3) 27,920 1,172 419 17 Class R-4(3) 9,005 390 157 7 Class R-5(3) 57,752 2,155 1,273 52 Total net increase (decrease) in fund $ 9,365,277 357,638 $ 1,855,197 73,448 Year ended December 31, 2001 Share class Sales(1) Sales(1) Reinvestments of dividends and distributions Amount Shares Amount Shares Class A $ 6,534,080 221,910 $ 1,884,217 64,925 Class B 976,698 33,294 28,010 978 Class C(4) 501,953 17,317 7,161 254 Class F(4) 198,978 6,922 2,696 95 Total net increase (decrease) in fund $ 8,211,709 279,443 $ 1,922,084 66,252 Year ended December 31, 2002 Share class Repurchases(1) Repurchases(1) Net increase Net increase Amount Shares Amount Shares Class A $ (6,665,696) (264,017) $ 1,785,197 60,891 Class B (230,619) (9,342) 879,143 32,897 Class C (148,918) (6,075) 715,823 26,943 Class F (103,788) (4,193) 289,111 11,027 Class 529-A(2) (2,983) (122) 169,515 6,526 Class 529-B(2) (737) (31) 44,583 1,725 Class 529-C(2) (1,301) (54) 49,909 1,922 Class 529-E(2) (112) (5) 6,167 243 Class 529-F(2) (1) -* 390 16 Class R-1(3) (77) (3) 1,043 44 Class R-2(3) (4,693) (199) 24,142 1,018 Class R-3(3) (3,568) (150) 24,771 1,039 Class R-4(3) (451) (20) 8,711 377 Class R-5(3) (4,215) (170) 54,810 2,037 Total net increase (decrease) in fund $ (7,167,159) (284,381) $ 4,053,315 146,705 Year ended December 31, 2001 Share class Repurchases(1) Repurchases(1) Net increase Net increase 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, 529-B, 529-C, 529-E and 529-F shares were offered beginning February 15, 2002. (3) Class R-1, R-2, R-3, R-4 and R-5 shares were offered beginning May 15, 2002. (4) Class C and 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 December 31, 2002, the total value of restricted securities was $536,005,000, which represents 1.08% 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 $21,891,306,000 and $12,967,078,000, respectively, during the year ended December 31, 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 year ended December 31, 2002, the custodian fee of $1,454,000 includes $111,000 that was offset by this reduction, rather than paid in cash. Financial Highlights (1) Income (loss) from investment operations(2) Net Net asset (losses)gains value, Net on securities Total from beginning investment (both realized investment of period income and unrealized) operations Class A: Year ended 12/31/2002 $28.53 $.49 $(4.56) $(4.07) 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 Class B: Year ended 12/31/2002 28.47 .30 (4.57) (4.27) 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: Year ended 12/31/2002 28.44 .30 (4.58) (4.28) Period from 3/15/2001 to 12/31/2001 29.05 .09 (.14) (.05) Class F: Year ended 12/31/2002 28.52 .49 (4.59) (4.10) Period from 3/15/2001 to 12/31/2001 29.10 .27 (.13) .14 Class 529-A: Period from 2/15/2002 to 12/31/2002 27.88 .46 (3.91) (3.45) Class 529-B: Period from 2/15/2002 to 12/31/2002 27.88 .28 (3.92) (3.64) Class 529-C: Period from 2/19/2002 to 12/31/2002 27.47 .28 (3.50) (3.22) Class 529-E: Period from 3/1/2002 to 12/31/2002 28.27 .38 (4.52) (4.14) Class 529-F: Period from 9/16/2002 to 12/31/2002 23.98 .16 (.19) (.03) Class R-1: Period from 6/6/2002 to 12/31/2002 27.27 .20 (3.36) (3.16) Class R-2: Period from 5/21/2002 to 12/31/2002 28.23 .23 (4.34) (4.11) Class R-3: Period from 6/4/2002 to 12/31/2002 27.58 .27 (3.69) (3.42) Class R-4: Period from 5/28/2002 to 12/31/2002 28.22 .32 (4.33) (4.01) Class R-5: Period from 5/15/2002 to 12/31/2002 28.37 .39 (4.50) (4.11) Dividends and distributions Dividends (from net Distributions Total investment (from capital dividends and income) gains) distributions Class A: Year ended 12/31/2002 $(.52) $(.46) $(.98) Year ended 12/31/2001 (.52) (.59) (1.11) Year ended 12/31/2000 (.52) (2.08) (2.60) Year ended 12/31/1999 (.51) (3.04) (3.55) Year ended 12/31/1998 (.51) (2.94) (3.45) Class B: Year ended 12/31/2002 (.33) (.46) (.79) Year ended 12/31/2001 (.31) (.59) (.90) Period from 3/15/2000 to 12/31/2000 (.25) (1.68) (1.93) Class C: Year ended 12/31/2002 (.32) (.46) (.78) Period from 3/15/2001 to 12/31/2001 (.21) (.35) (.56) Class F: Year ended 12/31/2002 (.50) (.46) (.96) Period from 3/15/2001 to 12/31/2001 (.37) (.35) (.72) Class 529-A: Period from 2/15/2002 to 12/31/2002 (.49) (.46) (.95) Class 529-B: Period from 2/15/2002 to 12/31/2002 (.33) (.46) (.79) Class 529-C: Period from 2/19/2002 to 12/31/2002 (.34) (.46) (.80) Class 529-E: Period from 3/1/2002 to 12/31/2002 (.33) (.35) (.68) Class 529-F: Period from 9/16/2002 to 12/31/2002 (.13) (.35) (.48) Class R-1: Period from 6/6/2002 to 12/31/2002 (.30) (.35) (.65) Class R-2: Period from 5/21/2002 to 12/31/2002 (.31) (.35) (.66) Class R-3: Period from 6/4/2002 to 12/31/2002 (.34) (.35) (.69) Class R-4: Period from 5/28/2002 to 12/31/2002 (.39) (.35) (.74) Class R-5: Period from 5/15/2002 to 12/31/2002 (.43) (.35) (.78)
