497 1 ica497.txt THE INVESTMENT COMPANY OF AMERICA Part B Statement of Additional Information March 1, 2004 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, 2004. The prospectus may be obtained from your 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 . . . . . . . . . . . . . . . . . . . . . . 27 Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 32 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 39 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 43 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Shareholder Account Services and Privileges . . . . . . . . . . . . 47 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 50 General Information . . . . . . . . . . . . . . . . . . . . . . . . 51 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 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 assets in issuers domiciled outside the United States 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. Equity securities held by the fund typically consist of common stocks. The prices of equity securities fluctuate based on, among other things, events specific to their issuers and market, economic and other 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 stocks automatically convert into common stocks. The prices and yields of nonconvertible preferred The Investment Company of America - Page 2 stocks generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. Convertible bonds, convertible preferred stocks and other securities may sometimes be converted into common stocks 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; 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 United States may involve additional 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; changes in tax policy; 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. The risks described above may be 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 United States. Brokerage commissions may be higher outside the United States, and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with maintaining assets in certain jurisdictions. CURRENCY TRANSACTIONS - The fund may purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency The Investment Company of America - Page 3 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 that may 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 that 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 also may 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 (for example, short-term notes up to 12 months in maturity issued by corporations, governmental bodies or bank/ corporation sponsored conduits (asset-backed commercial paper)), (ii) commercial bank obligations (for example, 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 (for example, 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 were replaced once per year. The fund's portfolio turnover rates for the fiscal years ended 2003 and 2002 were 24% and 27%, respectively. See "Financial Highlights" in the prospectus for the fund's annual portfolio turnover rate for each of the last five fiscal years. 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 making loans, the fund may lend portfolio securities; however, it does not currently intend to engage in an ongoing or regular securities lending program. 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 policies may be changed without shareholder approval: The fund will not: Purchase and sell securities for short-term profits; however, securities will be sold without regard to the time that they have been held whenever investment 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. Issue senior securities, except as permitted by the 1940 Act. 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 OTHER DIRECTORSHIPS/3/ WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH 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: 59 Distribution and Business Development, Lifetime Television; Director and former Chairman of the Board, KCET - Los Angeles (public television station) ----------------------------------------------------------------------------------------------------------------------------------- Mary Anne Dolan Director 2000 Founder and President, 3 None Age: 56 M.A.D., Inc. (communications company); former Editor-in-Chief, Los Angeles ----------- Herald Examiner --------------- ----------------------------------------------------------------------------------------------------------------------------------- Martin Fenton Director 2000 Chairman of the Board and 16 None Age: 68 CEO, Senior Resource Group LLC (development and management of senior living communities) ----------------------------------------------------------------------------------------------------------------------------------- Leonard R. Fuller Director 2002 President and CEO, Fuller 14 None Age: 57 Consulting (financial management consulting firm) ----------------------------------------------------------------------------------------------------------------------------------- Claudio X. Gonzalez Director 2001 Chairman of the Board and 1 America Movil, S.A.; Laporte CEO, Kimberly-Clark de General Electric Company; Age: 69 Mexico, SA (household Grupo Alfa; Grupo Carso; products) The Home Depot; Kellogg Company; Kimberly-Clark Corp.; The Mexico Fund ----------------------------------------------------------------------------------------------------------------------------------- John G. McDonald Director 1976 The IBJ Professor of Finance, 8 iStar Financial, Inc.; Age: 66 Graduate School of Business, Plum Creek Timber Co.; Stanford University Scholastic Corporation; Varian, Inc. ----------------------------------------------------------------------------------------------------------------------------------- Bailey Morris-Eck Director 1993 Director and Programming 3 The Nevis Fund, Inc. Age: 59 Chair, WYPR Baltimore/Washington (public radio station); Senior Associate, Financial News (London); Senior Associate, Reuters Foundation; Senior Fellow, Institute for International Economics; Consultant, The Independent --------------- of London --------- ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Newman Director 1996 Chairman of the Board and 13 Sempra Energy; Age: 69 CEO, AECOM Technology Southwest Water Company Corporation (engineering, consulting and professional services) ----------------------------------------------------------------------------------------------------------------------------------- Olin C. Robison Director 1987 President of the Salzburg 3 None Age: 67 Seminar; President Emeritus, Middlebury College ----------------------------------------------------------------------------------------------------------------------------------- William J. Spencer Director 1997 Chairman of the Board and 1 None Age: 73 CEO, SEMATECH (research and development consortium); Trustee, William Jewell College; Trustee, 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/ ----------------------------------------------------------------------------------------------------------------------------------- R. Michael Chairman of 1994 Chairman of the Board and 2 None Shanahan the Board Principal Executive Officer, Age: 65 Capital Research and Management Company; Director, American Funds Distributors, Inc.*; Director, The Capital Group Companies, Inc.*; Chairman of the Board, Capital Management Services, Inc.*; Director, Capital Strategy Research, Inc.* ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Haaga, Jr. Director 2002 Executive Vice President and 17 None Age: 55 Director, Capital Research and Management Company; Director, The Capital Group Companies, Inc.*; Director, American Funds Distributors, Inc.* ----------------------------------------------------------------------------------------------------------------------------------- James B. Lovelace Senior Vice 1994 Senior Vice President and 2 None Age: 47 President Director, Capital Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Donald D. O'Neal Senior Vice 1994 Senior Vice President, 2 None Age: 43 President Capital Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- James F. President 2000 President and Director, 3 None Rothenberg Capital Research and Age: 57 Management Company; Director, American Funds Distributors, Inc.*; Director, American Funds Service Company*; Director, The Capital Group Companies, Inc.*;Director, Capital Group 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: 54 ---------------------------------------------------------------------------------------------------------------------------------- Joyce E. Gordon Vice President 1998 Senior Vice President, Capital Research Company* Age: 47 ---------------------------------------------------------------------------------------------------------------------------------- Anne M. Llewellyn Vice President 1984 Associate, Capital Research and Management Company Age: 56 ---------------------------------------------------------------------------------------------------------------------------------- Vincent P. Corti Secretary 1994 Vice President - Fund Business Management Group, Capital Age: 47 Research and Management Company ---------------------------------------------------------------------------------------------------------------------------------- Thomas M. Rowland Treasurer 1998 Senior Vice President, Capital Research and Management Company; Age: 62 Director, American Funds Service Company* ---------------------------------------------------------------------------------------------------------------------------------- R. Marcia Gould Assistant Treasurer 1993 Vice President - Fund Business Management Group, Capital Age: 49 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------
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, which serves as the underlying investment vehicle for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 This includes all directorships (other than those of the American Funds) 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 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, 2003
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 Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Mary Anne Dolan Over $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 Over $100,000 Over $100,000 Laporte ------------------------------------------------------------------------------- John G. McDonald Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Bailey Morris-Eck $50,001 - $100,000 Over $100,000 ------------------------------------------------------------------------------- Richard G. Newman Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Olin C. Robison Over $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 affiliated entities (including the fund's principal underwriter). DIRECTOR COMPENSATION - 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. In lieu of meeting attendance fees, members of the Proxy Committee receive an annual retainer fee of $14,000. 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 The Investment Company of America - Page 12 in effect for the fund. The fund also reimburses certain expenses of the Directors who are not affiliated with the investment adviser. DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2003
