N-CSRS 1 icancsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR Certified Shareholder Report of Registered Management Investment Companies Investment Company Act File Number: 811-116 The Investment Company of America (Exact Name of Registrant as specified in charter) 333 South Hope Street Los Angeles, California 90071 (Address of principal executive offices) Registrant's telephone number, including area code: (213) 486-9200 Date of fiscal year end: December 31, 2005 Date of reporting period: June 30, 2005 Vincent P. Corti Capital Research and Management Company 333 South Hope Street Los Angeles, California 90071 (name and address of agent for service) Copies to: Eric A.S. Richards, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (Counsel for the Registrant) ITEM 1 - Reports to Stockholders [logo - American Funds(R)] The right choice for the long term(R) ICA THE INVESTMENT COMPANY OF AMERICA [front cover - American flags hanging on old downtown office buildings] Semi-annual report for the six months ended June 30, 2005 ICA(SM) seeks long-term growth of capital and income, placing greater emphasis on future dividends than on current income. The Investment Company of America(R) is one of the 29 American Funds. The organization ranks among the nation's three largest mutual fund families. For more than seven decades, Capital Research and Management Company,(SM) the American Funds adviser, has invested with a long-term focus based on thorough research and attention to risk. FIGURES SHOWN ARE PAST RESULTS FOR CLASS A SHARES AND ARE NOT PREDICTIVE OF RESULTS IN FUTURE PERIODS. CURRENT AND FUTURE RESULTS MAY BE LOWER OR HIGHER THAN THOSE SHOWN. SHARE PRICES AND RETURNS WILL VARY, SO INVESTORS MAY LOSE MONEY. INVESTING FOR SHORT PERIODS MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. FOR THE MOST CURRENT INFORMATION AND MONTH-END RESULTS, VISIT AMERICANFUNDS.COM. FUND RESULTS SHOWN, UNLESS OTHERWISE INDICATED, ARE AT NET ASSET VALUE. IF A SALES CHARGE (MAXIMUM 5.75%) HAD BEEN DEDUCTED, THE RESULTS WOULD HAVE BEEN LOWER. Here are the average annual total returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2005: 1 year 5 years 10 years Class A shares Reflecting 5.75% maximum sales charge +1.52% +1.59% +10.71%
The fund's investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005. Fund results shown reflect the waiver, without which they would have been lower. Please see the Financial Highlights table on page 20 for details. The fund's 30-day yield for Class A shares as of July 31, 2005, reflecting the 5.75% maximum sales charge and calculated in accordance with the Securities and Exchange Commission formula, was 1.84%, which reflects a fee waiver (1.82% without the fee waiver). Results for other share classes can be found on page 3. Please see the inside back cover for important information about other share classes. Investments outside the United States involve special risks such as currency fluctuations, political instability, differing securities regulations and periods of illiquidity. Global diversification can help reduce these risks. FELLOW SHAREHOLDERS: [photo of an American flag hanging on old downtown office building] Both the U.S. stock market and the Investment Company of America posted relatively flat returns for the first half of 2005, as strong corporate profit margins were tempered by rising oil prices and an increase in short-term interest rates. For the six months ended June 30, 2005, ICA earned 0.2%, assuming the reinvestment of dividends totaling 26 cents a share paid in March and June. The unmanaged Standard & Poor's 500 Composite Index, which tracks relatively large companies listed primarily on U.S. exchanges, posted a total return of -0.8%. ICA's income return amounted to 0.9%, in line with that of the S&P 500. THE SIX MONTHS IN REVIEW Although six-month returns remained flat, there were strong crosscurrents beneath the surface, including sharp increases in the price of crude oil, the beginnings of a recovery in the U.S. dollar, tensions over trade with China and fears of inflation. In addition, the Federal Reserve Board increased the federal funds rate (the rate banks charge each other for overnight loans) four times throughout the period, from 2.25% to 3.25%. Although short-term interest rates rose as a result, long-term rates unexpectedly remained stable, in part due to inflation remaining lower than anticipated. Perhaps the biggest impact to the portfolio was the increase in oil prices. By the end of June, crude oil prices had hit a new high, surpassing $60 a barrel. The largest beneficiaries of this trend were energy companies, which constitute 10.7% of ICA's overall portfolio. Holdings include "Shell" Transport and Trading, the second-largest position in the portfolio, which increased 13.1% for the period, and Burlington Resources, an independent oil and gas producer, which gained 27.0%. [Begin Sidebar] 2005 RESULTS AT A GLANCE For the six months ended June 30 (with dividends reinvested) Standard & Lipper Poor's 500 Growth & Income ICA Composite Index Funds Average* Income return +0.85% +0.89% n/a Capital return -0.69% -1.70% n/a Total return +0.16% - 0.81% - 0.24%
*Average of 1,264 growth-and-income funds (includes all share classes). Lipper averages do not reflect the effects of sales charges. [End Sidebar] Other sectors of the market, particularly cyclical companies that had previously done well, suffered from a combination of rising oil prices, higher short-term interest rates and concerns about a slowing economy. Such holdings include Alcoa, an aluminum producer, down 16.8%; and MeadWestvaco, a paper manufacturer, down 17.3%. For other industries, special situations dictated results. Insurance companies, for example, enjoyed stronger pricing and stable business costs. Health care companies, particularly hospitals and HMOs, also benefited from greater pricing power. A LONG-TERM PERSPECTIVE As we enter the second half of 2005, we remain cautiously optimistic. The high price of crude oil has raised concerns about inflation, the economy and long-term interest rates, which could cause volatility in the stock market. Although it is impossible to predict short-term market fluctuations, we are confident in our ability to find fundamentally strong companies that we believe will stand the test of time. Our in-depth research process, attention to risk and long-term outlook have helped the fund to hold its value relatively well during periods of declining stock prices and to produce competitive returns during periods of market strength. Over the past 10-year period ended June 30, 2005, ICA has produced an average annual total return of 11.4%, surpassing the 9.9% return of the S&P 500 for the same period. As always, we appreciate your long-term commitment to investing and thank you for your support. Sincerely, /s/ R. Michael Shanahan /s/ James F. Rothenberg R. Michael Shanahan James F. Rothenberg Vice Chairman and President Chief Executive Officer August 8, 2005 Martin Fenton, an independent Director of the fund since 2000, has been elected non-executive chairman of the Board. R. Michael Shanahan, the previous chairman, has been elected vice chairman and will remain as chief executive officer. As independent Board chair pursuant to recently adopted Securities and Exchange Commission regulations, Mr. Fenton will chair Board meetings, including executive sessions of the independent Directors, and will be responsible for Board agendas, but will not have other executive or management responsibilities with the fund. He will remain unaffiliated with Capital Research and Management Company, the fund's investment adviser, and any of its affiliates. For current information about the fund, visit americanfunds.com. OTHER SHARE CLASS RESULTS unaudited Class B, Class C, Class F and Class 529 Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. For the most current information and month-end results, visit americanfunds.com. Average annual total returns for periods ended June 30, 2005: 1 year 5 years Life of class Class B shares Reflecting applicable contingent deferred sales charge (CDSC), maximum of 5%, payable only if shares are sold within six years of purchase +1.84% +1.65% +2.65%(1) Not reflecting CDSC +6.84% +2.00% +2.81%(1) Class C shares Reflecting CDSC, maximum of 1%, payable only if shares are sold within one year of purchase +5.78% -- +3.32%(2) Not reflecting CDSC +6.78% -- +3.32%(2) Class F shares(3) Not reflecting annual asset-based fee charged by sponsoring firm +7.58% -- +4.12%(2) Class 529-A shares(4) Reflecting 5.75% maximum sales charge +1.34% -- +4.00%(5) Not reflecting maximum sales charge +7.53% -- +5.84%(5) Class 529-B shares(4) Reflecting applicable CDSC, maximum of 5%, payable only if shares are sold within six years of purchase +1.64% -- +4.12%(5) Not reflecting CDSC +6.64% -- +4.92%(5) Class 529-C shares(4) Reflecting CDSC, maximum of 1%, payable only if shares are sold within one year of purchase +5.65% -- +5.42%(6) Not reflecting CDSC +6.65% -- +5.42%(6) Class 529-E shares(3,4) +7.19% -- +4.85%(7) Class 529-F shares(3,4) Not reflecting annual asset-based fee charged by sponsoring firm +7.51% -- +12.26%(8)
The fund's investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005. In addition, the fund's principal underwriter also waived fees related to distribution services for Class 529-F. Fund results shown reflect these waivers, without which they would have been lower. Please see the Financial Highlights table on page 20 for details. (1) From March 15, 2000, when Class B shares were first sold. (2) From March 15, 2001, when Class C and Class F shares were first sold. (3) These shares are sold without any initial or contingent deferred sales charge. (4) Results shown do not reflect the $10 initial account set up fee and an annual $10 account maintenance fee. (5) From February 15, 2002, when Class 529-A and Class 529-B shares were first sold. (6) From February 19, 2002, when Class 529-C shares were first sold. (7) From March 1, 2002, when Class 529-E shares were first sold. (8) From September 16, 2002, when Class 529-F shares were first sold. SUMMARY INVESTMENT PORTFOLIO, June 30, 2005 unaudited The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund's principal holdings. For details on how to obtain a complete schedule of portfolio holdings, please see the inside back cover. [begin pie chart] Industry sector diversification (percent of net assets) Financials 11.39 % Industrials 11.18 Energy 10.73 Consumer discretionary 10.03 Consumer staples 9.36 Bonds & notes 1.32 Convertible Securities .20 Cash & equivalents 14.76 Other industries 31.03 [end pie chart] Shares Market Percent value of net Common stocks - 83.72% (000) assets Energy - 10.73% Baker Hughes Inc. 10,875,000 $ 556,365 0.73% Burlington Resources Inc. 16,940,400 935,788 1.24 Chevron Corp. 17,185,000 960,985 1.27 ENI SpA 30,880,000 795,388 1.05 Marathon Oil Corp. 11,050,000 589,738 .78 Royal Dutch Petroleum Co. (New York registered) 17,470,000 1,133,803 "Shell" Transport and Trading Co., PLC 2,900,000 28,196 "Shell" Transport and Trading Co., PLC (ADR) (New York registered) 7,000,000 406,420 2.07 Schlumberger Ltd. 9,350,000 710,039 .94 TOTAL SA 2,505,000 588,300 .78 Other securities 1,415,953 1.87 8,120,975 10.73 Materials - 6.03% Alcoa Inc. 19,326,400 504,999 .67 Dow Chemical Co. 23,232,200 1,034,530 1.37 Other securities 3,023,601 3.99 4,563,130 6.03 Industrials - 11.18% Boeing Co. 13,000,000 858,000 1.13 Caterpillar Inc. 11,191,200 1,066,633 1.41 Deere & Co. 8,200,000 537,018 .71 General Electric Co. 31,250,000 1,082,813 1.43 Tyco International Ltd. 37,630,100 1,098,799 1.45 United Technologies Corp. 10,750,000 552,013 .73 Other securities 3,264,943 4.32 8,460,219 11.18 Consumer discretionary - 10.03% Best Buy Co., Inc. 10,528,200 721,708 .95 General Motors Corp. 12,950,000 440,300 .58 Limited Brands, Inc. 20,749,400 444,452 .59 Lowe's Companies, Inc. 20,568,300 1,197,486 1.58 Target Corp. 20,850,000 1,134,449 1.50 Time Warner Inc. (1) 44,750,000 747,773 .99 Other securities 2,906,252 3.84 7,592,420 10.03 Consumer staples - 9.36% Altria Group, Inc. 55,000,000 3,556,300 4.70 PepsiCo, Inc. 11,200,000 604,016 .80 Other securities 2,922,868 3.86 7,083,184 9.36 Health care - 5.69% AstraZeneca PLC (ADR) 4,534,500 187,093 AstraZeneca PLC (Sweden) 4,609,500 191,563 AstraZeneca PLC (United Kingdom) 5,393,900 223,303 .80 Bristol-Myers Squibb Co. 21,680,300 541,574 .71 Eli Lilly and Co. 9,110,000 507,518 .67 Other securities 2,658,414 3.51 4,309,465 5.69 Financials - 11.39% Allstate Corp. 8,050,000 480,988 .63 American International Group, Inc. 10,463,900 607,953 .80 Citigroup Inc. 13,725,000 634,507 .84 Fannie Mae 22,415,600 1,309,071 1.73 Freddie Mac 3,150,000 205,475 .27 HSBC Holdings PLC (ADR) 1,079,588 85,989 HSBC Holdings PLC (United Kingdom) 27,697,111 441,588 .70 J.P. Morgan Chase & Co. 18,836,200 665,295 .88 Lloyds TSB Group PLC 76,500,000 648,209 .86 Washington Mutual, Inc. 21,500,000 874,835 1.15 Wells Fargo & Co. 7,330,000 451,381 .60 Other securities 2,216,003 2.93 8,621,294 11.39 Information technology - 9.16% Cisco Systems, Inc. (1) 25,728,800 491,677 .65 Hewlett-Packard Co. 33,700,000 792,287 1.05 International Business Machines Corp. 7,295,000 541,289 .71 Microsoft Corp. 42,280,000 1,050,235 1.39 Texas Instruments Inc. 32,320,200 907,228 1.20 Other securities 3,148,292 4.16 6,931,008 9.16 Telecommunication services - 7.06% BellSouth Corp. 30,800,000 818,356 1.08 SBC Communications Inc. 61,450,000 1,459,438 1.93 Sprint Corp. 17,885,000 448,735 .59 Telefonica, SA 29,753,631 486,942 .65 Verizon Communications Inc. 20,800,000 718,640 .95 Vodafone Group PLC 113,500,000 276,521 Vodafone Group PLC (ADR) 22,000,000 535,040 1.07 Other securities 599,630 .79 5,343,302 7.06 Utilities - 2.33% Dominion Resources, Inc. 7,131,912 523,411 .69 Other securities 1,245,308 1.64 1,768,719 2.33 Miscellaneous - 0.76% Other common stocks in initial period of acquisition 575,177 .76 Total common stocks (cost: $45,685,559,000) 63,368,893 83.72 Shares Market Percent value of net Convertible securities - 0.20% (000) assets Financials - 0.18% Fannie Mae 5.375% convertible preferred 2049 970 94,284 .12 Other securities 44,422 .06 138,706 .18 Other - 0.02% 11,003 .02 Total convertible securities (cost: $136,658,000) 149,709 .20 Principal Market Percent amount value of net Bonds & notes - 1.32% (000) (000) assets Consumer discretionary - 0.33% General Motors Acceptance Corp. 6.875%-7.25% 2011-2012 $ 168,757 156,766 General Motors Corp. 7.125%-7.20% 2011-2013 103,393 95,387 .33 252,153 .33 Telecommunication services - 0.39% SBC Communications Inc. 4.125%-5.10% 2009-2014 240,000 242,039 .32 Other securities 52,983 .07 295,022 .39 Mortgage-backed obligations - 0.60% (2) Fannie Mae 6.00%-6.50% 2017 437,349 453,650 .60 Total bonds & notes (cost: $964,792,000) 1,000,825 1.32 Principal Market Percent amount value of net Short-term securities - 14.63% (000) (000) assets BellSouth Corp. 3.00%-3.09% due 7/8-7/15/2005 (3) 128,000 127,850 .17 CAFCO, LLC 3.03%-3.32% due 7/11-9/12/2005 (3) 259,200 258,451 Citicorp 3.07% due 7/21/2005 35,000 34,940 .39 ChevronTexaco Funding Corp. 3.03%-3.05% due 7/13-7/22/2005 121,100 120,925 .16 Edison Asset Securitization LLC 3.11%-3.32% due 8/1-9/12/2005 (3) 136,802 136,249 General Electric Capital Corp. 3.04% due 7/12-7/13/2005 94,700 94,602 General Electric Capital Services, Inc. 3.03% due 7/11/2005 50,000 49,954 .37 Fannie Mae 3.21% due 8/10/2005 54,613 54,413 .07 Federal Home Loan Bank 2.92%-3.36% due 7/1-9/30/2005 1,603,302 1,595,040 2.11 Freddie Mac 2.93%-3.19% due 7/1-9/15/2005 942,579 939,910 1.24 Hewlett-Packard Co. 3.10%-3.26% due 7/25-7/29/2005 (3) 275,000 274,358 .36 New Center Asset Trust Plus 3.06%-3.25% due 7/6-7/29/2005 75,000 74,857 .10 Park Avenue Receivables Co., LLC 3.07%-3.27% due 7/8-8/18/2005 (3) 155,694 155,256 Preferred Receivables Funding Corp. 3.14%-3.34% due 7/18-9/20/2005 (3) 125,000 124,494 .37 PepsiCo Inc. 3.01%-3.22% due 7/6-8/2/2005 (3) 201,300 200,924 .27 SBC Communications Inc. 3.08%-3.11% due 7/8-7/19/2005 (3) 100,200 100,073 .13 U.S. Treasury Bills 2.695%-3.066% due 7/7-9/29/2005 1,394,350 1,390,251 1.84 Verizon Network Funding Corp. 3.08%-3.33% due 7/6-8/29/2005 121,000 120,650 .16 Other securities 5,218,526 6.89 Total short-term securities (cost: $11,071,776,000) 11,071,723 14.63 Total investment securities (cost: $57,858,785,000) 75,591,150 99.87 Other assets less liabilities 97,751 .13 Net assets $75,688,901 100.00%
"Miscellaneous" securities include holdings in their initial period of acquisition that have not previously been publicly disclosed. "Other securities" includes all issues that are not disclosed separately in the summary investment portfolio. INVESTMENTS IN AFFILIATES A company is considered to be an affiliate of the fund under the Investment Company Act of 1940 if the fund's holdings in that company represent 5% or more of the outstanding voting shares of that company. Further details on these holdings and related transactions during the six months ended June 30, 2005, appear below. Market value Dividend of affiliates Company Beginning Purchases Sales Ending income at 6/30/2005 shares shares (000) (000) Limited Brands, Inc. 20,749,400 - - 20,749,400 $6,225 $444,452
(1) Security did not produce income during the last 12 months. (2) 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. (3) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. The total value of all such restricted securities, including those in "Other securities" in the summary investment portfolio, was $4,095,945,000, which represented 5.41% of the net assets of the fund. ADR = American Depositary Receipts See Notes to Financial Statements FINANCIAL STATEMENTS Statement of assets and liabilities unaudited at June 30, 2005 (dollars and shares in thousands, except per-share amounts) Assets: Investment securities at market: Unaffiliated issuers (cost: $57,601,605) $75,146,698 Affiliated issuers (cost: $257,180) 444,452 $75,591,150 Cash denominated in non-U.S. currencies (cost: $8,728) 9,426 Cash 28,478 Receivables for: Sales of investments 82,009 Sales of fund's shares 67,155 Dividends and interest 154,714 303,878 75,932,932 Liabilities: Payables for: Purchases of investments 141,575 Repurchases of fund's shares 60,431 Investment advisory services 13,502 Services provided by affiliates 24,764 Deferred Directors' and Advisory Board compensation 3,279 Other fees and expenses 480 244,031 Net assets at June 30, 2005 $75,688,901 Net assets consist of: Capital paid in on shares of capital stock $55,939,869 Undistributed net investment income 561,210 Undistributed net realized gain 1,455,008 Net unrealized appreciation 17,732,814 Net assets at June 30, 2005 $75,688,901
Authorized shares of capital stock - $.001 par value Net assets Shares outstanding Net asset value per share (1) Class A 2,500,000 $64,225,205 2,103,177 $30.54 Class B 250,000 3,687,412 121,186 30.43 Class C 250,000 2,762,640 90,946 30.38 Class F 250,000 1,238,297 40,591 30.51 Class 529-A 325,000 712,742 23,359 30.51 Class 529-B 75,000 169,003 5,549 30.46 Class 529-C 150,000 212,732 6,983 30.46 Class 529-E 75,000 30,739 1,009 30.47 Class 529-F 75,000 6,263 205 30.50 Class R-1 75,000 27,660 909 30.44 Class R-2 100,000 414,130 13,600 30.45 Class R-3 300,000 577,396 18,937 30.49 Class R-4 75,000 198,180 6,495 30.51 Class R-5 150,000 1,426,502 46,717 30.53 Total 4,650,000 $ 75,688,901 2,479,663
(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 $32.40 and $32.37, respectively. See Notes to Financial Statements Statement of operations unaudited for the six months ended June 30, 2005 (dollars in thousands) Investment income: Income: Dividends (net of non-U.S. withholding tax of $20,172; also includes $6,225 from affiliates) $822,124 Interest (net of non-U.S. withholding tax of $1) 188,558 $1,010,682 Fees and expenses: Investment advisory services 89,296 Distribution services 110,653 Transfer agent services 28,282 Administrative services 7,138 Reports to shareholders 1,632 Registration statement and prospectus 1,440 Postage, stationery and supplies 4,196 Directors' and Advisory Board compensation 471 Auditing and legal 121 Custodian 1,201 State and local taxes 668 Other 186 Total expenses before reimbursements/waivers 245,284 Less reimbursement/waiver of expenses: Investment advisory services 6,691 Distribution services 2 Administrative services 306 Total expenses after reimbursement/waiver of expenses 238,285 Net investment income 772,397 Net realized gain and unrealized depreciation on investments and non-U.S. currency: Net realized gain (loss) on: Investments 1,458,378 Non-U.S. currency transactions (1,582) 1,456,796 Net unrealized depreciation on: Investments (2,150,455) Non-U.S. currency translations (308) (2,150,763) Net realized gain and unrealized depreciation on investments and non-U.S. currency (693,967) Net increase in net assets resulting from operations $78,430 See Notes to Financial Statements Statements of changes in net assets (dollars in thousands) Six months Year ended ended June 30, December 31, 2005* 2004 Operations: Net investment income $772,397 $1,392,244 Net realized gain on investments and non-U.S. currency transactions 1,456,796 918,377 Net unrealized (depreciation) appreciation on investments and non-U.S. currency translations (2,150,763) 4,370,213 Net increase in net assets resulting from operations 78,430 6,680,834 Dividends and distributions paid to shareholders: Dividends from net investment income and non-U.S. currency gains (612,361) (1,194,353) Distributions from net realized gain on investments - (863,164) Total dividends and distributions paid to shareholders (612,361) (2,057,517) Capital share transactions 355,427 4,709,994 Total (decrease) increase in net assets (178,504) 9,333,311 Net assets: Beginning of period 75,867,405 66,534,094 End of period (including undistributed net investment income: $561,210 and $401,174, respectively) $75,688,901 $75,867,405 *Unaudited See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS unaudited 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The Investment Company of America (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks long-term growth of capital and income, placing greater emphasis on future dividends than on current income. The fund offers 14 share classes consisting of four retail share classes, five CollegeAmerica(R) 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 0% 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 ---------------------------------------------------------------------------------------------------------