Ratio of Ratio of Net asset Net assets, expenses net income value, end Total end of period to average to average of period return(3) (in millions) net assets net assets Class A: Year ended 12/31/2002 $23.48 (14.47)% $46,129 .59% 1.89% Year ended 12/31/2001 28.53 (4.59) 54,315 .57 1.49 Year ended 12/31/2000 31.07 3.84 56,212 .56 1.74 Year ended 12/31/1999 32.46 16.55 56,095 .55 1.54 Year ended 12/31/1998 31.07 22.93 48,498 .55 1.65 Class B: Year ended 12/31/2002 23.41 (15.18) 1,841 1.39 1.18 Year ended 12/31/2001 28.47 (5.30) 1,302 1.35 .66 Period from 3/15/2000 to 12/31/2000 31.01 5.87 439 1.34 (5) 1.06 (5) Class C: Year ended 12/31/2002 23.38 (15.20) 1,025 1.45 1.17 Period from 3/15/2001 to 12/31/2001 28.44 (.19) 480 1.52 (5) .38 (5) Class F: Year ended 12/31/2002 23.46 (14.59) 415 .70 1.92 Period from 3/15/2001 to 12/31/2001 28.52 .48 190 .72 (5) 1.17 (5) Class 529-A: Period from 2/15/2002 to 12/31/2002 23.48 (12.57) 153 .71 (5) 2.17 (5) Class 529-B: Period from 2/15/2002 to 12/31/2002 23.45 (13.22) 41 1.58 (5) 1.30 (5) Class 529-C: Period from 2/19/2002 to 12/31/2002 23.45 (11.91) 45 1.57 (5) 1.32 (5) Class 529-E: Period from 3/1/2002 to 12/31/2002 23.45 (14.72) 6 1.03 (5) 1.90 (5) Class 529-F: Period from 9/16/2002 to 12/31/2002 23.47 (.14) - (4) .23 .68 Class R-1: Period from 6/6/2002 to 12/31/2002 23.46 (11.68) 1 1.47 (5),(6) 1.49 (5) Class R-2: Period from 5/21/2002 to 12/31/2002 23.46 (14.64) 24 1.43 (5),(6) 1.61 (5) Class R-3: Period from 6/4/2002 to 12/31/2002 23.47 (12.49) 24 1.05 (5),(6) 2.00 (5) Class R-4: Period from 5/28/2002 to 12/31/2002 23.47 (14.31) 9 .69 (5),(6) 2.25 (5) Class R-5: Period from 5/15/2002 to 12/31/2002 23.48 (14.59) 48 .37 (5) 2.56 (5)
Year ended December 31 2002 2001 2000 1999 1998 Portfolio turnover rate for all classes of shares 27% 22% 25% 28% 24%
(1) Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. (2) Years ended 1999 and 1998 are based on shares outstanding on the last day of the year; all other periods are based on average shares outstanding. (3) Total returns exclude all sales charges, including contingent deferred sales charges. (4) Amount less than 1 million. (5) Annualized. (6) During the start-up period for this class, CRMC voluntarily agreed to pay a portion of the fees relating to transfer agent services. Had CRMC not paid such fees, expense ratios would have been 2.43%, 1.57%, 1.11% and .73% for classes R-1, R-2, R-3 and R-4, respectively. Such expense ratios are the result of higher expenses during the start-up period and are not indicative of expense ratios expected in the future. Report of independent accountants To the Board of Directors and Shareholders of The Investment Company of America: In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Investment Company of America (the "Fund") at December 31, 2002, and the results of its operations, the changes in its net assets and its financial highlights for each of the periods presented in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (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 auditing standards generally accepted in the United States of America, 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 owned at December 31, 2002, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Los Angeles, California January 31, 2003 Tax Information (unaudited) We are required to advise you within 60 days of the fund's fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. During the fiscal year ended December 31, 2002, the fund paid a long-term capital gain distribution of $948,702,000. The fund also designated as a capital gain distribution a portion of earnings and profits paid to shareholders in redemption of their shares. Corporate shareholders may exclude up to 70% of qualifying dividends received during the year. For purposes of computing this exclusion, 83% of the dividends paid by the fund from net investment income represent qualifying dividends. Certain states may exempt from income taxation that portion of the dividends paid from net investment income that was derived from direct U.S. Treasury obligations. For purposes of computing this exclusion, 4% of the dividends paid by the fund from net investment income were derived from interest on direct U.S. Treasury obligations. Dividends and distributions received by retirement plans such as IRAs, Keogh-type plans and 403(b) plans need not be reported as taxable income. However, many retirement plan trusts may need this information for their annual information reporting. SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH WAS MAILED IN JANUARY 2003 TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR 2002 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. PART C OTHER INFORMATION THE INVESTMENT COMPANY OF AMERICA Item 23. Exhibits (a) Certificate of Designation - previously filed (see Post-Effective Amendment No. 108 filed 5/17/02) (b) By-laws - previously filed (see P/E Amendment No. 101 filed 2/27/97) (c) Form of Share Certificate - previously filed (see P/E Amendment No. 106 filed 3/13/01) (d) Amended Investment Advisory and Service Agreement - previously filed (see P/E Amendment No. 105 filed 3/13/00) (e) Form of Amended and Restated Principal Underwriting Agreement - previously filed (see P/E Amendment No. 108 filed 5/17/02) (f) Bonus or profit sharing contracts - none (g) Form of Global Custody Agreement - previously filed (see P/E Amendment No. 105 filed 3/13/00) (h-1) Form of Amended and Restated Administrative Services Agreement - previously filed (see P/E Amendment No. 107 filed 2/14/02) (h-2) Amendment of Shareholder Services Agreement (i) Legal opinion - previously filed (see P/E Amendment No. 108 filed 5/17/02) (j) Consent of Independent Accountants (k) Omitted financial statements - none (l) Initial capital agreements - none (m) Forms of Plans of Distribution - previously filed (see P/E Amendment No. 101 filed 2/27/97; No. 105 filed 3/13/00; 106 filed 3/13/01; 107 filed 2/14/02; and No. 108 filed 5/17/02) (n) Form of Amended and Restated Multiple Class Plan - previously filed (see P/E Amendment No. 108 filed 5/17/02) (o) None (p) Code of Ethics - previously filed (see P/E Amendment No. 108 filed 5/17/02) Item 24. Persons Controlled by or Under Common Control with Registrant None The Investment Company of America -- Pg C-1 Item 25. Indemnification Registrant is a joint-insured under Investment Advisor/Mutual Fund Errors and Omissions Policies written by ICI Mutual Insurance Company. These policies insure its officers and directors against certain liabilities. However, in no event will Registrant maintain insurance to indemnify any such person for any act for which Registrant itself is not permitted to indemnify the individual. The following are certain provisions of the Delaware Corporation Law applicable to the Registrant: Subsection (a) of Section 145 of the Delaware Corporation Law empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that a court of equity or the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; that the scope of indemnification extends to directors, officers, employees or agents of a constituent corporation absorbed in a consolidation or merger and persons serving in that capacity at the request of the constituent corporation for another; and empowers the corporation to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. The Investment Company of America -- Pg C-2 Item 25. Indemnification (continued) The By-Laws of the Registrant state: 37A. (a) The corporation shall indemnify its directors and officers, and may indemnify its employees and agents, against any liability or cost arising out of their service to the corporation, to the fullest extent permitted by the law of the State of Delaware, except as set forth in paragraph (b) and except as conditioned by paragraph (c). (b) The corporation may not indemnify any of its directors or officers against any liability to the corporation or to its stockholders to which he or she is subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office as described in Section 17(h) of the Investment Company Act of 1940 ("disabling conduct"). (c) Indemnification by the corporation of any director or officer against any liability to the corporation or to its stockholders is conditioned on either: (1) a final decision on the merits by a court or other body before which a proceeding relating to the liability of that director or officer is brought finding that he or she is not liable by reason of disabling conduct; or (2) in the absence of such a decision, a determination, based upon a review of the facts, that the director or officer is not liable by reason of disabling conduct, by either: a. the vote of a majority of a quorum of directors, who are neither "interested persons" of the corporation as defined in Section 2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding; or b. independent legal counsel in a written opinion; or (3) the dismissal of either a court or an administrative proceeding against the director or officer for insufficiency of evidence of any disabling conduct with which he or she has been charged. (d) Under the conditions set forth in paragraph (e), the corporation shall advance funds to its officers and directors, and may advance funds to its employees and agents, to cover expenses, including attorneys' fees, they