TOTAL COMPENSATION AGGREGATE COMPENSATION (INCLUDING (INCLUDING VOLUNTARILY VOLUNTARILY DEFERRED DEFERRED COMPENSATION/1/) COMPENSATION/1/) NAME FROM THE FUND FROM ALL FUNDS MANAGED BY -------------------------------------------------------------------------------------------------------- CAPITAL RESEARCH AND MANAGEMENT COMPANY OR ITS AFFILIATES/2/ ---------------------------- Louise H. Bryson/3/ $67,000 $ 67,000 ------------------------------------------------------------------------------------------------------------------------------------ Mary Anne Dolan $63,000 $105,000 ------------------------------------------------------------------------------------------------------------------------------------ Martin Fenton/3/ $64,000 $215,120 ------------------------------------------------------------------------------------------------------------------------------------ Leonard R. Fuller $64,000 $166,395 ------------------------------------------------------------------------------------------------------------------------------------ Claudio X. Gonzalez Laporte/3/ $64,000 $ 64,000 ------------------------------------------------------------------------------------------------------------------------------------ John G. McDonald/3/ $81,000 $270,500 ------------------------------------------------------------------------------------------------------------------------------------ Bailey Morris-Eck $64,000 $106,500 ------------------------------------------------------------------------------------------------------------------------------------ Richard G. Newman $78,000 $137,120 ------------------------------------------------------------------------------------------------------------------------------------ Olin C. Robison/3/ $67,000 $110,000 ------------------------------------------------------------------------------------------------------------------------------------ William J. Spencer/3/ $79,000 $ 79,000 ------------------------------------------------------------------------------------------------------------------------------------
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 American Funds as designated by the Directors. Compensation for the fiscal year ended December 31, 2003 includes earnings on amounts deferred in previous fiscal years. 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, which serves as the underlying investment vehicle 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 2003 fiscal year for participating Directors is as follows: Louise H. Bryson ($280,667), Martin Fenton ($38,375), Claudio X. Gonzalez Laporte ($162,189), John G. McDonald ($949,808), Olin C. Robison ($302,292) and William J. Spencer ($586,476). 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, 2004, 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. Although the Board of Directors has delegated day-to-day oversight to the investment adviser, all fund operations are supervised by the fund's Board, which meets periodically and performs duties required by applicable state and federal laws. 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 The Investment Company of America - Page 13 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 the investment adviser 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 employer-sponsored 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 prospectus and retirement plan statement of additional information. 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 that 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. The Investment Company of America - Page 14 The following table identifies those investors who own of record or are known by the fund to own beneficially 5% or more of any class of its shares as of the opening of business on February 1, 2004:
NAME AND ADDRESS OWNERSHIP PERCENTAGE ---------------------------------------------------------------------------- Edward D. Jones & Co. Class A 15.53% 201 Progress Pkwy. Class B 11.61 Maryland Hts., MO 63043-3009 ---------------------------------------------------------------------------- MLPF&S For the Sole Benefit of Its Customers Class B 6.14 4800 Deer Lake Dr. E, Fl. 2 Class C 17.44 Jacksonville, FL 32246-6484 ---------------------------------------------------------------------------- Citigroup Global Markets Inc. Class B 6.16 333 W. 34th St. Class C 13.99 New York, NY 10001-2402 ---------------------------------------------------------------------------- Charles Schwab & Co. Inc. Class F 7.63 101 Montgomery St. San Francisco, CA 94104-4122 ----------------------------------------------------------------------------
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 an "interested person" of the fund within the meaning of the 1940 Act. The Committee provides oversight regarding 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 auditors and the full Board of Directors. Three Audit Committee meetings were held during the 2003 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 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 of the 1940 Act, 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 2003 fiscal year. The fund has a Nominating Committee comprised of Louise H. Bryson, John G. McDonald and Olin C. Robison, none of whom is 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 and other resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be The Investment Company of America - Page 15 considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating Committee of the fund, addressed to 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. Three Nominating Committee meetings were held during the 2003 fiscal year. The fund has a Proxy Committee comprised of John G. McDonald, Richard G. Newman and William J. Spencer, none of whom is 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 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 2003 fiscal year. The Investment Company of America - Page 16 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: 65 ----------------------------------------------------------------------------------------------------------------------------------- Sam L. Ginn 2003 Retired; former Chairman of the 1 Chevron Texaco Age: 66 Board, Vodafone Group Plc.; Corporation; Fremont former Chairman of the Board and Group; Hewlett-Packard CEO, AirTouch Communications Company (wireless telecommunications) ----------------------------------------------------------------------------------------------------------------------------------- Ellen H. Goldberg 1998 President, Santa Fe Institute; 1 None Age: 58 Research Professor, University of New Mexico ----------------------------------------------------------------------------------------------------------------------------------- Daniel L. Jorndt 2003 Retired; former Chairman of the 1 Kellogg Company Age: 62 Board and CEO, Walgreen Company (drug stores) ----------------------------------------------------------------------------------------------------------------------------------- William H. Kling 1985 President, American Public Media 6 Irwin Financial Age: 61 Group Corporation; St. Paul Companies ----------------------------------------------------------------------------------------------------------------------------------- Luis G. Nogales 2003 President, Nogales Partners; 1 Arbitron, Inc.; Edison Age: 60 Managing Director, Nogales International; K-B Home; Investors Management LLC Kaufman & Broad, S.A. (private equity fund) ----------------------------------------------------------------------------------------------------------------------------------- Robert J. O'Neill 1988 Deputy Chairman of the Council 3 None Age: 67 and Chairman of the International Advisory Panel, Graduate School of Government, University of Sydney, Australia; Member of the Board of Directors, The Lowy Institute for International Policy Studies, Sydney, Australia; Chairman of the Council, Australian Strategic Policy Institute; former Chichele Professor of the History of War and Fellow, All Souls College, University of Oxford; former Chairman of the Council, International Institute for Strategic Studies ----------------------------------------------------------------------------------------------------------------------------------- Norman R. Weldon 1977 Managing Director, Partisan 3 Novoste Corporation Age: 69 Management Group, Inc. (medical device focused venture capital firm); former Chairman of the Board, Novoste Corporation; former President and Director, Corvita Corporation -----------------------------------------------------------------------------------------------------------------------------------
The Investment Company of America - Page 17 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, which serves as the underlying investment vehicle for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 2 This includes all directorships (other than those of the American Funds) 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 18 ADVISORY BOARD MEMBER COMPENSATION - 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. ADVISORY BOARD MEMBER COMPENSATION PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 2003
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. ------------------------------------------------------------------------------------------ Sam L. Ginn $ 4,250 $ 4,250 ------------------------------------------------------------------------------------------ Ellen H. Goldberg $10,000 $ 10,000 ------------------------------------------------------------------------------------------ Daniel L. Jorndt $ 4,250 $ 4,250 ------------------------------------------------------------------------------------------ William H. Kling/3/ $10,000 $123,500 ------------------------------------------------------------------------------------------ Robert J. O'Neill $10,000 $ 55,000 ------------------------------------------------------------------------------------------ Norman R. Weldon $10,000 $ 52,000 ------------------------------------------------------------------------------------------
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 American Funds as designated by the Advisory Board member. Compensation for the fiscal year ended December 31, 2003 includes earnings on amounts deferred in previous years. 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, which serves as the underlying investment vehicle 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, 2003 for participating Advisory Board members is as follows: William H. Kling ($74,866). 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 19 INVESTMENT ADVISER - The investment adviser, Capital Research and Management Company, founded in 1931, maintains research facilities in the United States 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 $500 billion of stocks, bonds and money market instruments and serves over 20 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, 2005, 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 considering the renewal of 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. In recommending the Agreement's renewal for the current period, the Committee gave consideration to a wide variety of factors, including, among others, the fund's favorable investment results during varied economic periods both on an absolute basis and relative to select peer groups and indexes; the fact that annual levels of the fund's advisory fees and overall expense ratios (both measured as a percentage of the fund's net assets) are consistently among the lowest of all funds in the fund's peer group; the various management and administrative services provided by the investment adviser; and the quality and depth of experience of the investment adviser and its investment and administrative personnel. Based on their review, the Committee and the Board concluded that the advisory fees and other expenses of the fund are fair and that shareholders have received reasonable value in return for paying such fees and expenses. The Investment Company of America - Page 20 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 fund's executive, administrative, clerical and bookkeeping functions, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies, and postage used at the fund's offices. 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 fund shares (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 that if the normal operating expenses of the fund, including the management fee paid to the investment adviser, and certain expenses of the fund, for any fiscal year during which the Agreement is in effect, exceed the expense limitations applicable to the fund imposed by state securities laws or any regulations thereunder, the investment adviser will reduce its fee by the extent of such excess and, if required pursuant to any such laws or regulations, will reimburse the fund in the amount of such excess. Expenses that are not subject to these limitations are interest, taxes, brokerage costs, distribution expenses pursuant to a plan under rule 12b-1 and extraordinary expenses such as litigation and acquisitions. Under the most restrictive state regulations, as of the effective date of the Agreement, the investment adviser would be required to reimburse the fund if the normal operating expenses exceed the lesser of: (i) 1 1/2% of the average value of the fund's net assets for the fiscal year up to $30 million, plus 1% of the average value of the fund's net assets for the fiscal year in excess of $30 million or (ii) 25% of the gross investment income of the fund. To the extent the investment adviser is required to reduce its management fee pursuant to the expense limitations described above due to the expenses of the Class A shares exceeding the stated limit, the investment adviser will either: (i) reduce its management fee similarly for other classes of shares or (ii) reimburse the fund for other expenses to the extent necessary to result in an expense reduction only for Class A shares of the fund. For the fiscal years ended December 31, 2003, 2002 and 2001, the investment adviser received from the fund advisory fees of $134,807,000, $129,674,000 and $134,899,000, respectively. ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the investment adviser relating to the fund's The Investment Company of America - Page 21 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 share class, as applicable. During the 2003 fiscal period, administrative services fees were:
