Certified Annual Shareholder Report of a Management Investment Company — Form N-CSR
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1: N-CSR Certified Annual Shareholder Report of a 72± 317K
Management Investment Company
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3: EX-99.CERT Miscellaneous Exhibit 3± 16K
2: EX-99.CODE ETH Miscellaneous Exhibit 2± 9K
N-CSR — Certified Annual Shareholder Report of a Management Investment Company
Document Table of Contents
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, 2003
Date of reporting period: December 31, 2003
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
ICA at 70:
A look back at seven decades
[black and white photo of a ticker tape parade]
ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2003
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
nation's third-largest mutual fund family. 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.
[Download Table]
Contents
Letter to shareholders 1
Growth over time 3
ICA at 70: A look back at seven decades 6
The Lovelace legacy 14
The portfolio counselors 14
Investment portfolio 15
Directors and officers 33
The American Funds family back cover
ABOUT THE COVER
Even during the Great Depression, Americans took time to celebrate -- like this
ticker-tape parade on New York's Broadway.
Please see page 4 for Class A share average annual total returns with relevant
sales charges deducted. Results for other share classes can be found on page 32.
Please see the inside back cover for important information about other share
classes.
THE FUND'S 30-DAY YIELD FOR CLASS A SHARES AS OF JANUARY 31, 2004, REFLECTING
THE 5.75% MAXIMUM SALES CHARGE AND CALCULATED IN ACCORDANCE WITH THE SECURITIES
AND EXCHANGE COMMISSION FORMULA, WAS 1.49%.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE PERIODS. CURRENT
AND FUTURE RESULTS MAY BE LOWER OR HIGHER THAN THOSE SHOWN. BECAUSE SHARE PRICES
MAY DECLINE, THE VALUE OF YOUR HOLDINGS MAY DECREASE. 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. OF COURSE, 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. FOR THE MOST
CURRENT INFORMATION AND MONTH-END RESULTS, VISIT AMERICANFUNDS.COM.
FELLOW SHAREHOLDERS:
[small black and white photo of a ticker tape parade]
This report marks the 70th anniversary of the Investment Company of America.
When it began operations in December 1933, it had $4.7 million in assets. Today,
ICA has 3.5 million shareholders and $66.5 billion in assets, making it the
third-biggest mutual fund in the United States. The story of the fund's growth
over the past seven decades is remarkable, we think, and beginning on page 6,
we'll tell it. First though, we focus on a much shorter time frame -- the past
12 months.
[Begin Sidebar]
[Enlarge/Download Table]
2003 Results at a glance
Year ended December 31, 2003
(with dividends and capital gain distributions reinvested)
Standard & Poor's 500
ICA Composite Index
Income return +2.23% +1.99%
Capital return +24.07% +26.68%
Total return +26.30% +28.67%
Dividends and capital gain distribution paid in 2003
Per share Payment date
Income dividends $0.13 Mar. 4
$0.13 June 9
$0.13 Sept. 8
$0.13 Dec. 17
$0.52
Capital gain distribution $0.21 Dec. 17
Expense ratios and portfolio turnover rates*
Year ended December 31, 2003
ICA Industry average+
Expense ratio 0.59% 1.34%
Portfolio turnover rate 24% 72%
* The expense ratio is the annual percentage of net assets used to pay fund
expenses. The portfolio turnover rate is a measure of how often securities
are bought and sold by a fund.
+ Growth & Income Funds, as measured by Lipper Inc.
[End Sidebar]
For the year ending December 31, 2003, ICA posted a total return of 26.3%. Its
benchmark, the unmanaged Standard & Poor's 500 Composite Index, gained 28.7%.
ICA's return assumes reinvestment of quarterly dividends totaling 52 cents a
share and a capital gain distribution of 21 cents a share, which was paid in
December 2003. The fund's income return amounted to 2.2%, versus the S&P 500's
2.0%. ICA's gains were broad: of the 172 stocks held throughout the entire
fiscal year, 156 of them rose in price, including nine of our ten biggest
holdings. In short, it was a very strong year -- and following the worst stock
market decline in several decades, a most welcome one.
ICA is a conservative fund that pays close attention to risk. Thus, during the
first few months of 2003, when war jitters and economic uncertainty dominated
the headlines, we had sizable positions in cash and bonds. So we're not
particularly surprised that we slightly trailed our benchmark last year, as we
sometimes do during a stock market recovery. Even so, a broader time horizon
shows the value of our cautious approach. During the bear market that lasted
from March 24, 2000 to October 9, 2002, the S&P's total return was -47.4%; ICA's
was -28.3%. The comparison is even more stark over a longer period of time. From
the stock market low of August 31, 1998 to December 31, 2003 -- a period
covering its dramatic rise, fall and subsequent recovery -- the S&P 500
generated a total return of 25.4%, while ICA gained 56.9%.