incur in defending any civil, criminal, administrative or investigative action, suit or proceeding, arising out of their service as directors or officers, to the fullest extent permitted by Delaware law. (e) The corporation shall advance funds to cover expenses, including attorneys' fees, incurred by any director or officer in connection with the defense of any proceeding described in paragraph (d) only if an undertaking is provided by or on behalf of the director or officer to repay the advance unless it is ultimately determined using the procedure described in clause (c) (1) or (c) (2) or (c) (3) that he or she is entitled to indemnification. It shall be a condition to any such advance that either: The Investment Company of America -- Pg C-3 Item 25. Indemnification (continued) (1) the director or officer shall provide security for his or her undertaking; or (2) the corporation shall be insured against losses arising by reason of any unlawful advance; or (3) either (aa) a majority of a quorum of the directors, who are neither "interested persons" of the corporation as defined in Section 2(a) (19) of the Investment Company Act of 1940 nor parties to the proceeding, or (bb) independent legal counsel in a written opinion, shall determine, based on a review of readily available facts, that there is reason to believe that the director or officer will be found entitled to indemnification. (f) Provisions in this Section for indemnification of, and advancement of expenses to, officers, directors, employees and agents shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Item 26. Business and Other Connections of Investment Adviser None Item 27. Principal Underwriters (a) American Funds Distributors, Inc. is the Principal Underwriter of shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds Income Series, The American Funds Tax-Exempt Series I, The American Funds Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., Capital Income Builder, Inc., Capital World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash Management Trust of America, EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., Intermediate Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Money Fund of America, U.S. Treasury Money Fund of America and Washington Mutual Investors Fund, Inc. (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant David L. Abzug Vice President None P.O. Box 2248 Agoura Hills, CA 91376 The Investment Company of America -- Pg C-4 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant John A. Agar Vice President None P.O. Box 7326 Little Rock, AR 72217 Dana W. Anderson Regional Vice Persident None 200 E. Big Beaver Road Suite 116 Troy, MI 48083 Robert B. Aprison Vice President None 2983 Bryn Wood Drive Madison, WI 53711 L William W. Bagnard Vice President None Shakeel A. Barkat Regional Vice President None 1249 Pine Hill Drive Annapolis, MD 21401 Steven L. Barnes Senior Vice President None 7490 Clubhouse Road Suite 100 Boulder, CO 80301 L Nancy J. Batlin Vice President None B Carl R. Bauer Vice President None Michelle A. Bergeron Senior Vice President None 4160 Gateswalk Drive Smyrna, GA 30080 J. Walter Best, Jr. Regional Vice President None 9013 Brentmeade Blvd. Brentwood, TN 37027 Joseph T. Blair Senior Vice President None P.O. Box 3529 148 E. Shore Avenue Groton Long Point, CT 06340 John A. Blanchard Vice President None 576 Somerset Lane Northfield, IL 60093 The Investment Company of America -- Pg C-5 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Ian B. Bodell Senior Vice President None P.O. Box 1665 Brentwood, TN 37024-1665 Mick L. Brethower Senior Vice President None 601 E. Whitestone Blvd. Building 6, Suite 115 Cedar Park, TX 78613 C. Alan Brown Vice President None 4129 Laclede Avenue St. Louis, MO 63108 L Sheryl M. Burford Assistant Vice President None B J. Peter Burns Vice President None Cody Callaway Regional Vice President None 803 South Desert Palm Place Broken Arrow, OK 74012 Matthew C. Carlisle Regional Vice President None 4500 Fairvista Drive Charlotte, NC 28269 Damian F. Carroll Regional Vice President None 40 Ten Acre Road New Britain, CT 06052 Brian C. Casey Vice President None 8002 Greentree Road Bethesda, MD 20817 Victor C. Cassato Senior Vice President None 609 W. Littleton Blvd., Suite 310 Littleton, CO 80120 Christopher J. Cassin Senior Vice President None 19 North Grant Street Hinsdale, IL 60521 Denise M. Cassin Vice President None 1301 Stoney Creek Drive San Ramon, CA 94583 The Investment Company of America -- Pg C-6 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant L David D. Charlton Senior Vice President None L Larry P. Clemmensen Director None L Kevin G. Clifford Director, President and Co-Chief None