ADMINISTRATIVE SERVICES FEE ------------------------------------------------------------------------------------------------------------ CLASS C $2,490,000 ------------------------------------------------------------------------------------------------------------ CLASS F 1,021,000 ------------------------------------------------------------------------------------------------------------ CLASS 529-A 399,000 ------------------------------------------------------------------------------------------------------------ CLASS 529-B 135,000 ------------------------------------------------------------------------------------------------------------ CLASS 529-C 139,000 ------------------------------------------------------------------------------------------------------------ CLASS 529-E 17,000 ------------------------------------------------------------------------------------------------------------ CLASS 529-F 2,000 ------------------------------------------------------------------------------------------------------------
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 Investment Company of America - Page 22 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 529-A 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 REVENUE COMPENSATION FISCAL YEAR/PERIOD OR FEES RETAINED TO DEALERS ----------------------------------------------------------------------------------------------------- CLASS A 2003 $26,806,000 $128,286,000 2002 26,701,000 131,273,000 2001 25,295,000 123,707,000 CLASS B 2003 4,426,000 30,503,000 2002 8,234,000 40,572,000 2001 7,031,000 37,823,000 ----------------------------------------------------------------------------------------------------- CLASS 529-A 2003 1,058,000 5,353,000 2002 921,000 4,603,000 ----------------------------------------------------------------------------------------------------- CLASS 529-B 2003 307,000 1,729,000 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: quality shareholder services; savings to the fund in transfer The Investment Company of America - Page 23 agency costs; 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 .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 paying service fees 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 paying service fees 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 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 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 24 For Class F and 529-F shares, 0.25% is paid to the Principal Underwriter for paying service-related expenses, including paying service fees 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 2003 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:
12B-1 LIABILITY 12B-1 EXPENSES OUTSTANDING ------------------------------------------------------------------------------ CLASS A $115,045,000 $10,088,000 ------------------------------------------------------------------------------ CLASS B 22,876,000 2,459,000 ------------------------------------------------------------------------------ CLASS C 13,761,000 1,605,000 ------------------------------------------------------------------------------ CLASS F 1,490,000 181,000 ------------------------------------------------------------------------------ CLASS 529-A 241,000 25,000 ------------------------------------------------------------------------------ CLASS 529-B 655,000 80,000 ------------------------------------------------------------------------------ CLASS 529-C 723,000 91,000 ------------------------------------------------------------------------------ CLASS 529-E 51,000 6,000 ------------------------------------------------------------------------------ CLASS 529-F 3,000 1,000 ------------------------------------------------------------------------------
OTHER COMPENSATION TO DEALERS - American Funds Distributors, at its expense, currently provides additional compensation to investment dealers. These payments may be made, at the discretion of American Funds Distributors, to the top 75 dealers who have sold shares of the American Funds. The level of payments made to a qualifying dealer in any given year will vary and in no case would exceed the sum of (a) 0.10% of the previous year's fund sales by that dealer and (b) 0.02% of assets attributable to that dealer. For 2004, aggregate payments made by American Funds Distributors to dealers will equal approximately 0.02% of the assets of the American Funds. A number of factors will be considered in determining payments, including the qualifying dealer's sales, assets and redemption rates, and the quality of the dealer's relationship with American Funds Distributors. American Funds Distributors makes these payments to help defray the costs incurred by qualifying dealers in connection with efforts to educate financial advisers about the American Funds so that they can make recommendations and provide services that are suitable and meet shareholder needs. American Funds Distributors will, on an annual basis, determine the advisability of continuing these payments. American Funds Distributors may also pay expenses associated with meetings that facilitate educating financial advisers and shareholders about the American Funds that are conducted by dealers, including those outside the top 75 firms. As of January 2004, the top dealers that American Funds Distributors anticipates will receive additional compensation include: 1717 Capital Management Company A. G. Edwards & Sons, Inc. AIG/SunAmerica Group American General/Franklin Financial Ameritas/The Advisors Group The Investment Company of America - Page 25 AXA Advisors, LLC Baird/NMIS Group Cadaret, Grant & Co., Inc. Cambridge Investment Research, Inc. Capital Analysts, Inc. Commonwealth Financial Network Cuna Brokerage Services, Inc. Deutsche Bank Securities Inc. Edward Jones Ferris, Baker Watts, Inc. GE Independent Accountant Network Hefren-Tillotson, Inc. Hornor, Townsend & Kent, Inc. ING Advisors Network InterSecurities, Inc. Investacorp, Inc. Janney Montgomery Scott LLC Jefferson Pilot Securities Corporation JJB Hilliard/PNC Bank Legg Mason Wood Walker, Inc. Lincoln Financial Advisors Corporation Linsco/Private Ledger Corp. McDonald Investments/Society National Bank Merrill Lynch, Pierce, Fenner & Smith Inc. Metlife Enterprises MML Investors Services, Inc. Morgan Keegan & Company, Inc. NatCity Investment, Inc. National Planning Holdings NFP Securities, Inc. PacLife Group Park Avenue Securities LLC Princor/PPI ProEquities, Inc. Raymond James Group RBC Dain Rauscher Inc. Securian/C.R.I. Securities Service Network Inc. Signator Investors, Inc. Smith Barney Stifel, Nicolaus & Company, Inc. The O.N. Equity Sales Company UBS Financial Services Inc. US Bancorp Piper Jaffray Group Wachovia Group WS Griffith Securities, Inc. The Investment Company of America - Page 26 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 (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 in the interest of shareholders to distribute a lesser amount. The following information may not apply to you if you hold fund shares in a tax-deferred account, such as a retirement plan or education savings account. 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 The Investment Company of America - Page 27 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. To the extent the fund invests in stock of domestic and certain foreign corporations, it may receive "qualified dividends". The fund will designate the amount of "qualified dividends" to its shareholders in a notice sent within 60 days of the close of its fiscal year and will report "qualified dividends" to shareholders on Form 1099-DIV. 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 Investment Company of America - Page 28 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 may be eligible for the deduction for dividends received by corporations. Corporate 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. 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 United States may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the United States 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 The Investment Company of America - Page 29 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 15% capital gains rate (maximum 20% for capital gains realized by the fund prior to May 6, 2003), 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. DIVIDENDS - Fund dividends are taxable to shareholders as ordinary income. Under the 2003 Tax Act, all or a portion of a fund's dividend distribution may be a "qualified dividend". Only fund dividends derived from qualified corporation dividends paid to the fund after December 31, 2002, and held by the fund for the appropriate holding period, will be distributed to shareholders as "qualified dividends". Interest income from bonds and money market instruments and nonqualified foreign dividends will be distributed to shareholders as nonqualified fund dividends. The fund will report on Form 1099-DIV the amount of each shareholder's dividend that may be treated as a "qualified dividend". If a shareholder meets the requisite holding period requirement, "qualified dividends" are taxable at a maximum tax rate of 15%. CAPITAL GAINS - 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. Regardless of the length of time the shares of the fund have been held by such shareholders, the portion of a capital gain distribution realized by the fund prior to May 6, 2003 is subject to a maximum tax rate of 20%, while the portion of a capital gain distribution realized by the fund on or after May 6, 2003 is subject to a maximum tax rate of 15%. The fund will report on Form 1099-DIV the portion of the overall capital gain distribution that is taxable to individual shareholders at the maximum 15% rate. 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. 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 The Investment Company of America - Page 30 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 backup 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 31 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 adviser 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 adviser 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 32 The fund and the Principal Underwriter reserve the right to reject any purchase order. Generally, Class F shares are available only 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 generally are 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 be purchased only by investors participating in CollegeAmerica through an eligible employer plan. In addition, the state tax-exempt funds are offered only in certain states, and tax-exempt funds in general should not serve as retirement plan investments. PURCHASE MINIMUMS - The minimum initial investment for all American Funds, 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. 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 33