CollegeAmerica is a registered trademark of the Virginia College Savings Plan.(sm) Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds. 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, including short-term securities purchased with more than 60 days left to maturity, 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 bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days are determined based on an amortized value to par when they reach 60 days or less remaining to maturity. 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 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 under procedures adopted 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. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security. CLASS ALLOCATIONS - Income, fees and expenses (other than class-specific fees and expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid to shareholders are recorded on the ex-dividend date. NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including investment securities, denominated in non-U.S. currencies are translated into U.S. dollars at the exchange rates in effect at the end of the reporting period. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. In the accompanying financial statements, the effects of changes in non-U.S. exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in non-U.S. currencies are disclosed separately. 2. NON-U.S. INVESTMENTS INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may include, but are not limited to, investment and repatriation restrictions; revaluation of currencies; adverse political, social and economic developments; government involvement in the private sector; limited and less reliable investor information; lack of liquidity; certain local tax law considerations; and limited regulation of the securities markets. TAXATION - Dividend and interest income is recorded net of non-U.S. withholding 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; capital losses related to sales of certain securities within 30 days of purchase; deferred expenses; cost of investments sold; and paydowns on investments. 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 for financial reporting purposes. As of June 30, 2005, the cost of investment securities for federal income tax purposes was $57,856,175,000. As of June 30, 2005, the components of distributable earnings on a tax basis were as follows (dollars in thousands): Undistributed net investment income and non-U.S. currency gains $562,926 Undistributed short-term capital gains 27,908 Undistributed long-term capital gains 1,430,417 Gross unrealized appreciation on investment securities 18,918,982 Gross unrealized depreciation on investment securities (1,184,007) Net unrealized appreciation on investment securities 17,734,975
During the six months ended June 30, 2005, the fund realized, on a tax basis, a net capital gain of $1,458,325,000. The tax character of distributions paid to shareholders was as follows (dollars in thousands): Six months ended June 30, 2005 Distributions from Distributions from Total ordinary income long-term capital gains distributions paid Share class Class A $ 546,190 - $ 546,190 Class B 17,102 - 17,102 Class C 11,814 - 11,814 Class F 9,779 - 9,779 Class 529-A 5,366 - 5,366 Class 529-B 610 - 610 Class 529-C 769 - 769 Class 529-E 185 - 185 Class 529-F 45 - 45 Class R-1 113 - 113 Class R-2 1,743 - 1,743 Class R-3 3,758 - 3,758 Class R-4 1,437 - 1,437 Class R-5 13,450 - 13,450 Total $ 612,361 - $ 612,361 Year ended December 31, 2004 Distributions from Distributions from Total ordinary income long-term capital gains distributions paid Share class Class A $ 1,074,604 $ 738,649 $ 1,813,253 Class B 33,455 41,997 75,452 Class C 22,209 30,628 52,837 Class F 18,386 13,657 32,043 Class 529-A 8,408 6,944 15,352 Class 529-B 1,051 1,740 2,791 Class 529-C 1,270 2,100 3,370 Class 529-E 290 301 591 Class 529-F 61 56 117 Class R-1 172 255 427 Class R-2 2,737 4,069 6,806 Class R-3 5,165 5,511 10,676 Class R-4 1,396 1,295 2,691 Class R-5 25,149 15,962 41,111 Total $ 1,194,353 $ 863,164 $ 2,057,517
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. The Board of Directors approved an amended agreement effective February 16, 2005, lowering the rate to 0.219% on month-end net assets in excess of $89 billion. CRMC is currently waiving a portion of these fees. At the beginning of the period, CRMC was waiving 5% of these fees and increased the waiver to 10% on April 1, 2005. During the six months ended June 30, 2005, the total investment advisory services fees waived by CRMC were $6,691,000. As a result, the fee shown on the accompanying financial statements of $89,296,000, which was equivalent to an annualized rate of 0.240%, was reduced to $82,605,000, or 0.222% of 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. 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. AFD is currently waiving a portion of these fees to the extent the amounts paid to qualified dealers or advisers was less than the approved limit. During the six months ended June 30, 2005, the total distribution services fees waived by AFD were $2,000, which related to Class 529-F. 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 June 30, 2005, there were no unreimbursed expenses subject to reimbursement for classes A or 529-A. ------------------------------------------------ ----------------------------- ----------------------------- 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 ------------------------------------------------ ----------------------------- -----------------------------
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 six months ended June 30, 2005, CRMC agreed to pay AFS a portion of these fees for classes R-1 and R-2. For the six months ended June 30, 2005, the total administrative services fees paid by CRMC were $331 and $306,000 for classes R-1 and R-2, respectively. Administrative services fees are presented gross of any payments made by CRMC. 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. Expenses under the agreements described above for the six months ended June 30, 2005, 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 $72,020 $26,553 Not applicable Not applicable Not applicable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class B 18,110 1,729 Not applicable Not applicable Not applicable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class C 13,435 Included $2,015 $277 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class F 1,503 Included 902 93 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-A 599 Included 495 43 $330 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-B 799 Included 120 33 80 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-C 988 Included 148 33 99 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-E 71 Included 21 2 14 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class 529-F 7 Included 4 -* 3 in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-1 133 Included 20 7 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-2 1,446 Included 289 821 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-3 1,341 Included 402 62 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-4 201 Included 121 6 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Class R-5 Not applicable Included 695 3 Not applicable in administrative services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Total $110,653 $28,282 $5,232 $1,380 $526 -------------------------------------------------------------------------------------------------------------- * 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 of $471,000, shown on the accompanying financial statements, includes $396,000 in current fees (either paid in cash or deferred) and a net increase of $75,000 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 June 30, 2005, the fund had warrants outstanding which may be exercised at any time for the purchase of 819,437 Class A shares at approximately $5.24 per share. If these warrants had been exercised as of June 30, 2005, the net asset value of Class A shares would have been reduced by less than $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 Six months ended June 30, 2005 Class A $ 2,888,073 95,162 $ 506,695 16,446 Class B 202,360 6,698 16,435 535 Class C 289,721 9,600 11,186 365 Class F 191,923 6,332 8,772 285 Class 529-A 102,644 3,387 5,365 174 Class 529-B 17,916 592 610 20 Class 529-C 31,620 1,045 769 25 Class 529-E 4,339 144 185 6 Class 529-F 1,497 49 45 1 Class R-1 10,225 337 112 4 Class R-2 96,855 3,200 1,742 57 Class R-3 142,504 4,699 3,756 122 Class R-4 94,061 3,098 1,437 47 Class R-5 92,126 3,025 13,300 432 Total net increase (decrease) $ 4,165,864 137,368 $ 570,409 18,519 Year ended December 31, 2004 Class A $ 6,876,973 235,443 $ 1,692,780 56,793 Class B 663,196 22,803 72,958 2,443 Class C 778,916 26,808 50,567 1,695 Class F 506,063 17,338 29,160 979 Class 529-A 216,120 7,391 15,351 514 Class 529-B 46,827 1,607 2,790 93 Class 529-C 67,411 2,309 3,370 112 Class 529-E 9,407 323 591 20 Class 529-F 2,328 79 116 4 Class R-1 12,156 418 427 14 Class R-2 195,647 6,727 6,804 227 Class R-3 301,164 10,320 10,669 357 Class R-4 85,334 2,912 2,690 90 Class R-5 193,400 6,618 40,829 1,371 Total net increase (decrease) $ 9,954,942 341,096 $ 1,929,102 64,712 Share class Repurchases(1) Net (decrease) increase Amount Shares Amount Shares Six months ended June 30, 2005 Class A $ (3,590,313) (118,236) $ (195,545) (6,628) Class B (188,024) (6,222) 30,771 1,011 Class C (210,154) (6,966) 90,753 2,999 Class F (163,077) (5,377) 37,618 1,240 Class 529-A (16,622) (549) 91,387 3,012 Class 529-B (3,634) (120) 14,892 492 Class 529-C (6,894) (228) 25,495 842 Class 529-E (689) (23) 3,835 127 Class 529-F (367) (12) 1,175 38 Class R-1 (5,676) (188) 4,661 153 Class R-2 (43,542) (1,440) 55,055 1,817 Class R-3 (59,188) (1,946) 87,072 2,875 Class R-4 (16,056) (530) 79,442 2,615 Class R-5 (76,610) (2,523) 28,816 934 Total net increase (decrease) $ (4,380,846) (144,360) $ 355,427 11,527 Year ended December 31, 2004 Class A $ (6,018,495) (205,905) $ 2,551,258 86,331 Class B (285,338) (9,809) 450,816 15,437 Class C (282,310) (9,711) 547,173 18,792 Class F (294,487) (10,102) 240,736 8,215 Class 529-A (21,681) (738) 209,790 7,167 Class 529-B (3,475) (119) 46,142 1,581 Class 529-C (7,911) (269) 62,870 2,152 Class 529-E (687) (24) 9,311 319 Class 529-F (380) (13) 2,064 70 Class R-1 (4,841) (168) 7,742 264 Class R-2 (49,451) (1,697) 153,000 5,257 Class R-3 (77,001) (2,632) 234,832 8,045 Class R-4 (15,204) (520) 72,820 2,482 Class R-5 (112,789) (3,870) 121,440 4,119 Total net increase (decrease) $ (7,174,050) (245,577) $ 4,709,994 160,231 (1) Includes exchanges between share classes of the fund.
7. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities, of $6,466,882,000 and $6,897,353,000, respectively, during the six months ended June 30, 2005. The fund receives a reduction in its custodian fee equal to the amount of interest calculated on certain cash balances held at the custodian bank. For the six months ended June 30, 2005, the custodian fee of $1,201,000, shown on the accompanying financial statements, includes $87,000 that was offset by this reduction, rather than paid in cash. Financial highlights (1) Income (loss) from investment operations(2) Net Net asset (losses) gains value, Net on securities Total from beginning investment (both realized investment of period income and unrealized) operations Class A: Six months ended 6/30/2005 (5) $30.75 $.32 $(.27) $.05 Year ended 12/31/2004 28.84 .60 2.19 2.79 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 Class B: Six months ended 6/30/2005 (5) 30.64 .21 (.28) (.07) Year ended 12/31/2004 28.74 .38 2.17 2.55 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: Six months ended 6/30/2005 (5) 30.59 .19 (.27) (.08) Year ended 12/31/2004 28.70 .36 2.16 2.52 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: Six months ended 6/30/2005 (5) 30.72 .31 (.28) .03 Year ended 12/31/2004 28.81 .58 2.18 2.76 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: Six months ended 6/30/2005 (5) 30.73 .31 (.29) .02 Year ended 12/31/2004 28.82 .59 2.17 2.76 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: Six months ended 6/30/2005 (5) 30.67 .18 (.28) (.10) Year ended 12/31/2004 28.78 .33 2.16 2.49 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: Six months ended 6/30/2005 (5) 30.68 .18 (.28) (.10) Year ended 12/31/2004 28.78 .33 2.17 2.50 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: Six months ended 6/30/2005 (5) 30.68 .26 (.28) (.02) Year ended 12/31/2004 28.78 .48 2.17 2.65 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: Six months ended 6/30/2005 (5) 30.71 .32 (.29) .03 Year ended 12/31/2004 28.81 .56 2.16 2.72 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) Financial highlights (1) (continued) Income (loss) from investment operations(2) Net Net asset (losses) gains value, Net on securities Total from beginning investment (both realized investment of period income and unrealized) operations Class R-1: Six months ended 6/30/2005 (5) $30.67 $.19 $(.29) $(.10) Year ended 12/31/2004 28.77 .36 2.17 2.53 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: Six months ended 6/30/2005 (5) 30.67 .19 (.28) (.09) Year ended 12/31/2004 28.77 .37 2.17 2.54 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: Six months ended 6/30/2005 (5) 30.71 .27 (.28) (.01) Year ended 12/31/2004 28.80 .50 2.17 2.67 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: Six months ended 6/30/2005 (5) 30.72 .32 (.28) .04 Year ended 12/31/2004 28.82 .60 2.16 2.76 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: Six months ended 6/30/2005 (5) 30.75 .36 (.29) .07 Year ended 12/31/2004 28.84 .67 2.18 2.85 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) Financial highlights (1) Dividends and distributions Dividends (from net Distributions Total Net asset investment (from capital dividends and value, end income) gains) distributions of period Class A: Six months ended 6/30/2005 (5) $(.26) $- $(.26) $30.54 Year ended 12/31/2004 (.52) (.36) (.88) 30.75 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 Class B: Six months ended 6/30/2005 (5) (.14) - (.14) 30.43 Year ended 12/31/2004 (.29) (.36) (.65) 30.64 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: Six months ended 6/30/2005 (5) (.13) - (.13) 30.38 Year ended 12/31/2004 (.27) (.36) (.63) 30.59 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: Six months ended 6/30/2005 (5) (.24) - (.24) 30.51 Year ended 12/31/2004 (.49) (.36) (.85) 30.72 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: Six months ended 6/30/2005 (5) (.24) - (.24) 30.51 Year ended 12/31/2004 (.49) (.36) (.85) 30.73 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: Six months ended 6/30/2005 (5) (.11) - (.11) 30.46 Year ended 12/31/2004 (.24) (.36) (.60) 30.67 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: Six months ended 6/30/2005 (5) (.12) - (.12) 30.46 Year ended 12/31/2004 (.24) (.36) (.60) 30.68 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: Six months ended 6/30/2005 (5) (.19) - (.19) 30.47 Year ended 12/31/2004 (.39) (.36) (.75) 30.68 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: Six months ended 6/30/2005 (5) (.24) - (.24) 30.50 Year ended 12/31/2004 (.46) (.36) (.82) 30.71 Year ended 12/31/2003 (.48) (.21) (.69) 28.81 Period from 9/16/2002 to 12/31/2002 (.13) (.35) (.48) 23.47 Financial highlights (1) (continued) Dividends and distributions Dividends (from net Distributions Total Net asset investment (from capital dividends and value, end income) gains) distributions of period Class R-1: Six months ended 6/30/2005 (5) $(.13) $- $(.13) $30.44 Year ended 12/31/2004 (.27) (.36) (.63) 30.67 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: Six months ended 6/30/2005 (5) (.13) - (.13) 30.45 Year ended 12/31/2004 (.28) (.36) (.64) 30.67 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: Six months ended 6/30/2005 (5) (.21) - (.21) 30.49 Year ended 12/31/2004 (.40) (.36) (.76) 30.71 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: Six months ended 6/30/2005 (5) (.25) - (.25) 30.51 Year ended 12/31/2004 (.50) (.36) (.86) 30.72 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: Six months ended 6/30/2005 (5) (.29) - (.29) 30.53 Year ended 12/31/2004 (.58) (.36) (.94) 30.75 Year ended 12/31/2003 (.58) (.21) (.79) 28.84 Period from 5/15/2002 to 12/31/2002 (.43) (.35) (.78) 23.48
Financial highlights (1) Ratio of expenses Ratio of expenses to average net to average net Ratio of Net assets, assets before assets after net income Total end of period reimbursements/ reimbursements/ to average return (3) (in millions) waivers waivers (4) net assets Class A: Six months ended 6/30/2005 (5) .16% $64,225 .58% (6) .56% (6) 2.15% (6) Year ended 12/31/2004 9.78 64,880 .57 .57 2.06 Year ended 12/31/2003 26.30 58,353 .59 .59 2.14 Year ended 12/31/2002 (14.47) 46,129 .59 .59 1.89 Year ended 12/31/2001 (4.59) 54,315 .57 .57 1.49 Year ended 12/31/2000 3.84 56,212 .56 .56 1.74 Class B: Six months ended 6/30/2005 (5) (.23) 3,687 1.36 (6) 1.34 (6) 1.37 (6) Year ended 12/31/2004 8.94 3,683 1.36 1.35 1.29 Year ended 12/31/2003 25.30 3,011 1.38 1.38 1.33 Year ended 12/31/2002 (15.18) 1,841 1.39 1.39 1.18 Year ended 12/31/2001 (5.30) 1,302 1.35 1.35 .66 Period from 3/15/2000 to 12/31/2000 5.87 439 1.34 (6) 1.34 (6) 1.06 (6) Class C: Six months ended 6/30/2005 (5) (.26) 2,763 1.44 (6) 1.42 (6) 1.30 (6) Year ended 12/31/2004 8.85 2,691 1.43 1.43 1.22 Year ended 12/31/2003 25.22 1,985 1.45 1.45 1.25 Year ended 12/31/2002 (15.20) 1,025 1.45 1.45 1.17 Period from 3/15/2001 to 12/31/2001 (.19) 480 1.52 (6) 1.52 (6) .38 (6) Class F: Six months ended 6/30/2005 (5) .11 1,238 .68 (6) .66 (6) 2.06 (6) Year ended 12/31/2004 9.69 1,209 .67 .67 1.99 Year ended 12/31/2003 26.18 897 .69 .69 2.01 Year ended 12/31/2002 (14.59) 415 .70 .70 1.92 Period from 3/15/2001 to 12/31/2001 .48 190 .72 (6) .72 (6) 1.17 (6) Class 529-A: Six months ended 6/30/2005 (5) .06 713 .71 (6) .69 (6) 2.03 (6) Year ended 12/31/2004 9.68 625 .68 .68 2.00 Year ended 12/31/2003 26.19 380 .64 .64 2.06 Period from 2/15/2002 to 12/31/2002 (12.57) 153 .71 (6) .71 (6) 2.17 (6) Class 529-B: Six months ended 6/30/2005 (5) (.32) 169 1.56 (6) 1.54 (6) 1.18 (6) Year ended 12/31/2004 8.69 155 1.56 1.55 1.12 Year ended 12/31/2003 25.05 100 1.58 1.58 1.12 Period from 2/15/2002 to 12/31/2002 (13.22) 41 1.58 (6) 1.58 (6) 1.30 (6) Class 529-C: Six months ended 6/30/2005 (5) (.34) 213 1.55 (6) 1.53 (6) 1.19 (6) Year ended 12/31/2004 8.74 188 1.55 1.54 1.13 Year ended 12/31/2003 25.07 115 1.57 1.57 1.13 Period from 2/19/2002 to 12/31/2002 (11.91) 45 1.57 (6) 1.57 (6) 1.32 (6) Class 529-E: Six months ended 6/30/2005 (5) (.06) 31 1.03 (6) 1.01 (6) 1.71 (6) Year ended 12/31/2004 9.29 27 1.03 1.02 1.65 Year ended 12/31/2003 25.70 16 1.04 1.04 1.65 Period from 3/1/2002 to 12/31/2002 (14.72) 6 1.03 (6) 1.03 (6) 1.90 (6) Class 529-F: Six months ended 6/30/2005 (5) .09 6 .78 (6) .60 (6) 2.13 (6) Year ended 12/31/2004 9.55 5 .78 .77 1.91 Year ended 12/31/2003 26.05 3 .79 .79 1.88 Period from 9/16/2002 to 12/31/2002 (.14) - (7) .23 .23 .68 Financial highlights (1) (continued) Ratio of expenses Ratio of expenses to average net to average net Ratio of Net assets, assets before assets after net income Total end of period reimbursements/ reimbursements/ to average return (in millions) waivers waivers (4) net assets Class R-1: Six months ended 6/30/2005 (5) (.34%) $28 1.46% (6) 1.44% (6) 1.28% (6) Year ended 12/31/2004 8.84 23 1.47 1.46 1.21 Year ended 12/31/2003 25.18 14 1.51 1.47 1.18 Period from 6/6/2002 to 12/31/2002 (11.68) 1 2.43 (6) 1.47 (6) 1.49 (6) Class R-2: Six months ended 6/30/2005 (5) (.29) 414 1.59 (6) 1.41 (6) 1.31 (6) Year ended 12/31/2004 8.88 361 1.63 1.42 1.27 Year ended 12/31/2003 25.18 188 1.76 1.43 1.21 Period from 5/21/2002 to 12/31/2002 (14.64) 24 1.57 (6) 1.43 (6) 1.61 (6) Class R-3: Six months ended 6/30/2005 (5) (.04) 577 .93 (6) .91 (6) 1.81 (6) Year ended 12/31/2004 9.34 493 .99 .98 1.72 Year ended 12/31/2003 25.70 231 1.06 1.05 1.60 Period from 6/4/2002 to 12/31/2002 (12.49) 24 1.11 (6) 1.05 (6) 2.00 (6) Class R-4: Six months ended 6/30/2005 (5) .12 198 .67 (6) .65 (6) 2.11 (6) Year ended 12/31/2004 9.67 119 .67 .66 2.05 Year ended 12/31/2003 26.19 40 .68 .68 2.00 Period from 5/28/2002 to 12/31/2002 (14.31) 9 .73 (6) .69 (6) 2.25 (6) Class R-5: Six months ended 6/30/2005 (5) .23 1,427 .36 (6) .34 (6) 2.37 (6) Year ended 12/31/2004 10.02 1,408 .36 .35 2.28 Year ended 12/31/2003 26.58 1,201 .36 .36 2.11 Period from 5/15/2002 to 12/31/2002 (14.59) 48 .37 (6) .37 (6) 2.56 (6)