Executive Officer H Cheri Coleman Vice President None Ruth M. Collier Senior Vice President None 106 Central Park South, #10K New York, NY 10019 S David Coolbaugh Vice President None Carlo O. Cordasco Regional Vice President None 101 Five Forks Lane Hampton, VA 23669 B Josie Cortez Assistant Vice President None Thomas E. Cournoyer Vice President None 2333 Granada Boulevard Coral Gables, FL 33134 L Michael D. Cravotta Assistant Vice President None Joseph G. Cronin Regional Vice President None 1281 Fiore Drive Lake Forest, IL 60045 William F. Daugherty Regional Vice President None 1213 Redwood Hills Circle Carlisle, PA 17013 Guy E. Decker Regional Vice President None 2990 Topaz Lane Carmel, IN 46032 Daniel J. Delianedis Vice President None Edina Executive Plaza 5200 Willson Road, Suite 150 Edina, MN 55424 The Investment Company of America -- Pg C-7 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant James A. DePerno, Jr. Regional Vice President None 91 Church Street East Aurora, NY 14052 L Bruce L. DePriester Senior Vice President None L Dianne M. Dexter Assistant Vice President None Thomas J. Dickson Regional Vice President None 108 Wilmington Court Southlake, TX 76092 Michael A. DiLella Vice President None P. O. Box 661 Ramsey, NJ 07446 G. Michael Dill Senior Vice President None 505 E. Main Street Jenks, OK 74037 Kirk D. Dodge Senior Vice President None 2627 Mission Street San Marino, CA 91108 Peter J. Doran Director, Executive Vice President None 100 Merrick Road, Suite 216W Rockville Centre, NY 11570 L Michael J. Downer Secretary None Michael J. Dullaghan Regional Vice President None 5040 Plantation Grove Lane Roanoke, VA 24012 S J. Steven Duncan Senior Vice President None Robert W. Durbin Vice President None 74 Sunny Lane Tiffin, OH 44883 I Lloyd G. Edwards Senior Vice President None The Investment Company of America -- Pg C-8 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Timothy L. Ellis Regional Vice President None 1441 Canton Mart Road, Suite 9 Jackson, MS 39211 John R. Fodor Senior Vice President None 15 Latisquama Road Southborough, MA 01772 L Charles L. Freadhoff Vice President None Daniel B. Frick Regional Vice President None 845 Western Avenue Glen Ellyn, IL 60137 Clyde E. Gardner Senior Vice President None Route 2, Box 3162 Osage Beach, MO 65065 L Linda S. Gardner Vice President None B Lori Giacomini Assistant Vice President None B Evelyn K. Glassford Vice President None Jack E. Goldin Regional Vice President None 7995 Northwest 20th Street Pembroke Pines, FL 33024 Jeffrey J. Greiner Vice President None 12210 Taylor Road Plain City, OH 43064 L Paul G. Haaga, Jr. Director None B Mariellen Hamann Vice President None Derek S. Hansen Regional Vice President None 13033 Ridgedale Drive, #147 Minnetonka, MN 55305 David E. Harper Senior Vice President None 150 Old Franklin School Road Pittstown, NJ 08867 The Investment Company of America -- Pg C-9 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant H Mary Pat Harris Vice President None Robert J. Hartig, Jr. Regional Vice President None 13563 Marjac Way McCordsville, IN 46055 Steven J. Hipsley Regional Vice President None 44 Tyler Drive Saratoga Springs, NY 12866 L Russell K. Holliday Vice President None L Kevin B. Hughes Assistant Vice President None Ronald R. Hulsey Senior Vice President None 6202 Llano Dallas, TX 75214 Robert S. Irish Vice President None 1225 Vista Del Mar Drive Delray Beach, FL 33483 Michael J. Johnston Director None 630 Fifth Avenue, 36th Floor New York, NY 10111 B Damien M. Jordan Senior Vice President None John P. Keating Regional Vice President None 2285 Eagle Harbor Parkway Orange Park, FL 30073 L Benjamin M. Kemper Vice President None L Maria K. Khader Assistant Vice President None Dorothy Klock Vice President None 555 Madison Avenue, 29th Floor New York, NY 10022 L Edward K. Klodt Vice President None The Investment Company of America -- Pg C-10 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Dianne L. Koske Assistant Vice President None 122 Clydesdale Court Hampton, VA 23666 B Elizabeth K. Koster Assistant Vice President None R. Andrew LeBlanc Regional Vice President None 78 Eton Road Garden City, NY 11530 B Karl A. Lewis Vice President None T. Blake Liberty Vice President None 5506 East Mineral Lane Littleton, CO 80122 Mark J. Lien Regional Vice President None 1103 Tulip Tree Lane West Des Moines, IA 50266 L Lorin E. Liesy Vice President None I Kelle Lindenberg Assistant Vice President None Louis K. Linquata Regional Vice President None 5214 Cass Street Omaha, NE 68132 LW Robert W. Lovelace Director None Brendan T. Mahoney Regional Vice President None 29 Harvard Drive Sudbury, MA 01776 Stephen A. Malbasa Director, Senior Vice President None 13405 