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 34 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 are set forth below. American Funds money market funds 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. The following investments are not subject to any initial or contingent deferred sales charge if American Funds Service Company is notified: .investments in Class A shares made by endowments or foundations with $50 million or more in assets; .investments made by accounts that are part of certain qualified fee-based programs and that purchased Class A shares before March 15, 2001; and The Investment Company of America - Page 35 .Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds (see "Individual Retirement Account (IRA) Rollovers" below). A dealer concession of up to 1% may be paid by the fund under its Class A Plan of Distribution to reimburse the Principal Underwriter in connection with dealer and wholesaler compensation paid by it with respect to investments made with no initial sales charge. EMPLOYER-SPONSORED RETIREMENT PLANS ON OR BEFORE MARCH 31, 2004: An employer-sponsored retirement plan (including certain 403(b) plans) may invest in Class A shares without any initial or contingent deferred sales charge if the plan invests $1 million or more, or if American Funds Service Company is notified that the plan has 100 or more eligible employees or has $50 million or more in assets. Plans investing in this manner may continue to purchase Class A shares without any initial or contingent deferred sales charge after March 31, 2004. 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. AFTER MARCH 31, 2004: . Employer-sponsored retirement plans not yet invested in Class A shares and wishing to invest without a sales charge will no longer be eligible to purchase Class A shares. Such plans may invest only in Class R shares, which are described in more detail in the fund's retirement plan prospectus. . Provided that the plan's recordkeeper can properly apply a sales charge on the plan's investments, an employer-sponsored retirement plan not yet invested in Class A shares and wishing to invest less than $1 million may invest in Class A shares, but the purchase of these shares will be subject to the applicable sales charge, regardless of whether the plan has 100 or more eligible employees or whether it has $50 million or more in assets. An employer-sponsored retirement plan that purchases Class A shares with a sales charge will be eligible to purchase additional Class A shares in accordance with the sales charge table above. If the recordkeeper cannot properly apply a sales charge on the plan's investments, then the plan may invest only in Class R shares, which are described in more detail in the fund's retirement plan prospectus. . Employer-sponsored retirement plans not yet invested in Class A shares will no longer be eligible to establish a statement of intention to purchase $1 million or more of American Funds shares in order to qualify to purchase without a sales charge. More information about statements of intention can be found under "Sales Charge Reductions and Waivers." The Investment Company of America - Page 36 A transfer from the Virginia Prepaid Education Program/SM/ or the Virginia Education Savings Trust/SM/ 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 American Funds 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 registered investment advisers registered with the Principal Underwriter and assistants directly employed by such registered investment advisers, retired registered investment advisers with respect to accounts established while active, or full-time employees of registered investment advisers registered with the Principal Underwriter (and their spouses, parents and children), 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. Once an account is established under this net asset value privilege, additional investments can be made at net asset value for the life of the account. 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 The Investment Company of America - Page 37 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 CLASS B SHARES
Year of redemption: 1 2 3 4 5 6 7+ Contingent deferred sales charge: 5% 4% 4% 3% 2% 1% 0%
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 529-E AND CLASS F SALES CHARGE - Class 529-E and F 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 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 The Investment Company of America - Page 38 529-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. If the Internal Revenue Service no longer takes this position, the automatic conversion feature may be suspended. If that happened, no further conversions of Class B or C shares would occur while such suspension remained in effect, and 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 -- or equivalent if recognized under local law -- 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 the American Funds 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. After March 31, 2004, employer-sponsored retirement plans not yet invested in Class A shares will no longer be eligible to establish a Statement to purchase $1 million or more without a sales charge. When a shareholder elects to use a Statement in order to qualify for a reduced sales charge on purchases of the American Funds, 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 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 The Investment Company of America - Page 39 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, holdings in Endowments (shares of which may be owned only by tax-exempt organizations) 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 -- or equivalent if recognized under local law -- 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; .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 The Investment Company of America - Page 40 .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, as well as individual holdings in Endowments, 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 American Funds 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 of your existing holdings in all share classes of the American Funds, as well as your holdings in Endowments, to determine your sales charge on investments in accounts eligible to be aggregated, or when making a gift to an individual or charity. Alternatively, upon your request, you may take into account the amount you invested less any withdrawals (however, for this purpose, the amount invested does not include capital appreciation or reinvested dividends and capital gains). 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 American Funds 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: The Investment Company of America - Page 41 (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 (this generally excludes accounts registered in the names of trusts and other entities). 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" (defined below) 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. For purposes of this paragraph, "account" means: .in the case of Class A shares, your investment in Class A shares of all American Funds (investments representing direct purchases of American Funds money market funds are excluded); .in the case of Class B shares, your investment in Class B shares of the particular fund from which you are making the redemption; and The Investment Company of America - Page 42 .in the case of Class C shares, your investment in Class C shares of the particular fund from which you are making the redemption. 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 CollegeAmerica; 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). No dealer commissions will be paid on rollovers to American Funds money market funds. 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. The Investment Company of America - Page 43 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 that 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. Each share class of the fund has a separately calculated net asset value (and share price). All portfolio securities of funds managed by Capital Research and Management Company (other than money market funds) are valued, and the net asset values per share for each share class are determined, as follows: 1. Equity securities, including depositary receipts, are valued at the official closing price of, or 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. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities are valued at prices obtained from an independent 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. Securities with original maturities of one year or less having 60 days or less to maturity are amortized to maturity based on their cost if acquired within 60 days of maturity, or if already held on the 60th day, based on the value determined on the 61st day. Forward currency contracts are valued at the mean of representative quoted bid and asked prices. 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 policies approved by the fund's Board. Subject to Board oversight, 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 The Investment Company of America - Page 44 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 and cost of the security, contractual or legal restrictions on resale of the security, relevant financial or business developments of the issuer, actively traded similar or related securities, conversion or exchange rights on the security, related corporate actions, significant events occurring after the close of trading in the security and changes in overall market conditions. 2. Each class of shares represents interests in the same portfolio of investments and is otherwise identical in all respects to each other class, except for differences relating to distribution, service and other charges and expenses, certain voting rights, differences relating to eligible investors, the designation of each class of shares, conversion features and exchange privileges. Expenses attributable to the fund, but not to a particular class of shares, are borne by each class on the basis of the relative aggregate net assets of the classes. Expenses directly attributable to a class of shares are borne by that class of shares. Liabilities, including accruals of taxes and other expense items attributable to particular share classes, are deducted from total assets attributable to the respective share classes. 3. Net assets so obtained for each share class are then divided by the total number of shares outstanding of that share class, and the result, rounded to the nearer cent, is the net asset value per share for that share class. 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. 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 The Investment Company of America - Page 45 - 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 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 using an account 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 The Investment Company of America - Page 46 following receipt and acceptance of an order. Interest will not accrue or be paid on amounts that represent uncashed distribution or redemption checks. 