Six months ended June 30, Year ended December 31 2005(5) 2004 2003 2002 2001 2000 Portfolio turnover rate for all classes of shares 10% 19% 24% 27% 22% 25%
(1) Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. (2) Based on average shares outstanding. (3) Total returns exclude all sales charges, including contingent deferred sales charges. (4) The ratios in this column reflect the impact, if any, of certain reimbursements/waivers. During some of the periods shown, CRMC reduced fees for investment advisory services for all share classes. During the start-up period for the retirement plan share classes (except Class R-5), CRMC agreed to pay a portion of the fees related to transfer agent services. In addition, during the six months ended 6/30/2005, AFD agreed to waive a portion of the fees related to distribution services for Class 529-F. (5) Unaudited. (6) Annualized. (7) Amount less than $1 million. See Notes to Financial Statements EXPENSE EXAMPLE unaudited As a shareholder of the fund, you incur two types of costs: (1) transaction costs such as initial sales charges on purchase payments and contingent deferred sales charges on redemptions (loads); and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2005 through June 30, 2005). ACTUAL EXPENSES: The first line of each share class in the table on the next page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period. There are some account fees that are charged to certain types of accounts, such as Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10 fee is charged to set up the account and an additional $10 fee is charged to the account annually) that would increase the amount of expenses paid on your account. In addition, retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F and Class 529-F shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated above. In addition, your ending account value would also be lower by the amount of these fees. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES: The second line of each share class in the table on the next page provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the share class and an assumed rate of return of 5.00% per year before expenses, which is not the actual return of the share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5.00% hypothetical example with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds. There are some account fees that are charged to certain shareholders, such as Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10 fee is charged to set up the account and an additional $10 fee is charged to the account annually) that would increase the amount of expenses paid on your account. In addition, retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F and Class 529-F shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated on the previous page. In addition, your ending account value would also be lower by the amount of these fees. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each share class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. Beginning account Ending account Expenses paid Annualized value 1/1/2005 value 6/30/2005 during period(1) expense ratio Class A -- actual return $1,000.00 $1,001.56 $2.78 .56% Class A -- assumed 5% return 1,000.00 1,022.02 2.81 .56 Class B -- actual return 1,000.00 997.74 6.64 1.34 Class B -- assumed 5% return 1,000.00 1,018.15 6.71 1.34 Class C -- actual return 1,000.00 997.38 7.03 1.42 Class C -- assumed 5% return 1,000.00 1,017.75 7.10 1.42 Class F -- actual return 1,000.00 1,001.09 3.27 .66 Class F -- assumed 5% return 1,000.00 1,021.52 3.31 .66 Class 529-A -- actual return 1,000.00 1,000.64 3.42 .69 Class 529-A -- assumed 5% return 1,000.00 1,021.37 3.46 .69 Class 529-B -- actual return 1,000.00 996.80 7.62 1.54 Class 529-B -- assumed 5% return 1,000.00 1,017.16 7.70 1.54 Class 529-C -- actual return 1,000.00 996.56 7.57 1.53 Class 529-C -- assumed 5% return 1,000.00 1,017.21 7.65 1.53 Class 529-E -- actual return 1,000.00 999.42 5.01 1.01 Class 529-E -- assumed 5% return 1,000.00 1,019.79 5.06 1.01 Class 529-F -- actual return 1,000.00 1,000.95 2.98 .60 Class 529-F -- assumed 5% return 1,000.00 1,021.82 3.01 .60 Class R-1 -- actual return 1,000.00 996.61 7.13 1.44 Class R-1 -- assumed 5% return 1,000.00 1,017.65 7.20 1.44 Class R-2 -- actual return 1,000.00 997.15 6.98 1.41 Class R-2 -- assumed 5% return 1,000.00 1,017.80 7.05 1.41 Class R-3 -- actual return 1,000.00 999.58 4.51 .91 Class R-3 -- assumed 5% return 1,000.00 1,020.28 4.56 .91 Class R-4 -- actual return 1,000.00 1,001.19 3.23 .65 Class R-4 -- assumed 5% return 1,000.00 1,021.57 3.26 .65 Class R-5 -- actual return 1,000.00 1,002.30 1.69 .34 Class R-5 -- assumed 5% return 1,000.00 1,023.11 1.71 .34
(1) Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the period (181), and divided by 365 (to reflect the one-half year period). APPROVAL OF RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT The fund's Board of Directors has approved the renewal of the fund's Investment Advisory and Service Agreement (the "agreement") with Capital Research and Management Company (CRMC) for an additional one-year term through February 28, 2006. The renewal of the agreement was approved by the Board following the recommendation of the fund's Contracts Committee (the "committee"), which is composed of all the fund's independent Directors. The information, material factors and conclusions that formed the basis for the committee's recommendation and the Board's subsequent approval are described below. 1. INFORMATION RECEIVED MATERIALS REVIEWED During the course of each year, the independent Directors receive a wide variety of materials relating to the services provided by CRMC, including reports on the fund's investment results; portfolio composition; portfolio trading practices; shareholder services; and other information relating to the nature, extent and quality of services provided by CRMC to the fund. In addition, the committee requests and reviews supplementary information that includes extensive materials regarding the fund's investment results, advisory fee and expense comparisons (including comparisons to advisory fees charged by an affiliate of CRMC to institutional clients), financial and profitability information regarding CRMC, descriptions of various functions such as compliance monitoring and portfolio trading practices, and information about the personnel providing investment management and administrative services to the fund. REVIEW PROCESS The committee received assistance and advice regarding legal and industry standards from independent counsel to the independent Directors. The committee discussed the renewal and amendment of the agreement with CRMC representatives and in a private session with independent legal counsel at which no representatives of CRMC were present. In deciding to recommend the renewal of the agreement, the committee did not identify any single issue or particular information that, in isolation, was the controlling factor. This summary describes the most important, but not all, of the factors considered by the Board and the committee. 