Lake Shore Blvd. Cleveland, OH 44110 Steven M. Markel Senior Vice President None 5241 South Race Street Greenwood Village, CO 80121 L J. Clifton Massar Director, Senior Vice President None L Christopher McCarthy Assistant Vice President None The Investment Company of America -- Pg C-11 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant James R. McCrary Regional Vice President None 28812 Crestridge Rancho Palos Verdes, CA 90275 L Scott F. McIntyre Senior Vice President None S John V. McLaughlin Senior Vice President None L Dan R. McMaster Assistant Vice President None Terry W. McNabb Vice President None 2002 Barrett Station Road St. Louis, MO 63131 Scott M. Meade Regional Vice President None P.O. Box 122 Rye Beach, NH 03871 Monty L. Moncrief Regional Vice President None 55 Chandler Creek Court The Woodlands, TX 77381 William E. Noe Vice President None 304 River Oaks Road Brentwood, TN 37027 L Heidi J. Novaes Vice President None Peter A. Nyhus Vice President None 3084 Wilds Ridge Court Prior Lake, MN 55372 Eric P. Olson Vice President None 62 Park Drive Glenview, IL 60025 Jeffrey A. Olson Regional Vice President None 930 S. Cowley Street, #305 Spokane, WA 99202 Gary A. Peace Regional Vice President None 291 Kaanapali Drive Napa, CA 94558 The Investment Company of America -- Pg C-12 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Samuel W. Perry Regional Vice President None 4340 East Indian School Road Suite 21 Phoenix, AZ 85018 David K. Petzke Regional Vice President None 4016 Saint Lucia Street Boulder, CO 80301 Fredric Phillips Senior Vice President None 175 Highland Avenue, 4th Floor Needham, MA 02494 B Candance D. Pilgrim Assistant Vice President None Carl S. Platou Vice President None 7455 80th Place, S.E. Mercer Island, WA 98040 Gregory S. Porter Assistant Vice President None 630 Fifth Avenue, 36th Floor New York, NY 10111 S Richard P. Prior Vice President None Mark S. Reischmann Regional Vice President None 5485 East Mineral Lane Centennial, CO 80122 Steven J. Reitman Senior Vice President None 212 The Lane Hinsdale, IL 60521 Brian A. Roberts Vice President None 214-A 50th Street Virginia Beach, VA 23451 L Julie D. Roth Vice President None L James F. Rothenberg Director President and Director Romolo D. Rottura Regional Vice President None 441 Nicholas Drive Southampton, PA 18966 The Investment Company of America -- Pg C-13 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Douglas F. Rowe Vice President None 414 Logan Ranch Road Georgetown, TX 78628 Christopher S. Rowey Vice President None 10538 Cheviot Drive Los Angeles, CA 90064 H Steve L. Rubin Vice President None Dean B. Rydquist Senior Vice President None 1080 Bay Pointe Crossing Alpharetta, GA 30005 Richard R. Samson Senior Vice President None 4604 Glencoe Avenue, #4 Marina del Rey, CA 90292 Paul V. Santoro Regional Vice President None 17 Willow Street Boston, MA 02108 Joseph D. Scarpitti Vice President None 31465 St. Andrews Westlake, OH 44145 Shane D. Schofield Regional Vice President None 201 McIver Street Greenville, SC 29601 S Sherrie L. Senft Vice President None L R. Michael Shanahan Director Chairman and Director L Michael J. Sheldon Assistant Vice President None Daniel S. Shore Regional Vice President None 1715 North Vine Street Chicago, IL 60614 Brad Short Regional Vice President None 1601 Seal Way Seal Beach, CA 90740 The Investment Company of America -- Pg C-14 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant David W. Short Chairman of the Board and None 1000 RIDC Plaza, Suite 212 Co-Chief Executive Officer Pittsburgh, PA 15238 William P. Simon, Jr. Senior Vice President None P.O. Box 426 Devon, PA 19333 L Connie F. Sjursen Vice President None Jerry L. Slater Regional Vice President None 4152 42nd Avenue, NE Seattle, WA 98105 Rodney G. Smith Senior Vice President None 5520 Frankford Court Dallas, TX 75252 Anthony L. Soave Regional Vice President None 3780 Fox Glove Court NE Grand Rapids, MI 49525 L Therese L. Soullier Vice President None Nicholas D. Spadaccini Vice President None 855 Markley Woods Way Cincinnati, OH 45230 L Kristen J. Spazafumo Assistant Vice President None Daniel S. Spradling Senior Vice President None 181 Second Avenue Suite 228 San Mateo, CA 94401 B Raymond Stein Assistant Vice President None LW Eric H. Stern Director None Brad Stillwagon Regional Vice President None 2438 Broadmeade Road Louisville, KY 40205 B Max D. Stites Vice President None L David K. Stone Assistant Vice President None The Investment Company of America -- Pg C-15 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Thomas A. Stout Vice President None 1004 Ditchley Road Virginia Beach, VA 23451 Craig R. Strauser Vice President None 3 Dover Way Lake Oswego, OR 97034 