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 The Investment Company of America - Page 47 same share class into other American Funds at net asset value, subject to the following conditions: (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 American Funds 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 other American Funds 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 American Funds 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 or financial adviser, 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. For more information, 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, you may automatically exchange shares of the same class in amounts of $50 or more among any of the American Funds 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 American Funds. You can make automatic The Investment Company of America - Page 48 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 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 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 the American Funds 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. The Investment Company of America - Page 49 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 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 with broker-dealers for the fund's portfolio transactions. The investment adviser strives to obtain best execution on the fund's portfolio transactions, taking into account a variety of factors to produce the most favorable total price reasonably attainable under the circumstances. These factors include the size and type of transaction, the cost and quality of executions, and the broker-dealer's ability to offer liquidity and anonymity. The fund does not consider the investment adviser as having an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. Subject to the considerations outlined above, the investment adviser may place orders for the fund's portfolio transactions with broker-dealers who have sold shares of the funds managed by the investment adviser, or who have provided investment research, statistical or other related services to the investment adviser. In placing orders for the fund's portfolio transactions, the investment adviser does not commit to any specific amount of business with any particular broker-dealer. Further, when the investment adviser places orders for the fund's portfolio transactions, it does not give any consideration to whether a broker-dealer has sold shares of the funds managed by the investment adviser. The investment adviser may, however, give consideration to investment research, statistical or other related services provided to the adviser in placing orders for the fund's portfolio transactions. 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. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. Brokerage commissions paid on portfolio transactions, including investment dealer concessions on underwritings, if applicable, for the fiscal years ended 2003, 2002 and 2001, amounted to $30,539,000, $45,817,000 and $33,794,000. 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 The Investment Company of America - Page 50 their revenue from broker-dealer, underwriter or investment adviser activities. A regular broker-dealer is: (1) one of the 10 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 10 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 10 broker-dealers that sold the largest amount of securities of the fund during the fund's most recent fiscal year. At the end of the fund's most recent fiscal year, the fund held equity securities of Bank of America Corp. in the amount of $822,657,000, J.P. Morgan Chase & Co. in the amount of $804,387,000, Citigroup Inc. in the amount of $72,810,000 and Wachovia Corp. in the amount of $24,665,000, and debt securities of Bank of America Corp. in the amount of $146,302,000 and J.P. Morgan Chase & Co. in the amount of $79,919,000. 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. The principal office of American Funds Service Company is located at 135 South State College Boulevard, Brea, CA 92821-5823. American Funds Service Company was paid a fee of $44,840,000 for Class A shares and $2,509,000 for Class B shares for the 2003 fiscal year. INDEPENDENT AUDITORS - PricewaterhouseCoopers LLP, 350 South Grand Avenue, Los Angeles, CA 90071, serves as the fund's independent auditors, 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 auditors, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent auditors 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 in their capacities as such. 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 or control persons. 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 related rules. 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 The Investment Company of America - Page 51 information. The fund's annual financial statements are audited by the fund's independent auditors, 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. CODES OF ETHICS - 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. These codes include: 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. PROXY VOTING PROCEDURES AND GUIDELINES - The investment adviser has adopted Proxy Voting Guidelines (the "Guidelines") with respect to voting proxies of securities held by the American Funds, Endowments and American Funds Insurance Series. Certain funds, including the fund, have established separate proxy committees that vote proxies or delegate to a voting officer the authority to vote on behalf of those funds. Proxies for all other funds are voted by an investment committee of the investment adviser under authority delegated by the funds' Boards. Therefore, if more than one fund invests in the same company, they may vote differently on the same proposal. All U.S. proxies are voted. Non-U.S. proxies also are voted, provided there is sufficient time and information available. After a proxy is received, the investment adviser prepares a summary of the proposals in the proxy. A discussion of any potential conflicts of interest is also included in the summary. After reviewing the summary, one or more research analysts familiar with the company and industry make a voting recommendation on the proxy proposals. A second recommendation is made by a proxy coordinator (a senior investment professional) based on the individual's knowledge of the Guidelines and familiarity with proxy-related issues. The proxy summary and voting recommendations are then sent to the appropriate proxy voting committee for the final voting decision. The analyst and proxy coordinator making voting recommendations are responsible for noting any potential material conflicts of interest. One example might be where a director of one or more American Funds is also a director of a company whose proxy is being voted. In such instances, proxy committee members are alerted to the potential conflict. The proxy committee may then elect to vote the proxy or seek a third-party recommendation or vote of an ad hoc group of committee members. The Guidelines, which have been in effect in substantially their current form for many years, provide an important framework for analysis and decision-making by all funds; however, they are not exhaustive and do not address all potential issues. The Guidelines provide a certain amount of flexibility so that all relevant facts and circumstances can be considered in connection with every vote. As a result, each proxy received is voted on a case-by-case basis considering the The Investment Company of America - Page 52 specific circumstances of each proposal. The voting process reflects the funds' understanding of the company's business, its management and its relationship with shareholders over time. Beginning August 31, 2004 (and each August 31 thereafter) each fund will be required to file Form N-PX containing its complete voting record for the 12 months ended the preceding June 30. Once filed, the most recent Form N-PX will be available (i) without charge, upon request, by calling American Funds Service Company at 800/421-0180, and (ii) on the SEC's website at www.sec.gov. The following summary sets forth the general positions of the American Funds, Endowments, American Funds Insurance Series and the investment adviser on various proposals. A copy of the full Guidelines is available upon request, free of charge, by calling American Funds Service Company at 800/421-0180 or visiting the American Funds website at americanfunds.com. DIRECTOR MATTERS - The election of a company's slate of nominees for director is generally supported. Votes may be withheld for some or all of the nominees if this is determined to be in the best interest of shareholders. Separation of the Chairman and CEO positions may also be supported. Typically, proposals to declassify the board (elect all directors annually) are supported based on the belief that this increases the directors' sense of accountability to shareholders. SHAREHOLDER RIGHTS - Proposals to repeal an existing poison pill, to provide for confidential voting and to provide for cumulative voting are usually supported. Proposals to eliminate the right of shareholders to act by written consent or to take away a shareholder's right to call a special meeting are not typically supported. COMPENSATION AND BENEFIT PLANS - Option plans are complicated, and many factors are considered in evaluating a plan. Each plan is evaluated based on protecting shareholder interests and a knowledge of the company and its management. Considerations include the pricing (or repricing) of options awarded under the plan and the impact of dilution on existing shareholders from past and future equity awards. Compensation packages should be structured to attract, motivate and retain existing employees and qualified directors; however, they should not be excessive. ROUTINE MATTERS - The ratification of auditors, procedural matters relating to the annual meeting, and changes to company name are examples of items considered routine. Such items are generally voted in favor of management's recommendations unless circumstances indicate otherwise. The Investment Company of America - Page 53 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, 2003
Net asset value and redemption price per share (Net assets divided by shares outstanding). . $28.84 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). . . . . . . . . . . . . . . . $30.60
The Investment Company of America - Page 54 APPENDIX The following descriptions of debt security ratings are based on information provided by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("Standard & Poor's"). DESCRIPTION OF BOND RATINGS MOODY'S LONG-TERM RATING DEFINITIONS Aaa Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk. Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. A Obligations rated A are considered upper-medium grade and are subject to low credit risk. Baa Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. Ba Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk. B Obligations rated B are considered speculative and are subject to high credit risk. Caa Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk. Ca Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. C Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest. NOTE: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. The Investment Company of America - Page 55 STANDARD & POOR'S LONG-TERM ISSUE CREDIT RATINGS 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 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. BB, B, CCC, CC, AND C 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. 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. The Investment Company of America - Page 56 C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. 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. PLUS (+) OR MINUS (-) 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. The Investment Company of America - Page 57 INVESTMENT PORTFOLIO DECEMBER 31, 2003 Percent of LARGEST INVESTMENT CATEGORIES net assets CAPITAL GOODS 8.75 % FOOD, BEVERAGE & TOBACCO 8.58 MATERIALS 7.24 Percent of LARGEST INDUSTRY HOLDINGS Net Assets Beverages & Tobacco 6.29% Oil & Gas 5.93 Diversified Telecommunication Services 5.20 Pharmaceuticals 4.98 Commercial Banks 3.93 Percent of LARGEST EQUITY HOLDINGS net assets Altria Group 4.58 % Fannie Mae 2.01 SBC Communications 1.78 Dow Chemical 1.73 Time Warner 1.73 Lowe's Companies 1.70 Caterpillar 1.53 Eli Lilly 1.43 Texas Instruments 1.28 ChevronTexaco 1.27 Shares or Market value EQUITY SECURITIES (COMMON AND PREFERRED STOCKS AND CONVERTIBLE DEBENTURES) - 82.50% principal amount (000) ENERGY ENERGY EQUIPMENT & SERVICES - 0.82% Baker Hughes Inc. 8,225,000 $ 264,516 Schlumberger Ltd. 5,100,000 279,072 OIL & GAS - 5.93% Burlington Resources Inc. 9,050,000 501,189 ChevronTexaco Corp. 9,745,500 841,914 ConocoPhillips 2,200,000 144,254 ENI SpA 26,000,000 488,223 Exxon Mobil Corp. 8,221,500 337,082 Marathon Oil Corp. 10,550,000 349,099 Murphy Oil Corp. 2,050,000 133,885 Royal Dutch Petroleum Co. (New York registered) 7,620,000 399,212 "Shell" Transport and Trading Co., PLC (ADR) (New York registered) 5,500,000 247,665 "Shell" Transport and Trading Co., PLC 2,900,000 21,489 TOTAL SA 900,000 166,515 Unocal Corp. 8,690,000 320,053 4,494,168 MATERIALS CHEMICALS - 1.98% Air Products and Chemicals, Inc. 200,000 10,566 Dow Chemical Co. 27,700,000 1,151,489 Rohm and Haas Co. 3,600,000 153,756 METALS & MINING - 3.60% Alcan Inc. 5,800,000 272,310 Alcoa Inc. 11,846,400 450,163 Alumina Ltd. 19,804,346 97,846 Barrick Gold Corp. 9,250,000 210,067 BHP Billiton Ltd. 