2. NATURE, EXTENT AND QUALITY OF SERVICES CRMC, ITS PERSONNEL AND ITS RESOURCES The Board and the committee considered the depth and quality of CRMC's investment management process, including its global research capabilities; the experience, capability and integrity of its senior management and other personnel; the low turnover rates of its key personnel; the overall financial strength and stability of its organization; and the ability of its organizational structure to address the recent growth in assets under management. The Board and the committee also considered that CRMC made available to its investment professionals a variety of resources and systems relating to investment management, compliance, trading, performance and portfolio accounting. They considered CRMC's commitment to investing in information technology supporting investment management and compliance. They further considered CRMC's continuing need to attract and retain qualified personnel and to maintain and enhance its resources and systems. OTHER SERVICES The Board and the committee considered CRMC's policies, procedures and systems to ensure compliance with applicable laws and regulations and its commitment to these programs; its efforts to keep the Directors informed; and its attention to matters that may involve conflicts of interest with the fund. The Board and the committee also considered the nature, extent, quality and cost of administrative, distribution and shareholder services provided by CRMC to the fund under the agreement and other agreements, including the administrative, legal and fund accounting and treasury functions. The Board and the committee concluded that the nature, extent and quality of the services provided by CRMC has benefited and will continue to benefit the fund and its shareholders. 3. INVESTMENT PERFORMANCE The Board and the committee considered the fund's investment objectives to pursue growth of capital and income and the investment results of the fund in light of these long-term objectives. They compared the fund's total returns with the Lipper Large-Cap Value Funds Index (the Lipper category that includes the fund) and the Lipper Growth & Income Funds Index (another relevant Lipper category given the fund's investment objective). The Board and the committee noted that the fund's investment results slightly trailed both indices for the one-year period ended October 31, 2004, but substantially exceeded both indices for the five- and 10-year periods ended October 31, 2004. The Board and the committee ultimately concluded that CRMC's long-term performance record in managing the fund indicates that its continued management will benefit the fund and its shareholders. 4. ADVISORY FEES AND TOTAL EXPENSES The Board and the committee reviewed the advisory fees and total expenses of the fund (each as a percentage of average net assets) and compared such amounts with the average fee and expense levels of other funds in the Lipper Large-Cap Value Funds Index. The Board and the committee observed that the fund's advisory fees and total expenses (each as a percentage of average net assets) were well below the median fee and expense levels of the other funds in both indices. The Board and the committee also noted the 5% voluntary advisory fee waiver that CRMC put into effect complex-wide during 2004. The Board and the committee concluded that the relatively low level of the fees charged by CRMC will benefit the fund and its shareholders. The Board and the committee also reviewed information regarding the advisory fees paid by institutional clients of an affiliate of CRMC with similar investment mandates. They concluded that although the fees paid by those clients generally were lower than those paid by the American Funds, the differences appropriately reflected CRMC's significantly greater responsibilities with respect to the American Funds, and the more comprehensive regulatory regime applicable to mutual funds. 5. ADVISER COSTS, LEVEL OF PROFITS AND ECONOMIES OF SCALE The Board and the committee reviewed information regarding CRMC's costs of providing services to the American Funds, as well as the resulting level of profits to CRMC, noting that those results were comparable to the reported results of several large publicly held investment management companies. The committee also received information during the past year regarding the structure and manner in which CRMC's investment professionals were compensated and CRMC's view of the relationship of such compensation to the attraction and retention of quality personnel. The Board and the committee considered CRMC's need to invest in technology, infrastructure and staff to reinforce and offer new services and to accommodate changing regulatory requirements. They further considered that existing breakpoints in the fund's advisory fee structure provide for reductions in the level of fees charged by CRMC to the fund as fund assets increase, reflecting economies of scale in the cost of operations that are shared with fund shareholders. The Board and the committee concluded that the fund's cost structure was reasonable and that CRMC was sharing economies of scale with the fund and its shareholders, to their benefit. 6. ANCILLARY BENEFITS The Board and the committee considered a variety of other benefits received by CRMC and its affiliates as a result of CRMC's relationship with the fund and the other American Funds, including fees for administrative services provided to certain share classes; fees paid to CRMC's affiliated transfer agent; sales charges and distribution fees received and retained by the fund's principal underwriter, an affiliate of CRMC; and possible ancillary benefits to CRMC's institutional management affiliate. The Board and the committee reviewed CRMC's portfolio trading practices, noting that while CRMC receives the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the fund, it does not obtain third-party research or other services in return for allocating brokerage to such broker-dealers. 7. CONCLUSIONS Based on their review, including their consideration of each of the factors referred to above, the Board and the committee concluded that the agreement is fair and reasonable to the fund and its shareholders, that the fund's shareholders have received reasonable value in return for the advisory fees and other amounts paid to CRMC by the fund, and that the renewal of the agreement was in the best interests of the fund and its shareholders. There are several ways to invest in The Investment Company of America. Class A shares are subject to a 5.75% maximum up-front sales charge that declines for accounts (and aggregated investments) of $25,000 or more and is eliminated for purchases of $1 million or more. Other share classes, which are generally not available for certain employer-sponsored retirement plans, have no up-front sales charges but are subject to additional annual expenses and fees. Annualized expenses for Class B shares were 0.78 percentage points higher than for Class A shares; Class B shares convert to Class A shares after eight years of ownership. If redeemed within six years, Class B shares may also be subject to a contingent deferred sales charge ("CDSC") of up to 5% that declines over time. Class C shares were subject to annualized expenses 0.86 percentage points higher than those for Class A shares and a 1% CDSC if redeemed within the first year after purchase. Class C shares convert to Class F shares after 10 years. Class F shares, which are available only through certain fee-based programs offered by broker-dealer firms and registered investment advisers, had higher annualized expenses (by 0.10 percentage points) than did Class A shares, and an annual asset-based fee charged by the sponsoring firm. Expenses are deducted from income earned by the fund. As a result, dividends and investment results will differ for each share class. INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE AMERICAN FUNDS AND COLLEGEAMERICA. THIS AND OTHER IMPORTANT INFORMATION IS CONTAINED IN THE FUND'S PROSPECTUS AND THE COLLEGEAMERICA PROGRAM DESCRIPTION, WHICH CAN BE OBTAINED FROM YOUR FINANCIAL ADVISER AND SHOULD BE READ CAREFULLY BEFORE INVESTING. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY (AFS) AT 800/421-0180 OR VISIT THE AMERICAN FUNDS WEBSITE AT AMERICANFUNDS.COM. If you reside in a state other than Virginia, there may be an in-state plan that offers additional tax benefits not available in CollegeAmerica. Talk to your tax adviser. Interests in CollegeAmerica are sold through unaffiliated intermediaries. "American Funds Proxy Voting Guidelines" -- which describes how we vote proxies relating to portfolio securities -- is available free of charge on the U.S. Securities and Exchange Commission (SEC) website at www.sec.gov, on the American Funds website or upon request by calling AFS. The fund files its proxy voting record with the SEC for the 12 months ended June 30 by August 31. The report also is available on the SEC and American Funds websites. A complete June 30, 2005, portfolio of The Investment Company of America's investments is available free of charge on the SEC website or upon request by calling AFS. The Investment Company of America files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This form is available free of charge on the SEC website or upon request by calling AFS. You may also review or, for a fee, copy the form at the SEC's Public Reference Room in Washington, D.C. (800/SEC-0330). This report is for the information of shareholders of The Investment Company of America, but it may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after September 30, 2005, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter. [logo - American Funds(R)] CollegeAmerica is sponsored by Virginia College Savings Plan(SM) OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER Capital Research and Management Company 333 South Hope Street Los Angeles, CA 90071-1406 135 South State College Boulevard Brea, CA 92821-5823 TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS American Funds Service Company (Please write to the address nearest you.) P.O. Box 25065 Santa Ana, CA 92799-5065 P.O. Box 659522 San Antonio, TX 78265-9522 P.O. Box 6007 Indianapolis, IN 46206-6007 P.O. Box 2280 Norfolk, VA 23501-2280 CUSTODIAN OF ASSETS JPMorgan Chase Bank 270 Park Avenue New York, NY 10017-2070 COUNSEL O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071-2899 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 350 South Grand Avenue Los Angeles, CA 90071-2889 PRINCIPAL UNDERWRITER American Funds Distributors, Inc. 333 South Hope Street Los Angeles, CA 90071-1406 THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust Lit. No. MFGESR-904-0805P Litho in USA BBC/LPT/8087-S4670 Printed on recycled paper ITEM 2 - Code of Ethics Not applicable for filing of Semiannual Reports to Shareholders. ITEM 3 - Audit Committee Financial Expert Not applicable for filing of Semiannual Reports to Shareholders. ITEM 4 - Principal Accountant Fees and Services Not applicable for filing of Semiannual Reports to Shareholders. ITEM 5 - Audit Committee of Listed Registrants Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934. ITEM 6 - Schedule of Investments [logo - American Funds (r)] THE INVESTMENT COMPANY OF AMERICA(R) Investment portfolio June 30, 2005 unaudited Market value Common stocks -- 83.72% Shares (000) ENERGY -- 10.73% Baker Hughes Inc. 10,875,000 $ 556,365 Burlington Resources Inc. 16,940,400 935,788 Chevron Corp. 17,185,000 960,985 ConocoPhillips 2,400,000 137,976 ENI SpA 30,880,000 795,388 Exxon Mobil Corp. 6,721,500 386,285 Halliburton Co. 5,500,000 263,010 Marathon Oil Corp. 11,050,000 589,738 Murphy Oil Corp. 4,100,000 214,143 Occidental Petroleum Corp. 1,000,000 76,930 Royal Dutch Petroleum Co. (New York registered) 17,470,000 1,133,803 "Shell" Transport and Trading Co., PLC 2,900,000 28,196 "Shell" Transport and Trading Co., PLC (ADR) (New York registered) 7,000,000 406,420 Schlumberger Ltd. 9,350,000 710,039 TOTAL SA 2,505,000 588,300 Unocal Corp. 5,190,000 337,609 8,120,975 MATERIALS -- 6.03% Air Products and Chemicals, Inc. 700,000 42,210 Alcan Inc. 2,241,600 67,248 Alcoa Inc. 19,326,400 504,999 Alumina Ltd. 10,000,000 42,382 Barrick Gold Corp. 12,500,000 312,875 BHP Billiton Ltd. 9,412,655 129,992 Dow Chemical Co. 23,232,200 1,034,530 E.I. du Pont de Nemours and Co. 4,750,000 204,297 Georgia-Pacific Corp., Georgia-Pacific Group 8,599,298 273,458 International Paper Co. 8,997,235 271,806 MeadWestvaco Corp. 4,085,000 114,543 Newmont Mining Corp. 9,500,000 370,785 Placer Dome Inc. 12,500,000 192,250 Placer Dome Inc. (Canada) 1,500,000 22,920 Rio Tinto PLC 10,000,000 305,971 Rohm and Haas Co. 7,000,000 324,380 Weyerhaeuser Co. 5,475,000 348,484 4,563,130 INDUSTRIALS -- 11.18% 3M Co. 3,500,000 253,050 Boeing Co. 13,000,000 858,000 Burlington Northern Santa Fe Corp. 7,200,000 338,976 Caterpillar Inc. 11,191,200 1,066,633 Cooper Industries, Ltd., Class A 2,500,000 159,750 Cummins Inc. 1,700,000 126,837 Deere & Co. 8,200,000 537,018 FedEx Corp. 2,870,000 232,499 General Dynamics Corp. 3,372,900 369,467 General Electric Co. 31,250,000 1,082,813 Illinois Tool Works Inc. 3,700,000 294,816 Lockheed Martin Corp. 1,798,600 116,675 Mitsubishi Corp. 4,035,000 54,887 Northrop Grumman Corp. 2,680,000 148,070 Parker Hannifin Corp. 2,500,000 155,025 Raytheon Co. 9,216,000 360,530 Southwest Airlines Co. 9,000,000 125,370 Tyco International Ltd. 37,630,100 1,098,799 Union Pacific Corp. 3,500,000 226,800 United Parcel Service, Inc., Class B 3,918,700 271,017 United Technologies Corp. 10,750,000 552,013 Waste Management, Inc. 1,100,000 31,174 8,460,219 CONSUMER DISCRETIONARY -- 10.03% Best Buy Co., Inc. 10,528,200 721,708 Carnival Corp., units 7,600,000 414,580 Clear Channel Communications, Inc. 6,920,700 214,057 Comcast Corp., Class A(1) 9,357,900 287,288 Delphi Corp. 25,400,000 118,110 Dow Jones & Co., Inc. 1,887,000 66,894 Ford Motor Co. 15,500,000 158,720 Gap, Inc. 3,100,000 61,225 General Motors Corp. 12,950,000 440,300 Honda Motor Co., Ltd. 912,500 45,024 Interpublic Group of Companies, Inc.(1) 4,100,000 49,938 Knight-Ridder, Inc. 550,500 33,768 Kohl's Corp.(1) 1,600,000 89,456 Koninklijke Philips Electronics NV 2,250,000 56,839 Liberty Media Corp., Class A(1) 16,280,000 165,893 Limited Brands, Inc.(2) 20,749,400 444,452 Lowe's Companies, Inc. 20,568,300 1,197,486 May Department Stores Co. 4,000,000 160,640 McDonald's Corp. 1,600,000 44,400 Newell Rubbermaid Inc. 2,000,000 47,680 Target Corp. 20,850,000 1,134,449 Time Warner Inc.(1) 44,750,000 747,773 TJX Companies, Inc. 5,750,000 140,013 Toyota Motor Corp. 11,250,000 402,873 Viacom Inc., Class A 460,100 14,824 Viacom Inc., Class B, nonvoting 6,500,000 208,130 Walt Disney Co. 5,000,000 125,900 7,592,420 CONSUMER STAPLES -- 9.36% Albertson's, Inc. 976,500 20,194 Altria Group, Inc. 55,000,000 3,556,300 Anheuser-Busch Companies, Inc. 3,500,000 160,125 Avon Products, Inc. 9,020,000 341,407 Coca-Cola Co. 5,320,000 222,110 General Mills, Inc. 4,535,000 212,193 H.J. Heinz Co. 7,950,000 281,589 Kimberly-Clark Corp. 500,000 31,295 Kraft Foods Inc., Class A 2,100,000 66,801 PepsiCo, Inc. 11,200,000 604,016 Procter & Gamble Co. 3,500,000 184,625 Reynolds American Inc. 4,461,666 351,579 Sara Lee Corp. 8,816,100 174,647 Unilever NV (New York registered) 5,650,000 366,290 UST Inc. 2,000,000 91,320 Walgreen Co. 9,104,000 418,693 7,083,184 HEALTH CARE -- 5.69% Abbott Laboratories 5,805,200 284,513 Aetna Inc. 4,510,300 373,543 Applera Corp. - Applied Biosystems Group 5,170,500 101,704 AstraZeneca PLC (ADR) 4,534,500 187,093 AstraZeneca PLC (Sweden) 4,609,500 191,563 AstraZeneca PLC (United Kingdom) 5,393,900 223,303 Becton, Dickinson and Co. 1,500,000 78,705 Bristol-Myers Squibb Co. 21,680,300 541,574 Eli Lilly and Co. 9,110,000 507,518 Glaxo Wellcome PLC (ADR) 924,000 44,823 GlaxoSmithKline PLC 4,250,000 102,858 Guidant Corp. 1,500,000 100,950 HCA Inc. 3,805,700 215,669 Johnson & Johnson 3,500,000 227,500 Merck & Co., Inc. 11,750,000 361,900 Novartis AG (ADR) 256,556 12,171 Pfizer Inc 3,000,000 82,740 Schering-Plough Corp. 9,361,300 178,426 WellPoint, Inc.(1) 5,800,000 403,912 Wyeth 2,000,000 89,000 4,309,465 FINANCIALS -- 11.39% Allstate Corp. 8,050,000 480,988 American International Group, Inc. 10,463,900 607,953 Aon Corp. 2,183,800 54,682 Bank of America Corp. 6,000,000 273,660 Capital One Financial Corp. 3,580,943 286,511 Chubb Corp. 5,100,000 436,611 Citigroup Inc. 13,725,000 634,507 Fannie Mae 22,415,600 1,309,071 Freddie Mac 3,150,000 205,475 Hartford Financial Services Group, Inc. 2,250,000 168,255 HSBC Holdings PLC (ADR) 1,079,588 85,989 HSBC Holdings PLC (United Kingdom) 27,697,111 441,588 J.P. Morgan Chase & Co. 18,836,200 665,295 Lincoln National Corp. 800,000 37,536 Lloyds TSB Group PLC 76,500,000 648,209 Marsh & McLennan Companies, Inc. 4,900,000 135,730 MBNA Corp. 4,800,000 125,568 SAFECO Corp. 1,650,000 89,661 St. Paul Travelers Companies, Inc. 3,300,000 130,449 U.S. Bancorp 11,250,000 328,500 Washington Mutual, Inc. 21,500,000 874,835 Wells Fargo & Co. 7,330,000 451,381 XL Capital Ltd., Class A 2,000,000 148,840 8,621,294 INFORMATION TECHNOLOGY -- 9.16% Agilent Technologies, Inc.(1) 5,000,000 115,100 Altera Corp.(1) 3,500,000 69,370 Analog Devices, Inc. 4,250,000 158,568 Applied Materials, Inc. 15,550,000 251,599 Automatic Data Processing, Inc. 5,875,000 246,574 Cisco Systems, Inc.(1) 25,728,800 491,677 Electronic Data Systems Corp. 4,247,900 81,772 EMC Corp.(1) 3,500,000 47,985 First Data Corp. 2,100,000 84,294 Hewlett-Packard Co. 33,700,000 792,287 Hitachi, Ltd. 17,000,000 103,356 Intel Corp. 3,640,000 94,858 International Business Machines Corp. 7,295,000 541,289 KLA-Tencor Corp. 2,275,000 99,418 Linear Technology Corp. 5,560,000 203,996 Maxim Integrated Products, Inc. 6,300,000 240,723 Micron Technology, Inc.(1) 10,000,000 102,100 Microsoft Corp. 42,280,000 1,050,235 Motorola, Inc. 11,251,475 205,452 Sabre Holdings Corp., Class A 6,009,680 119,893 Samsung Electronics Co., Ltd. 200,000 95,551 Sanmina-SCI Corp.