Francis N. Strazzeri Senior Vice President None 3021 Kensington Trace Tarpon Springs, FL 34689 L Lisa F. Swaiman Senior Vice President None L Libby J. Syth Assistant Vice President None L Drew W. Taylor Vice President None Gary J. Thoma Regional Vice President None 401 Desnoyer Kaukauna, WI 54130 Cynthia M. Thompson Regional Vice President None 4 Franklin Way Ladera Ranch, CA 92694 L James P. Toomey Vice President None I Christopher E. Trede Vice President None George F. Truesdail Senior Vice President None 400 Abbotsford Court Charlotte, NC 28270 Scott W. Ursin-Smith Vice President None 60 Reedland Woods Way Tiburon, CA 94920 J. David Viale Regional Vice President None 39 Old Course Drive Newport Beach, CA 92660 L Patricia A. Vogt Assistant Vice President None The Investment Company of America -- Pg C-16 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Gerald J. Voss Regional Vice President None The Pines at Four Hills 3900 S. Southeastern Ave., #304 Sioux Falls, SD 57103 L Wendy A. Wainwright Assistant Vice President None Thomas E. Warren Vice President None 7347 Turnstone Road Sarasota, FL 34242 L Debbie L. Wasilak Assistant Vice President None L J. Kelly Webb Senior Vice President, None Treasurer and Controller Gregory J. Weimer Vice President None 206 Hardwood Drive Venetia, PA 15367 B Timothy W. Weiss Director None SF Gregory W. Wendt Director None George J. Wenzel Regional Vice President None 251 Barden Road Bloomfield Hills, MI 48304 H J. D. Wiedmaier Assistant Vice President None SF N. Dexter Williams, Jr. Senior Vice President None Andrew L. Wilson Regional Vice President None 11163 Rich Meadow Drive Great Falls, VA 22066 Timothy J. Wilson Vice President None 113 Farmview Place Venetia, PA 15367 B Laura L. Wimberly Vice President None H Marshall D. Wingo Director, Senior Vice President None L Robert L. Winston Director, Senior Vice President None The Investment Company of America -- Pg C-17 (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant Kurt A. Wuestenberg Regional Vice President None 975 Arboretum Drive Saline, MI 48176 Jason P. Young Regional Vice President None 11141 Whitetail Lane Olathe, KS 66061 William R. Yost Senior Vice President None 9320 Overlook Trail Eden Prairie, MN 55347 Jonathan A. Young Regional Vice President None 329 Downing Drive Chesapeake, VA 23322 Scott D. Zambon Regional Vice President None 2178 Piper Lane Tustin Ranch, CA 92782
- ---------- L Business Address, 333 South Hope Street, Los Angeles, CA 90071 LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025 B Business Address, 135 South State College Boulevard, Brea, CA 92821 S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251 SF Business Address, One Market, Steuart Tower, Suite 1800, San Francisco, CA 94105-1016 H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513 I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240 (c) None Item 28. Location of Accounts and Records Accounts, books and other records required by Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended, are maintained and held in the offices of the Registrant's investment adviser, Capital Research and Management Company, 333 South Hope Street, Los Angeles, California 90071, and/or 135 South State College Boulevard, Brea, California 92821. Registrant's records covering shareholder accounts are maintained and kept by its transfer agent, American Funds Service Company, 135 South State College Boulevard, Brea, California 92821; 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240; 3500 Wiseman Boulevard, San Antonio, Texas 78251; and 5300 Robin Hood Road, Norfolk, VA 23513. Registrant's records covering portfolio transactions are maintained and kept by its custodian, JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017-2070. The Investment Company of America -- Pg C-18 Item 29. Management Services None Item 30. Undertakings n/a The Investment Company of America -- Pg C-19 SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, and State of California, on the 25th day of February, 2003. THE INVESTMENT COMPANY OF AMERICA By /s/ R, Michael Shanahan - ------------------------------------------------------ (R. Michael Shanahan, Chairman of the Board) Pursuant to the requirements of the Securities Act of 1933, this amendment to its Registration Statement has been signed below on February 25, 2003, by the following persons in the capacities indicated. Signature Title (1) Principal Executive Officer: /s/ R. Michael Shanahan Chairman of the Board ---------------------------------- (R. Michael Shanahan) (2) Principal Financial Officer and Principal Accounting Officer: /s/ Thomas M. Rowland Treasurer --------------------------------- (Thomas M. Rowland) (3) Directors: Louise H. Bryson* Director Mary Anne Dolan* Director Martin Fenton* Director Leonard R. Fuller Director Claudio X. Gonzalez Laporte Director Paul G. Haaga, Jr. Director James B. Lovelace* Senior Vice President and Director John G. McDonald* Director Bailey Morris-Eck* Director Richard G. Newman* Director Don D. O'Neal Senior Vice President and Director The Investment Company of America -- Pg C-20 (3) Directors (continued): Olin C. Robison* Director James F. Rothenberg* President and Director /s/ R. Michael Shanahan Chairman and Director ----------------------- William J. Spencer* Director *By /s/ Vincent P. Corti -------------------------------------------- Vincent P. Corti, Attorney-in-Fact Counsel represents that this amendment does not contain disclosures that would make the amendment ineligible for effectiveness under the provisions of rule 485(b). /s/ Kristine M. Nishiyama - --------------------------- (Kristine M. Nishiyama) The Investment Company of America -- Pg C-21 EX-99.H 4 h2.txt EXHIBIT H-2 FORM OF AMENDMENT OF SHAREHOLDER SERVICES AGREEMENT This Amendment to the Shareholder Services Agreement (the "Agreement") by and between American Funds Service Company (hereinafter "AFS") and [name of fund] (hereinafter called the "Fund") is dated as of the first day of August, 2002. WHEREAS, AFS and the Fund entered into the Agreement with regard to certain shareholder services to be performed by AFS; and WHEREAS, under the requirements of Section 352 of Title III of the PATRIOT Act and rules thereunder, the Fund has approved an anti-money laundering policy and procedures ("AML Program") reasonably designed to detect, prevent and, as applicable, report money laundering and fraud, as well as to identify potential terrorists; and WHEREAS, AFS and the Fund desire to amend said Agreement in the manner hereinafter set forth; NOW THEREFORE, pursuant to Section 9 of the Agreement, AFS and the Fund hereby amend the Agreement as follows: 1. Section 2 is amended to read as follows: The Fund hereby employs AFS, and AFS hereby accepts such employment by the Fund, as its transfer agent. In such capacity AFS will provide the services of stock transfer agent, dividend disbursing agent, redemption agent, and such additional related services as the Fund may from time to time require, all of which services are sometimes referred to herein as "shareholder services." In addition, AFS assumes responsibility for the Fund's implementation and compliance with the procedures set forth in the Anti-Money Laundering ("AML") Program of the Fund and does hereby agree to provide all records relating to the AML Program to any federal examiner of the Fund upon request. 2. Section 6 is amended to read as follows: AFS will provide to the participating investment companies the shareholder services referred to herein in return for the following fees: Annual account maintenance fee (paid monthly): $0.50 per month for each open account on AFS= books or in Level 0, 2 or 4 Networking ($6.00 per year). $0.06 per month for each open account maintained in Street Name or Level 1 or 3 Networking ($0.72 per year). No annual fee will be charged for a participant account underlying a 401(k) or other defined contribution plan where the plan maintains a single account on AFS= books and responds to all participant inquiries. Transaction fees: $2.00 per non-automated transaction $0.20 per automated transaction For this purpose, "transactions" shall include all types of transactions included in an "activity index" as reported to the Review and Advisory Committee at least annually. AFS will bill the Fund monthly, on or shortly after the first of each calendar month, and the Fund will pay AFS within five business days of such billing. Any revision of the schedule of charges set forth herein shall require the affirmative vote of a majority of the members of the board of directors/trustees of the Fund. IN WITNESS THEREOF, AFS and the Fund have caused this Amendment to be executed by their duly authorized officers effective as of the date first written above. [NAME OF FUND] AMERICAN FUNDS SERVICE COMPANY BY: BY: Name: Name: Angela M. Mitchell Title: Secretary Title: Secretary Date: Date: EX-99.J 5 consent.txt CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form N-1A of our report dated January 31, 2003, relating to the financial statements and financial highlights of The Investment Company of America, which appear in such Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Independent Accountants" and "Prospectuses, Reports to Shareholders and Proxy Statement" in such Registration Statement. PricewaterhouseCoopers LLP Los Angeles, California February 27, 2003 -----END PRIVACY-ENHANCED MESSAGE-----