9,412,655 86,285 Inco Ltd. (1) 5,253,000 209,174 Newmont Mining Corp. 9,500,000 461,795 Phelps Dodge Corp. (1) 1,345,000 102,341 Placer Dome Inc. 10,000,000 179,100 Rio Tinto PLC 12,000,000 330,214 PAPER & FOREST PRODUCTS - 1.66% Georgia-Pacific Corp., Georgia-Pacific Group 10,599,298 325,080 International Paper Co. 7,297,235 314,584 MeadWestvaco Corp. 3,800,000 113,050 Weyerhaeuser Co. 5,475,000 350,400 4,818,220 CAPITAL GOODS AEROSPACE & DEFENSE - 3.08% Boeing Co. 13,000,000 547,820 General Dynamics Corp. 3,372,900 304,876 Honeywell International Inc. 4,000,000 133,720 Lockheed Martin Corp. 5,300,000 272,420 Northrop Grumman Corp. 2,340,000 223,704 Raytheon Co. 14,446,000 433,958 United Technologies Corp. 1,400,000 132,678 CONSTRUCTION & ENGINEERING - 0.05% Fluor Corp. 824,300 32,675 ELECTRICAL EQUIPMENT - 0.17% Cooper Industries, Inc., Class A 2,000,000 115,860 INDUSTRIAL CONGLOMERATES - 2.47% 3M Co. 1,200,000 102,036 General Electric Co. 21,750,000 673,815 Siemens AG 875,000 69,742 Tyco International Ltd. 30,400,000 805,600 MACHINERY - 2.98% Caterpillar Inc. 12,300,000 1,021,146 Cummins Inc. 1,700,000 83,198 Deere & Co. 8,000,000 520,400 Illinois Tool Works Inc. 2,500,000 209,775 Parker Hannifin Corp. 2,500,000 148,750 5,832,173 COMMERCIAL SERVICES & SUPPLIES COMMERCIAL SERVICES & SUPPLIES - 0.11% Pitney Bowes Inc. 1,000,000 40,620 Waste Management, Inc. 1,100,000 32,560 73,180 TRANSPORTATION AIR FREIGHT & LOGISTICS - 0.39% FedEx Corp. 3,870,000 261,225 AIRLINES - 0.24% Delta Air Lines, Inc. 942,100 11,126 Southwest Airlines Co. 9,000,000 145,260 ROAD & RAIL - 0.44% Burlington Northern Santa Fe Corp. 8,300,000 268,505 Norfolk Southern Corp. 1,211,200 28,645 714,761 AUTOMOBILES & COMPONENTS AUTO COMPONENTS - 0.23% Delphi Corp. 15,000,000 153,150 AUTOMOBILES - 1.61% Ford Motor Co. 2,500,000 40,000 General Motors Corp. 15,450,000 825,030 Honda Motor Co., Ltd. 1,825,000 80,877 Toyota Motor Corp. 3,750,000 126,385 1,225,442 CONSUMER DURABLES & APPAREL HOUSEHOLD DURABLES - 0.07% Newell Rubbermaid Inc. 2,000,000 45,540 TEXTILES, APPAREL & LUXURY GOODS - 0.01% NIKE, Inc., Class B 127,700 8,742 54,282 HOTELS, RESTAURANTS & LEISURE HOTELS, RESTAURANTS & LEISURE - 0.60% Carnival Corp., units 8,997,100 357,455 McDonald's Corp. 1,600,000 39,728 397,183 MEDIA MEDIA - 3.76% Antena 3 Television, SA (1) 28,517 1,251 Comcast Corp., Class A (1) 11,345,800 372,936 Comcast Corp., Class A, special nonvoting stock (1) 3,000,000 93,840 Dow Jones & Co., Inc. 1,887,000 94,067 Hughes Electronics Corp. (1) 1,811,075 29,973 Interpublic Group of Companies, Inc. (1) 10,975,000 171,210 Knight-Ridder, Inc. 550,500 42,592 Liberty Media Corp., Class A (1) 16,280,000 193,569 News Corp. Ltd., preferred (ADR) 202,563 6,128 Time Warner Inc. (formerly AOL Time Warner Inc.) (1) 63,800,000 1,147,762 Viacom Inc., Class A 600,000 26,562 Viacom Inc., Class B, nonvoting 7,300,000 323,974 2,503,864 RETAILING INTERNET & CATALOG RETAIL - 0.13% eBay Inc. (1) 1,300,000 83,967 MULTILINE RETAIL - 1.66% Dollar General Corp. 2,750,000 57,722 Kohl's Corp. (1) 3,000,000 134,820 May Department Stores Co. 4,800,000 139,536 Target Corp. 20,100,000 771,840 SPECIALTY RETAIL - 2.26% Limited Brands, Inc. 20,749,400 374,112 Lowe's Companies, Inc. 20,368,300 1,128,200 2,690,197 FOOD & STAPLES RETAILING FOOD & STAPLES RETAILING - 0.51% Albertson's, Inc. 2,726,500 61,755 Walgreen Co. 7,595,000 276,306 338,061 FOOD, BEVERAGE & TOBACCO BEVERAGES & TOBACCO - 6.29% Altria Group, Inc. 56,000,000 3,047,520 Anheuser-Busch Companies, Inc. 3,250,000 171,210 Coca-Cola Co. 3,750,000 190,312 PepsiCo, Inc. 9,600,000 447,552 R.J. Reynolds Tobacco Holdings, Inc. (2) 4,461,666 259,446 UST Inc. 2,000,000 71,380 FOOD PRODUCTS - 2.29% General Mills, Inc. 6,035,000 273,385 H.J. Heinz Co. 7,950,000 289,619 Sara Lee Corp. 9,816,100 213,108 Unilever NV (New York registered) 11,500,000 746,350 5,709,882 HOUSEHOLD & PERSONAL PRODUCTS HOUSEHOLD PRODUCTS - 0.04% Kimberly-Clark Corp. 500,000 29,545 PERSONAL PRODUCTS - 0.47% Avon Products, Inc. 4,635,000 312,816 342,361 HEALTH CARE EQUIPMENT & SERVICES HEALTH CARE EQUIPMENT & SUPPLIES - 0.25% Applera Corp. - Applied Biosystems Group 5,170,500 107,081 Becton, Dickinson and Co. 1,500,000 61,710 HEALTH CARE PROVIDERS & SERVICES - 0.87% Aetna Inc. 2,000,000 135,160 CIGNA Corp. 1,700,000 97,750 HCA Inc. 8,020,000 344,539 746,240 PHARMACEUTICALS & BIOTECHNOLOGY PHARMACEUTICALS - 4.98% Abbott Laboratories 1,500,000 69,900 AstraZeneca PLC (Sweden) 6,127,000 298,055 AstraZeneca PLC (United Kingdom) 5,800,900 277,255 AstraZeneca PLC (ADR) 5,444,200 263,390 Bristol-Myers Squibb Co. 21,657,600 619,407 Eli Lilly and Co. 13,510,000 950,158 Merck & Co., Inc. 2,200,000 101,640 Novartis AG 1,000,000 45,220 Novartis AG (ADR) 256,556 11,773 Pfizer Inc 13,772,480 486,582 Schering-Plough Corp. 3,611,300 62,801 Wyeth 3,000,000 127,350 3,313,531 BANKS COMMERCIAL BANKS - 3.93% Bank of America Corp. 10,228,240 822,657 BANK ONE CORP. 2,035,000 92,776 FleetBoston Financial Corp. 15,436,300 673,794 HSBC Holdings PLC 29,678,750 464,717 HSBC Holdings PLC (ADR) 1,070,000 84,337 Wachovia Corp. 529,400 24,665 Wells Fargo & Co. 7,630,000 449,331 THRIFTS & MORTGAGE FINANCE - 2.47% Fannie Mae 17,860,000 1,340,572 Freddie Mac 3,150,000 183,708 Washington Mutual, Inc. 3,000,000 120,360 4,256,917 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIAL SERVICES - 0.11% Citigroup Inc. 1,500,000 72,810 CAPITAL MARKETS - 1.21% J.P. Morgan Chase & Co. 21,900,000 804,387 CONSUMER FINANCE - 0.56% Capital One Financial Corp. 3,000,000 183,870 Capital One Financial Corp. 6.25% Upper DECS 2005 1,450,000 units 69,513 MBNA Corp. 4,800,000 119,280 1,249,860 INSURANCE INSURANCE - 3.53% Allstate Corp. 10,493,300 451,422 American International Group, Inc. 10,663,900 706,803 Aon Corp. 2,183,800 52,280 Chubb Corp. 5,075,000 345,608 Chubb Corp. 7.00% convertible preferred 2005 1,400,000 units 39,984 Hartford Financial Services Group, Inc. 2,700,000 159,381 Lincoln National Corp. 1,700,000 68,629 SAFECO Corp. 3,650,000 142,095 St. Paul Companies, Inc. 3,300,000 130,845 XL Capital Ltd., Class A 3,250,000 252,038 2,349,085 SOFTWARE & SERVICES IT SERVICES - 1.05% Automatic Data Processing, Inc. 5,475,000 216,865 Computer Sciences Corp. (1) 1,440,300 63,704 Electronic Data Systems Corp. 11,350,000 278,529 Sabre Holdings Corp., Class A 6,009,680 129,749 SOFTWARE - 0.82% Microsoft Corp. 19,880,000 547,495 1,236,342 TECHNOLOGY HARDWARE & EQUIPMENT COMMUNICATIONS EQUIPMENT - 1.36% Cisco Systems, Inc. (1) 28,800,000 699,552 Motorola, Inc. 5,500,000 77,385 Motorola, Inc. 7.00% convertible preferred 2004 2,400,000 units 104,232 Nokia Corp. (ADR) 1,500,000 25,500 COMPUTERS & PERIPHERALS - 2.42% EMC Corp. (1) 3,500,000 45,220 Hewlett-Packard Co. 23,850,000 547,835 International Business Machines Corp. 7,095,000 657,565 Sun Microsystems, Inc. (1) 79,500,000 356,955 ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.02% Agilent Technologies, Inc. (1) 6,000,000 175,440 Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) $ 6,655,000 7,304 Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) (4) $ 4,445,000 4,878 Hitachi, Ltd. 23,000,000 138,330 Sanmina-SCI Corp. (1) 11,850,000 149,429 Solectron Corp. (1) 23,500,000 138,885 Solectron Corp. 7.25% ACES convertible preferred 2004 4,000,000 units 66,720 3,195,230 SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.53% Altera Corp. (1) 2,250,000 51,075 Applied Materials, Inc. (1) 11,750,000 263,788 Intel Corp. 2,140,000 68,908 KLA-Tencor Corp. (1) 1,325,000 77,738 Linear Technology Corp. 4,965,700 208,907 Maxim Integrated Products, Inc. 2,528,200 125,904 Micron Technology, Inc. (1) 12,500,000 168,375 Samsung Electronics Co., Ltd. 485,000 183,657 Taiwan Semiconductor Manufacturing Co. Ltd. (1) 115,500,000 216,286 Texas Instruments Inc. 29,067,700 854,009 Xilinx, Inc. (1) 3,250,000 125,905 2,344,552 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 5.20% ALLTEL Corp. 3,500,000 163,030 ALLTEL Corp. 7.75% 2005 500,000 units 24,850 AT&T Corp. 17,897,500 363,319 BT Group PLC 35,000,000 117,504 Deutsche Telekom AG (1) 15,046,000 274,032 SBC Communications Inc. 45,450,000 1,184,882 Sprint Corp. - FON Group 29,635,000 486,607 Telefonica, SA (1) 16,794,261 245,373 Telefonos de Mexico, SA de CV, Class L (ADR) 3,000,000 99,090 Verizon Communications Inc. 14,250,000 499,890 WIRELESS TELECOMMUNICATION SERVICES - 1.27% AT&T Wireless Services, Inc. (1) 58,541,000 467,743 Sprint Corp. 7.125% convertible preferred 2004 5,400,000 units 38,340 Vodafone Group PLC 40,000,000 98,800 Vodafone Group PLC (ADR) 9,500,000 237,880 4,301,340 UTILITIES ELECTRIC UTILITIES - 1.48% Ameren Corp. 2,307,000 106,122 American Electric Power Co., Inc. 5,544,200 169,154 Dominion Resources, Inc. 7,131,912 455,230 FPL Group, Inc. 1,000,000 65,420 Southern Co. 4,386,500 132,692 TXU Corp. 2,400,000 56,928 MULTI-UTILITIES & UNREGULATED POWER - 1.20% Duke Energy Corp. 24,075,000 492,334 El Paso Corp. 7,194,000 58,919 Public Service Enterprise Group Inc. 5,000,000 219,000 Williams Companies, Inc. 9.00% FELINE PACS convertible preferred 2005 2,000,000 units 26,220 1,782,019 MISCELLANEOUS - 1.39% Other equity securities in initial period of acquisition 923,861 TOTAL EQUITY SECURITIES (cost: $39,638,406,000) 54,892,751 Principal amount Market value CORPORATE BONDS & NOTES - 1.68% (000) (000) AUTOMOBILES & COMPONENTS AUTOMOBILES - 0.08% General Motors Acceptance Corp. 6.875% 2011 $ 50,000 53,937 MEDIA MEDIA - 0.03% AOL Time Warner Inc. 5.625% 2005 21,045 22,038 TELECOMMUNICATION SERVICES TELECOMMUNICATION SERVICES - 1.33% AT&T Corp.: (3) 6.50% 2006 (4) Euro 9,815 13,213 7.00% 2006 $ 80,065 88,608 7.80% 2011 247,575 285,463 Deutsche Telekom International Finance BV 8.125% 2012 (3) Euro 30,000 46,281 Sprint Capital Corp.: 7.90% 2005 $ 202,710 216,015 8.375% 2012 197,500 231,106 WIRELESS TELECOMMUNICATION SERVICES - 0.22% AT&T Wireless Services, Inc.: 7.35% 2006 26,250 28,722 7.50% 2007 74,500 83,591 8.125% 2012 30,000 35,344 1,028,343 UTILITIES MULTI-UTILITIES & UNREGULATED POWER - 0.02% Williams Companies, Inc. 6.625% 2004 3,550 3,657 Williams Holdings of Delaware, Inc. 6.50% 2008 11,000 11,426 15,083 TOTAL CORPORATE BONDS & NOTES (cost: $932,396,000) 1,119,401 U.S. TREASURY & AGENCY OBLIGATIONS - 4.62% FEDERAL AGENCY PASS-THROUGH OBLIGATIONS - 1.86% Fannie Mae: (5) 6.00% 2017 564,253 594,431 6.50% 2017 563,782 599,535 6.50% 2032 43,977 46,077 NON-PASS-THROUGH OBLIGATIONS - 0.16% Fannie Mae: 5.25% 2007 99,000 106,458 1,346,501 U.S. TREASURY NOTES AND BONDS U.S. TREASURY NOTES & BONDS - 2.60% 3.00% February 2004 600,000 601,968 1.875% September 2004 565,000 568,175 1.50% February 2005 555,000 556,299 1,726,442 TOTAL U.S. TREASURY & AGENCY OBLIGATIONS (cost: $3,002,029,000) 3,072,943 Principal amount Market value SHORT-TERM SECURITIES - 10.96% (000) (000) U.S. TREASURIES - 5.88% U.S. Treasury Bills 0.840%-1.035% due 1/2-6/24/2004 3,920,433 3,912,880 CORPORATE SHORT-TERM NOTES - 3.66% Abbott Laboratories Inc. 1.00% due 1/6-1/13/2004 (4) 25,000 24,992 AIG Funding, Inc. 1.01%-1.02% due 1/9/2004 20,000 19,995 American General Finance Corp. 1.04%-1.06% due 1/12-2/18/2004 77,000 76,943 American Express Credit Corp. 1.04%-1.06% due 2/2-2/25/2004 120,000 119,840 Anheuser-Busch Cos. Inc. 1.00% due 2/6-3/12/2004 (4) 54,400 54,328 Archer Daniels Midland Co. 1.08% due 1/20/2004 (4) 28,500 28,483 Bank of America Corp. 1.09%-1.10% due 3/15-4/13/2004 146,700 146,302 BellSouth Corp. 1.01%-1.03% due 1/6-1/21/2004 (4) 100,000 99,968 Caterpillar Financial Serivces Corp. 1.02%-1.03% due 1/20-3/18/2004 50,000 49,907 ChevronTexaco Corp. 1.01% due 1/7/2004 21,000 20,996 Citicorp 1.04%-1.07% due 1/9-2/24/2004 145,000 144,847 Clorox Co. 1.01%-1.02% due 1/16-1/29/2004 64,670 64,625 Coca-Cola Co. 1.02%-1.03% due 1/5-3/5/2004 150,000 149,895 E.I. DuPont de Nemours & Co. 1.03%-1.05% due 1/23-3/2/2004 130,300 130,144 Exxon Asset Management Co. 1.00% due 1/8/2004 (4) 50,000 49,989 Exxon Project Investment Corp. 1.00% due 1/20-1/21/2004 (4) 44,000 43,975 Gannett Co. 1.02%-1.06% due 1/8-1/23/2004 (4) 121,295 121,250 General Electric Capital Services, Inc. 1.08%-1.09% due 1/21-3/10/2004 130,000 129,853 Harley-Davidson Funding Corp. 1.02% due 1/26-2/13/2004 (4) 25,000 24,973 Household Finance Corp. 1.07%-1.08% due 1/14-2/9/2004 130,000 129,904 IBM Credit Corp. 1.00%-1.02% due 1/9-1/16/2004 100,000 99,964 Johnson & Johnson 1.00% due 1/9-1/29/2004 (4) 61,000 60,962 J.P. Morgan Chase & Co. 1.07%-1.08% due 2/2-2/3/2004 80,000 79,919 Kimberly-Clark Worldwide Inc. 1.00% due 1/23-2/13/2004 (4) 54,000 53,944 Medtronic Inc. 1.01%-1.02% due 1/27-1/28/2004 (4) 30,000 29,976 Merck & Co. Inc. 1.01%-1.02% due 1/15-1/23/2004 55,000 54,967 Minnesota Mining and Manufacturing Co. 1.02% due 1/22/2004 25,000 24,984 Pfizer Inc 1.01%-1.05% due 1/5-1/29/2004 (4) 150,417 150,356 Procter & Gamble Co. 1.01%-1.05% due 1/16-2/9/2004 (4) 145,000 144,910 SBC International Inc. 1.02%-1.04% due 1/13-2/10/2004 (4) 46,695 46,647 United Parcel Service Inc. 0.93% due 1/30/2004 20,800 20,781 Verizon Network Funding Corp. 1.03% due 2/11-2/20/2004 35,000 34,954 FEDERAL AGENCY DISCOUNT NOTES - 1.04% Fannie Mae 0.99%-1.04% due 1/6-2/2/2004 91,200 91,149 Federal Farm Credit Banks 1.00%-1.08% due 2/20-5/14/2004 150,000 149,706 Federal Home Loan Bank 1.01%-1.04% due 1/7-1/22/2004 71,507 71,484 Freddie Mac 1.03% due 1/15/2004 25,000 24,989 International Bank for Reconstruction and Development 0.97%-1.01% 250,800 250,618 due 1/13-2/6/2004 Student Loan Marketing Assn. 1.01% due 1/7/2004 40,000 39,992 Student Loan Marketing Assn. 1.00% due 1/13-5/20/2004 28,700 28,690 Student Loan Marketing Assn. 0.963%-1.001% due 5/20-6/17/2004 (3) 35,000 34,965 CERTIFICATES OF DEPOSIT - 0.38% BANK ONE CORP. 1.03% due 1/26/2004 50,000 49,999 State Street Bank & Trust 1.05% due 2/17/2004 50,000 49,999 Wells Fargo & Co. 1.04%-1.06% due 1/13-3/30/2004 150,000 149,997 TOTAL SHORT-TERM SECURITIES (cost: $7,287,349,000) 7,288,041 TOTAL INVESTMENT SECURITIES (cost: $50,860,180,000) 66,373,136 NEW TAIWANESE DOLLAR (cost: $7,289,000) NT$250,707 7,393 OTHER ASSETS LESS LIABILITIES 153,565 NET ASSETS $66,534,094