(1) 7,000,000 38,290 Solectron Corp.(1) 13,000,000 49,270 Sun Microsystems, Inc.(1) 70,510,000 263,002 Taiwan Semiconductor Manufacturing Co. Ltd. 165,776,827 288,421 Texas Instruments Inc. 32,320,200 907,228 Xilinx, Inc. 7,400,000 188,700 6,931,008 TELECOMMUNICATION SERVICES -- 7.06% ALLTEL Corp. 3,942,750 245,554 AT&T Corp. 11,797,500 224,624 BellSouth Corp. 30,800,000 818,356 Deutsche Telekom AG 7,000,000 129,452 SBC Communications Inc. 61,450,000 1,459,438 Sprint Corp. 17,885,000 448,735 Telefonica, SA 29,753,631 486,942 Verizon Communications Inc. 20,800,000 718,640 Vodafone Group PLC 113,500,000 276,521 Vodafone Group PLC (ADR) 22,000,000 535,040 5,343,302 UTILITIES -- 2.33% American Electric Power Co., Inc. 3,750,000 138,263 Dominion Resources, Inc. 7,131,912 523,411 Duke Energy Corp. 7,000,000 208,110 Exelon Corp. 5,275,500 270,791 FirstEnergy Corp. 3,238,500 155,804 FPL Group, Inc. 4,000,000 168,240 Public Service Enterprise Group Inc. 5,000,000 304,100 1,768,719 MISCELLANEOUS -- 0.76% Other common stocks in initial period of acquisition 575,177 Total common stocks (cost: $45,685,559,000) 63,368,893 Shares or Convertible securities -- 0.20% principal amount FINANCIALS -- 0.18% Chubb Corp. 7.00% convertible preferred 2005 1,400,000 units 44,422 Fannie Mae 5.375% convertible preferred 2049 970 94,284 138,706 INFORMATION TECHNOLOGY -- 0.02% Agilent Technologies, Inc. 3.00% convertible debentures 2021(3) $6,655,000 6,597 Agilent Technologies, Inc. 3.00% convertible debentures 2021(3,4) $4,445,000 4,406 11,003 Total convertible securities (cost: $136,658,000) 149,709 Principal amount Bonds & notes -- 1.32% (000) CONSUMER DISCRETIONARY -- 0.33% General Motors Acceptance Corp. 6.875% 2011 $ 74,800 69,131 General Motors Acceptance Corp. 7.25% 2011 62,052 58,250 General Motors Acceptance Corp. 6.875% 2012 9,995 9,162 General Motors Acceptance Corp. 7.00% 2012 21,910 20,223 General Motors Corp. 7.20% 2011 77,763 72,320 General Motors Corp. 7.125% 2013 25,630 23,067 252,153 TELECOMMUNICATION SERVICES -- 0.39% AT&T Wireless Services, Inc. 7.50% 2007 50,000 52,983 SBC Communications Inc. 4.125% 2009 120,000 119,119 SBC Communications Inc. 5.10% 2014 120,000 122,920 295,022 MORTGAGE-BACKED OBLIGATIONS(5) -- 0.60% Fannie Mae 6.00% 2017 140,046 144,965 Fannie Mae 6.00% 2017 173,087 179,165 Fannie Mae 6.50% 2017 124,216 129,520 453,650 Total bonds & notes (cost: $964,792,000) 1,000,825 Short-term securities -- 14.63% Abbott Laboratories Inc. 3.00%-3.01% due 7/6-7/12/2005(4) 76,600 76,547 American Express Credit Corp. 3.12%-3.22% due 7/25-8/22/2005 125,000 124,527 Anheuser-Busch Cos. Inc. 3.10%-3.16% due 8/3-8/22/2005(4) 100,000 99,659 Bank of America Corp. 2.99%-3.32% due 7/7-8/29/2005 275,000 274,090 Ranger Funding Co. LLC 3.19% due 7/21/2005(4) 43,797 43,715 Bank of New York Co., Inc. 3.00% due 7/5/2005 25,000 24,989 BellSouth Corp. 3.00%-3.09% due 7/8-7/15/2005(4) 128,000 127,850 CAFCO, LLC 3.03%-3.32% due 7/11-9/12/2005(4) 259,200 258,451 Citicorp 3.07% due 7/21/2005 35,000 34,940 ChevronTexaco Funding Corp. 3.03%-3.05% due 7/13-7/22/2005 121,100 120,925 Clipper Receivables Co., LLC 3.06%-3.32% due 7/6-8/18/2005(4) 281,400 280,839 Coca-Cola Co. 3.00%-3.28% due 7/8-9/7/2005 221,470 220,565 Colgate-Palmolive Co. 3.20%-3.21% due 7/28-7/29/2005(4) 72,600 72,415 DuPont (E.I.) de Nemours & Co. 3.15%-3.22% due 8/3-9/2/2005 215,000 214,158 Edison Asset Securitization LLC 3.11%-3.32% due 8/1-9/12/2005(4) 136,802 136,249 General Electric Capital Corp. 3.04% due 7/12-7/13/2005 94,700 94,602 General Electric Capital Services, Inc. 3.03% due 7/11/2005 50,000 49,954 Emerson Electric Co. 3.06% due 7/12/2005(4) 36,300 36,263 Estee Lauder Companies Inc. 3.15% due 7/20/2005(4) 15,700 15,673 Exxon Asset Management Co. 2.96%-2.98% due 7/5-7/11/2005(4) 125,000 124,923 Fannie Mae 3.21% due 8/10/2005 54,613 54,413 FCAR Owner Trust I 3.29% due 8/19/2005 50,000 49,771 Federal Farm Credit Banks 2.89%-3.26% due 7/5-10/7/2005 377,000 374,997 Federal Home Loan Bank 2.92%-3.36% due 7/1-9/30/2005 1,603,302 1,595,040 Freddie Mac 2.93%-3.19% due 7/1-9/15/2005 942,579 939,910 Gannett Co. 2.99%-3.20% due 7/8-8/23/2005(4) 226,200 225,593 Hershey Foods Corp. 3.11%-3.23% due 8/12-8/24/2005(4) 62,300 62,048 Hewlett-Packard Co. 3.10%-3.26% due 7/25-7/29/2005(4) 275,000 274,358 HSBC Finance Corp. 3.07%-3.11% due 7/20-8/11/2005 117,500 117,207 IBM Capital Inc. 3.21% due 7/25/2005(4) 30,000 29,933 International Business Machines Corp. 3.02%-3.03% due 7/19-7/20/2005 100,000 99,836 Illinois Tool Works Inc. 3.13%-3.17% due 7/20-7/26/2005 38,326 38,249 International Bank for Reconstruction and Development 2.89%-3.05% due 7/8-8/15/2005 276,300 275,486 International Lease Finance Corp. 3.08%-3.22% due 7/18-8/17/2005 99,500 99,184 Kimberly-Clark Worldwide Inc. 3.08%-3.09% due 7/12-7/13/2005(4) 40,000 39,957 Medtronic Inc. 3.20%-3.23% due 7/29-8/5/2005(4) 106,350 106,021 NetJets Inc. 2.98%-3.07% due 7/5-7/12/2005(4) 72,000 71,957 New Center Asset Trust Plus 3.06%-3.25% due 7/6-7/29/2005 75,000 74,857 Park Avenue Receivables Co., LLC 3.07%-3.27% due 7/8-8/18/2005(4) 155,694 155,256 Preferred Receivables Funding Corp. 3.14%-3.34% due 7/18-9/20/2005(4) 125,000 124,494 PepsiCo Inc. 3.01%-3.22% due 7/6-8/2/2005(4) 201,300 200,924 Private Export Funding Corp. 3.02%-3.21% due 7/15-9/21/2005(4) 167,500 166,848 Procter & Gamble Co. 3.00%-3.28% due 7/11-9/16/2005(4) 263,700 262,457 SBC Communications Inc. 3.08%-3.11% due 7/8-7/19/2005(4) 100,200 100,073 Scripps (E.W.) Co. 3.29% due 8/24/2005(4) 25,000 24,874 Sun Trust Banks Inc. 3.38% due 8/29/2005 50,000 50,000 Three Pillars Funding, LLC 3.06%-3.40% due 7/1-7/19/2005(4) 195,921 195,731 Tennessee Valley Authority 2.96%-3.22% due 7/7-9/15/2005 267,750 266,687 Triple-A One Funding Corp. 3.09%-3.20% due 7/11-8/25/2005(4) 191,291 190,831 U.S. Treasury Bills 2.695%-3.066% due 7/7-9/29/2005 1,394,350 1,390,251 USAA Capital Corp. 3.13% due 8/15/2005 25,000 24,898 Variable Funding Capital Corp. 3.08%-3.30% due 7/18-8/25/2005(4) 285,000 283,987 Verizon Network Funding Corp. 3.08%-3.33% due 7/6-8/29/2005 121,000 120,650 Wal-Mart Stores Inc. 3.09%-3.27% due 7/6-8/30/2005(4) 304,700 303,613 Wells Fargo & Co. 3.13%-3.27% due 7/25-8/16/2005 250,000 249,998 Total short-term securities (cost: $11,071,776,000) 11,071,723 Total investment securities (cost: $57,858,785,000) 75,591,150 Other assets less liabilities 97,751 Net assets $75,688,901
"Miscellaneous" securities include holdings in their initial period of acquisition that have not previously been publicly disclosed. (1) Security did not produce income during the last 12 months. (2) Represents an affiliated company as defined 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. The total value of all such restricted securities was $4,095,945,000, which represented 5.41% of the net assets of the fund. (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 ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company. ITEM 8 - Portfolio Managers of Closed-End Management Investment Companies Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company. ITEM 9 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company. ITEM 10 - Submission of Matters to a Vote of Security Holders There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Directors since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a Nominating Committee comprised solely of persons who are not considered ``interested persons'' of the Registrant within the meaning of the Investment Company Act of 1940, as amended. 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. While the committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Nominating Committee of the Registrant, c/o the Registrant'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 Nominating Committee. ITEM 11 - Controls and Procedures (a) The Registrant's Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant's disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule. (b) There were no changes in the Registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12 - Exhibits (a) (1) The Code of Ethics - not applicable for filing of Semiannual Reports to Shareholders. (a) (2) The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE INVESTMENT COMPANY OF AMERICA By /s/ R. Michael Shanahan ------------------------------------------ R. Michael Shanahan, Vice Chairman and CEO Date: September 7, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ R. Michael Shanahan ------------------------------------------ R. Michael Shanahan, Vice Chairman and CEO Date: September 7, 2005 By /s/ Thomas M. Rowland ------------------------------------ Thomas M. Rowland, Treasurer and PFO Date: September 7, 2005