(1) Security did not produce income during the last 12 months. (2) The fund owns 5.27% 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) Coupon rate may change periodically. (4) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. (5) Pass-through securities backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturities are shorter than the stated maturities. ADR = American Depositary Receipts See Notes to Financial Statements EQUITY SECURITIES APPEARING IN THE PORTFOLIO SINCE JUNE 30, 2003 Alcan Antena 3 Television BT Group Chubb Citigroup Cooper Industries Delphi Freddie Mac General Dynamics Hitachi Hughes Electronics Inco Lockheed Martin News Corp. Public Service Enterprise Group Telefonica Toyota Motor EQUITY SECURITIES ELIMINATED FROM THE PORTFOLIO SINCE JUNE 30, 2003 Cendant Concord EFS Consolidated Edison Dell Eastman Kodak LSI Logic Sallie Mae FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (dollars and shares in thousands, at December 31, 2003 except per-share amounts) ASSETS: Investment securities at market: Unaffiliated issuers (cost: $50,723,529) $66,113,690 Affiliated issuer (cost: $136,651) 259,446 $66,373,136 Cash denominated in non-U.S. currencies (cost: $7,289) 7,393 Cash 194 Receivables for: Sales of fund's shares 108,923 Dividends and interest 153,231 262,154 66,642,877 LIABILITIES: Payables for: Purchases of investments 17,875 Repurchases of fund's shares 55,109 Investment advisory services 13,298 Services provided by affiliates 19,733 Deferred Directors' and Advisory Board compensation 2,457 Other fees and expenses 311 108,783 NET ASSETS AT DECEMBER 31, 2003 $66,534,094 NET ASSETS CONSIST OF: Capital paid in on shares of capital stock $50,826,322 Undistributed net investment income 195,455 Distributions in excess of net realized gain (1,047) Net unrealized appreciation 15,513,364 NET ASSETS AT DECEMBER 31, 2003 $66,534,094
Authorized shares of capital stock - Net Shares Net asset value $.001 par value assets outstanding per share(1) Class A 2,500,000 $58,353,415 2,023,474 $28.84 Class B 250,000 3,010,555 104,738 28.74 Class C 250,000 1,984,779 69,155 28.70 Class F 250,000 897,109 31,136 28.81 Class 529-A 325,000 379,858 13,180 28.82 Class 529-B 75,000 100,019 3,476 28.78 Class 529-C 150,000 114,807 3,989 28.78 Class 529-E 75,000 16,217 563 28.78 Class 529-F 75,000 2,781 97 28.81 Class R-1 75,000 14,155 492 28.77 Class R-2 100,000 187,782 6,526 28.77 Class R-3 300,000 230,908 8,017 28.80 Class R-4 75,000 40,287 1,398 28.82 Class R-5 150,000 1,201,422 41,664 28.84
(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 $30.60 and $30.58, respectively. See Notes to Financial Statements STATEMENT OF OPERATIONS for the year ended December 31, 2003 (dollars in thousands) INVESTMENT INCOME: Income: Dividends (net of non-U.S. withholding tax of $13,173; also includes $16,954 from affiliate) $1,092,138 Interest (net of non-U.S. withholding tax of $5) 409,338 $1,501,476 Fees and expenses: Investment advisory services 134,807 Distribution services 156,293 Transfer agent services 47,349 Administrative services 6,111 Reports to shareholders 3,590 Registration statement and prospectus 1,336 Postage, stationery and supplies 6,148 Directors' and Advisory Board compensation 1,085 Auditing and legal 164 Custodian 1,744 State and local taxes 533 Other 222 Total expenses before reimbursement 359,382 Reimbursement of expenses 345 359,037 Net investment income 1,142,439 NET REALIZED GAIN AND UNREALIZED APPRECIATION ON INVESTMENTS AND NON-U.S. CURRENCY: Net realized gain (loss) on: Investments 503,438 Non-U.S. currency transactions (3,185) 500,253 Net unrealized appreciation on: Investments 11,791,706 Non-U.S. currency translations 135 11,791,841 Net realized gain and unrealized appreciation on investments and non-U.S. currency 12,292,094 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,434,533 STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands) Year ended December 31 2003 2002 OPERATIONS: Net investment income $1,142,439 $991,657 Net realized gain on investments and non-U.S. currency transactions 500,253 836,731 Net unrealized appreciation (depreciation) on investments and non-U.S. currency translations 11,791,841 (10,409,465) Net increase (decrease) in net assets resulting from operations 13,434,533 (8,581,077) DIVIDENDS AND DISTRIBUTIONS PAID TO SHAREHOLDERS: Dividends from net investment income (1,107,178) (1,050,322) Distributions from net realized gain on investments (477,739) (948,702) Total dividends and distributions paid to shareholders (1,584,917) (1,999,024) CAPITAL SHARE TRANSACTIONS 4,923,852 4,053,315 TOTAL INCREASE (DECREASE) IN NET ASSETS 16,773,468 (6,526,786) NET ASSETS: Beginning of year 49,760,626 56,287,412 End of year (including undistributed net investment income: $195,455 and $161,948, respectively) $66,534,094 $49,760,626
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 (except 1% for None certain redemptions within one year of purchase without an initial sales charge) --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to for redemptions within classes A and 529-A, six years of purchase respectively, after 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 official closing price of, or 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. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities are valued at prices obtained from an independent pricing service, when such prices are available. However, where the investment adviser deems it appropriate, 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. 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 fair valued as determined in good faith by authority of the fund's Board of Directors. Various factors may be reviewed in order to make a good faith determination of a security's fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions. 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. SECURITIES LENDING - The fund may lend portfolio securities from time to time in order to earn additional income; however, it does not currently intend to engage in an ongoing or regular securities lending program. When the fund lends securities, it receives collateral in an amount not less than 100% of the market value of the loaned securities throughout the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered on the next business day. If the borrower defaults on its obligation to return the securities loaned, the fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Income earned is included in interest income in the accompanying financial statements. There were no securities on loan as of December 31, 2003. 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; short-term capital gains and losses; deferred expenses; 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, 2003, the cost of investment securities and cash denominated in non-U.S. currencies, for federal income tax purposes was $50,864,147,000. During the year ended December 31, 2003, the fund reclassified $1,754,000 from undistributed net investment income to undistributed net realized gains; and reclassified $23,558,000 from undistributed net realized gains to additional paid-in capital to align financial reporting with tax reporting. As of December 31, 2003, the components of distributable earnings on a tax basis were as follows: (dollars in thousands) Undistributed net investment income and currency gains $ 197,913 Gross unrealized appreciation on investment securities 16,470,459 Gross unrealized depreciation on investment securities (954,077)
The tax character of distributions paid to shareholders was as follows (dollars in thousands): YEAR ENDED DECEMBER 31, 2003 Distributions from Distributions from Total ordinary income long-term capital gains distributions paid Share class Class A $ 1,028,846 $ 419,520 $ 1,448,366 Class B 29,917 21,573 51,490 Class C 17,389 14,109 31,498 Class F 12,101 6,330 18,431 Class 529-A 5,082 2,625 7,707 Class 529-B 751 702 1,453 Class 529-C 843 794 1,637 Class 529-E 175 113 288 Class 529-F 26 18 44 Class R-1 106 100 206 Class R-2 1,323 1,334 2,657 Class R-3 1,981 1,596 3,577 Class R-4 493 294 787 Class R-5 8,145 8,631 16,776 Total $ 1,107,178 $ 477,739 $ 1,584,917 YEAR ENDED DECEMBER 31, 2002(1) Distributions from Distributions from Total ordinary income long-term capital gains distribution Share class 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 1,613 2,082 3,695 Class 529-B 269 555 824 Class 529-C 303 611 914 Class 529-E 47 74 121 Class 529-F 2 4 6 Class R-1 5 15 20 Class R-2 114 321 435 Class R-3 112 309 421 Class R-4 46 112 158 Class R-5 741 699 1,440 Total $ 1,050,322 $ 948,702 $ 1,999,024
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered beginning May 15, 2002. 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, Inc. ("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, 2003, the investment advisory services fee was $134,807,000, which was equivalent to an annualized rate of 0.245% 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 average daily net assets 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, 2003, there were no unreimbursed expenses subject to reimbursement for classes A or 529-A. TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with AFS for classes A and B. 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 services 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. Although these amounts are included with administrative services fees in the accompanying financial statements, the Commonwealth of Virginia is not considered a related party. Administrative services fees are presented gross of any payments made by CRMC. Expenses under the agreements described above for the year ended December 31, 2003, were as follows (dollars in thousands): -------------------------------------------------------------------------------------------------------------- Share class Distribution Transfer agent Administrative services services services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- CRMC Transfer agent Commonwealth of administrative services Virginia services administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class A $115,045 $44,840 Not applicable Not applicable Not applicable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class B 22,876 2,509 Not applicable Not applicable Not applicable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class C 13,761 Included $2,064 $426 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class F 1,490 Included 894 127 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-A 241 Included 363 36 $ 242 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-B 655 Included 98 37 66 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-C 723 Included 108 31 72 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-E 51 Included 15 2 10 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-F 3 Included 2 -* 1 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-1 80 Included 12 7 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-2 743 Included 149 599 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-3 566 Included 170 160 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-4 59 Included 36 4 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-5 Not applicable Included 374 6 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Total $156,293 $47,349 $4,285 $1,435 $391 -------------------------------------------------------------------------------------------------------------- * 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 compensation in the accompanying financial statements includes $767,000 in current fees (either paid in cash or deferred) and a net increase of $318,000 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, 2003, the fund had warrants outstanding which may be exercised at any time for the purchase of 821,806 Class A shares at approximately $5.24 per share. If these warrants had been exercised as of December 31, 2003, 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): Reinvestments of Share class Sales(1) dividends and distributions Amount Shares Amount Shares Year ended December 31, 2003 Class A $ 6,429,510 254,074 $ 1,345,897 51,626 Class B 827,539 32,970 49,796 1,889 Class C 799,522 31,497 30,207 1,142 Class F 464,775 18,386 16,747 633 Class 529-A 172,085 6,749 7,706 292 Class 529-B 44,857 1,779 1,453 55 Class 529-C 54,628 2,144 1,637 61 Class 529-E 8,128 322 288 11 Class 529-F 2,042 80 44 2 Class R-1 12,587 509 205 8 Class R-2 169,458 6,780 2,655 99 Class R-3 207,420 8,202 3,564 132 Class R-4 33,326 1,338 786 29 Class R-5 1,051,747 40,574 16,539 600 Total net increase (decrease) $ 10,277,624 405,404 $ 1,477,524 56,579 Year ended December 31, 2002(2) 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 168,803 6,496 3,695 152 Class 529-B 44,496 1,722 824 34 Class 529-C 50,297 1,938 913 38 Class 529-E 6,158 243 121 5 Class 529-F 385 16 6 -* Class R-1 1,100 46 20 1 Class R-2 28,401 1,199 434 18 Class R-3 27,920 1,172 419 17 Class R-4 9,005 390 157 7 Class R-5 57,752 2,155 1,273 52 Total net increase (decrease) $ 9,365,277 357,638 $ 1,855,197 73,448 Share class Repurchases(1) Net increase Amount Shares Amount Shares Year ended December 31, 2003 Class A $ (6,159,887) (246,645) $ 1,615,520 59,055 Class B (215,596) (8,756) 661,739 26,103 Class C (181,857) (7,314) 647,872 25,325 Class F (137,980) (5,568) 343,542 13,451 Class 529-A (9,943) (387) 169,848 6,654 Class 529-B (2,113) (83) 44,197 1,751 Class 529-C (3,569) (138) 52,696 2,067 Class 529-E (346) (13) 8,070 320 Class 529-F (16) (1) 2,070 81 Class R-1 (1,768) (69) 11,024 448 Class R-2 (34,537) (1,371) 137,576 5,508 Class R-3 (34,172) (1,356) 176,812 6,978 Class R-4 (8,547) (346) 25,565 1,021 Class R-5 (40,965) (1,547) 1,027,321 39,627 Total net increase (decrease) $ (6,831,296) (273,594) $ 4,923,852 188,389 Year ended December 31, 2002(2) 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 (2,983) (122) 169,515 6,526 Class 529-B (737) (31) 44,583 1,725 Class 529-C (1,301) (54) 49,909 1,922 Class 529-E (112) (5) 6,167 243 Class 529-F (1) -* 390 16 Class R-1 (77) (3) 1,043 44 Class R-2 (4,693) (199) 24,142 1,018 Class R-3 (3,568) (150) 24,771 1,039 Class R-4 (451) (20) 8,711 377 Class R-5 (4,215) (170) 54,810 2,037 Total net increase (decrease) $ (7,167,159) (284,381) $ 4,053,315 146,705
* 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. Class R-1, R-2, R-3, R-4 and R-5 shares were offered beginning May 15, 2002. 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, 2003, the total value of restricted securities was $952,844,000, which represented 1.43% 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 $13,380,815,000 and $11,676,344,000, respectively, during the year ended December 31, 2003. 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, 2003, the custodian fee of $1,744,000 included $78,000 that was offset by this reduction, rather than paid in cash. FINANCIAL HIGHLIGHTS (1) Income (loss) from investment operations(2) Net Net asset gains(losses) value, Net on securities Total from beginning investment (both realized investment of period income and unrealized) operations Class A: Year ended 12/31/2003 $23.48 $.54 $5.55 $6.09 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 Class B: Year ended 12/31/2003 23.41 .34 5.53 5.87 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 12/31/2003 23.38 .31 5.53 5.84 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 12/31/2003 23.46 .51 5.55 6.06 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: Year ended 12/31/2003 23.48 .52 5.55 6.07 Period from 2/15/2002 to 12/31/2002 27.88 .46 (3.91) (3.45) Class 529-B: Year ended 12/31/2003 23.45 .28 5.54 5.82 Period from 2/15/2002 to 12/31/2002 27.88 .28 (3.92) (3.64) Class 529-C: Year ended 12/31/2003 23.45 .29 5.54 5.83 Period from 2/19/2002 to 12/31/2002 27.47 .28 (3.50) (3.22) Class 529-E: Year ended 12/31/2003 23.45 .42 5.54 5.96 Period from 3/1/2002 to 12/31/2002 28.27 .38 (4.52) (4.14) Class 529-F: Year ended 12/31/2003 23.47 .48 5.55 6.03 Period from 9/16/2002 to 12/31/2002 23.98 .16 (.19) (.03) Class R-1: Year ended 12/31/2003 23.46 .31 5.54 5.85 Period from 6/6/2002 to 12/31/2002 27.27 .20 (3.36) (3.16) Class R-2: Year ended 12/31/2003 23.46 .31 5.54 5.85 Period from 5/21/2002 to 12/31/2002 28.23 .23 (4.34) (4.11) Class R-3: Year ended 12/31/2003 23.47 .41 5.55 5.96 Period from 6/4/2002 to 12/31/2002 27.58 .27 (3.69) (3.42) Class R-4: Year ended 12/31/2003 23.47 .51 5.55 6.06 Period from 5/28/2002 to 12/31/2002 28.22 .32 (4.33) (4.01) Class R-5: Year ended 12/31/2003 23.48 .56 5.59 6.15 Period from 5/15/2002 to 12/31/2002 28.37 .39 (4.50) (4.11) Dividends and distributions Dividends (from net Distributions Total Net asset investment (from capital dividends and value, end income) gains) distributions of period Class A: Year ended 12/31/2003 $(.52) $(.21) $(.73) $28.84 Year ended 12/31/2002 (.52) (.46) (.98) 23.48 Year ended 12/31/2001 (.52) (.59) (1.11) 28.53 Year ended 12/31/2000 (.52) (2.08) (2.60) 31.07 Year ended 12/31/1999 (.51) (3.04) (3.55) 32.46 Class B: Year ended 12/31/2003 (.33) (.21) (.54) 28.74 Year ended 12/31/2002 (.33) (.46) (.79) 23.41 Year ended 12/31/2001 (.31) (.59) (.90) 28.47 Period from 3/15/2000 to 12/31/2000 (.25) (1.68) (1.93) 31.01 Class C: Year ended 12/31/2003 (.31) (.21) (.52) 28.70 Year ended 12/31/2002 (.32) (.46) (.78) 23.38 Period from 3/15/2001 to 12/31/2001 (.21) (.35) (.56) 28.44 Class F: Year ended 12/31/2003 (.50) (.21) (.71) 28.81 Year ended 12/31/2002 (.50) (.46) (.96) 23.46 Period from 3/15/2001 to 12/31/2001 (.37) (.35) (.72) 28.52 Class 529-A: Year ended 12/31/2003 (.52) (.21) (.73) 28.82 Period from 2/15/2002 to 12/31/2002 (.49) (.46) (.95) 23.48 Class 529-B: Year ended 12/31/2003 (.28) (.21) (.49) 28.78 Period from 2/15/2002 to 12/31/2002 (.33) (.46) (.79) 23.45 Class 529-C: Year ended 12/31/2003 (.29) (.21) (.50) 28.78 Period from 2/19/2002 to 12/31/2002 (.34) (.46) (.80) 23.45 Class 529-E: Year ended 12/31/2003 (.42) (.21) (.63) 28.78 Period from 3/1/2002 to 12/31/2002 (.33) (.35) (.68) 23.45 Class 529-F: Year ended 12/31/2003 (.48) (.21) (.69) 28.81 Period from 9/16/2002 to 12/31/2002 (.13) (.35) (.48) 23.47 Class R-1: Year ended 12/31/2003 (.33) (.21) (.54) 28.77 Period from 6/6/2002 to 12/31/2002 (.30) (.35) (.65) 23.46 Class R-2: Year ended 12/31/2003 (.33) (.21) (.54) 28.77 Period from 5/21/2002 to 12/31/2002 (.31) (.35) (.66) 23.46 Class R-3: Year ended 12/31/2003 (.42) (.21) (.63) 28.80 Period from 6/4/2002 to 12/31/2002 (.34) (.35) (.69) 23.47 Class R-4: Year ended 12/31/2003 (.50) (.21) (.71) 28.82 Period from 5/28/2002 to 12/31/2002 (.39) (.35) (.74) 23.47 Class R-5: Year ended 12/31/2003 (.58) (.21) (.79) 28.84 Period from 5/15/2002 to 12/31/2002 (.43) (.35) (.78) 23.48 Ratio of Ratio of Net assets, expenses net income Total end of period to average to average return(3) (in millions) net assets net assets Class A: Year ended 12/31/2003 26.30% $58,353 .59% 2.14% Year ended 12/31/2002 (14.47) 46,129 .59 1.89 Year ended 12/31/2001 (4.59) 54,315 .57 1.49 Year ended 12/31/2000 3.84 56,212 .56 1.74 Year ended 12/31/1999 16.55 56,095 .55 1.54 Class B: Year ended 12/31/2003 25.30 3,011 1.38 1.33 Year ended 12/31/2002 (15.18) 1,841 1.39 1.18 Year ended 12/31/2001 (5.30) 1,302 1.35 .66 Period from 3/15/2000 to 12/31/2000 5.87 439 1.34 (5) 1.06 (5) Class C: Year ended 12/31/2003 25.22 1,985 1.45 1.25 Year ended 12/31/2002 (15.20) 1,025 1.45 1.17 Period from 3/15/2001 to 12/31/2001 (.19) 480 1.52 (5) .38 (5) Class F: Year ended 12/31/2003 26.18 897 .69 2.01 Year ended 12/31/2002 (14.59) 415 .70 1.92 Period from 3/15/2001 to 12/31/2001 .48 190 .72 (5) 1.17 (5) Class 529-A: Year ended 12/31/2003 26.19 380 .64 2.06 Period from 2/15/2002 to 12/31/2002 (12.57) 153 .71 (5) 2.17 (5) Class 529-B: Year ended 12/31/2003 25.05 100 1.58 1.12 Period from 2/15/2002 to 12/31/2002 (13.22) 41 1.58 (5) 1.30 (5) Class 529-C: Year ended 12/31/2003 25.07 115 1.57 1.13 Period from 2/19/2002 to 12/31/2002 (11.91) 45 1.57 (5) 1.32 (5) Class 529-E: Year ended 12/31/2003 25.70 16 1.04 1.65 Period from 3/1/2002 to 12/31/2002 (14.72) 6 1.03 (5) 1.90 (5) Class 529-F: Year ended 12/31/2003 26.05 3 .79 1.88 Period from 9/16/2002 to 12/31/2002 (.14) - (4) .23 .68 Class R-1: Year ended 12/31/2003 25.18 14 1.47 (6) 1.18 Period from 6/6/2002 to 12/31/2002 (11.68) 1 1.47 (5)(6) 1.49 (5) Class R-2: Year ended 12/31/2003 25.18 188 1.43 (6) 1.21 Period from 5/21/2002 to 12/31/2002 (14.64) 24 1.43 (5)(6) 1.61 (5) Class R-3: Year ended 12/31/2003 25.70 231 1.05 (6) 1.60 Period from 6/4/2002 to 12/31/2002 (12.49) 24 1.05 (5)(6) 2.00 (5) Class R-4: Year ended 12/31/2003 26.19 40 .68 (6) 2.00 Period from 5/28/2002 to 12/31/2002 (14.31) 9 .69 (5)(6) 2.25 (5) Class R-5: Year ended 12/31/2003 26.58 1,201 .36 2.11 Period from 5/15/2002 to 12/31/2002 (14.59) 48 .37 (5) 2.56 (5)
Year ended December 31 2003 2002 2001 2000 1999 Portfolio turnover rate for all classes of shares 24% 27% 22% 25% 28%
(1) Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. (2) Year ended 1999 is 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 1.51%, 1.76% and 1.06% for classes R-1, R-2 and R-3, respectively, during the year ended December 31, 2003, and 2.43%, 1.57%, 1.11% and .73% for classes R-1, R-2, R-3 and R-4, respectively, during the period ended December 31, 2002. The expense ratio for class R-4 was not affected by any payments made by CRMC during the year ended December 31, 2003. REPORT OF INDEPENDENT AUDITORS 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, 2003, 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 audits 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Los Angeles, California January 26, 2004 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, 2003, the fund paid a long-term capital gain distribution of $477,739,000. The fund also designated as a capital gain distribution a portion of earnings and profits paid to shareholders in redemption of their shares. As a result of recent tax legislation, individual shareholders are now eligible for reduced tax rates on qualified dividend income received during the year. For purposes of computing the dividends eligible for reduced tax rates, 85% of the dividends paid by the fund from net investment income are considered qualified dividend income. Corporate shareholders may exclude up to 70% of qualifying dividends received during the year. For purposes of computing this exclusion, 82% 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. government 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. government 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 WILL BE MAILED IN JANUARY 2004 TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR 2003 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.