ECONOMIC OUTLOOK
The U.S. economy was robust in 2003, particularly between July and September,
when it grew at an annualized rate of 8.2%, its strongest quarter in 20 years.
Driving this expansion were several factors. Federal tax cuts and continued
mortgage refinancing gave consumers money to spend; business spending grew at
its fastest rate in several years; and corporate America was helped by the
falling dollar, which is making U.S. exports more competitive. In fact, the
dollar's drop -- 20% against the Euro and nearly 10% against the yen -- has been
its most substantial since 1987. This has been a boon for companies that ICA
typically invests in -- large U.S.-based multinationals that earn much of their
revenue abroad.
[begin sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com. Results shown are at
net asset value. If a sales charge (maximum 5.75%) had been deducted, the
results would have been lower.
[end sidebar]
[Begin Sidebar]
[Enlarge/Download Table]
Rise, fall and recovery: ICA vs. the S&P 500
Rise Fall Recovery Entire period
8/31/98-3/24/00 3/24/00-10/9/02 10/9/02-12/31/03 8/31/98-12/31/03
S&P 500 +62.7% -47.4% +46.4% +25.4%
ICA +52.6% -28.3% +43.3% +56.9%
[End Sidebar]
With 2004 underway, the economy continues to expand. Demand for durable goods
and capital goods is strong; closely watched indicators like business
inventories, freight shipping and consumer confidence remain good. Although
mortgage rates have generally moved higher off their June low, they remain quite
attractive.
However, since ICA is sensitive to risk as well as return, we feel compelled to
mention several reasons for caution. With short-term interest rates at 1% -- the
lowest level since 1958 -- and a growing budget deficit, the federal government
is unlikely to do more to help the economy. Meanwhile, the U.S. Federal Reserve
says consumer debt, mortgage foreclosures and personal bankruptcies stand at
all-time highs; worrisome for anyone expecting consumer spending -- two-thirds
of the U.S. economy -- to remain vigorous.
THE IMPORTANCE OF DIVIDENDS
Take a moment to unfold the "mountain chart" at the end of this letter. As you
can see, since its inception seven decades ago (January 1, 1934 through December
31, 2003), ICA's average annual total return has been 12.9%, compared to the
S&P's 11.4%. Take away the value of reinvested dividends and ICA's average
annual return would be much lower: 9.5%. (Fund results in this example reflect
payment of the 5.75% maximum sales charge on the original $10,000 investment.)
Thus, reinvested dividends have helped us achieve superior long-term returns.
This helps explain why we have always sought long-term growth of capital and
income with a greater emphasis on future dividends than on current income.
Meanwhile, the outlook for dividends seems brighter now than it has in many
years. Once taxed as ordinary income, at levels as high as 38.6%, most dividends
are now taxed at a maximum rate of 15%. In response, many companies are now
returning more profits to investors. After falling for many years, Standard &
Poor's says the number of companies in the S&P 500 that pay dividends is now
increasing, with 21 companies initiating them in 2003 -- the highest number of
new payers since 1979. Of all 370 companies in the S&P that distribute
dividends, the average payout increased 26% last year.
EMPHASIS ON RESEARCH, INSISTENCE ON INTEGRITY
When Capital Research and Management Company -- today investment adviser to the
29 American Funds -- assumed management of ICA 70 years ago, its founder,
Jonathan Bell Lovelace, had a simple philosophy: Conduct thorough investment
research and buy securities at prices that are reasonable relative to the
company's future prospects, and always be guided by honesty and integrity.
Seven decades later, much has changed. There have been 12 U.S. presidents,
several wars, countless recessions and many bull and bear markets. The country's
population has doubled. We cross oceans in a matter of hours. We have witnessed
breathtaking advances in science, medicine and technology. We live much longer
-- though life itself is faster paced and increasingly complex.
Yet some things, fortunately, remain the same. In an era tainted by financial
scandal and impropriety, Jonathan Bell Lovelace's simple, uncomplicated ethos
continues to act as a beacon, guiding us on our never-ending quest for the best
long-term investments for ICA. Like him, we eschew trends in favor of good
old-fashioned legwork: visiting companies, talking with management, carefully
scrutinizing balance sheets and above all, putting the interests of our
shareholders first. As our feature story explains, it has worked for 70 years.
We're dedicated to making it work for 70 more.
Thank you for your commitment to long-term investing. We will report to you
again in six months.
Cordially,
/s/ r. Michael Shanahan /s/ James F. Rothenberg
R. Michael Shanahan James F. Rothenberg
Chairman of the Board President
February 6, 2004
[end sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com. 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.
[end sidebar]
THE VALUE OF A LONG-TERM PERSPECTIVE (1934-2003)
This chart illustrates a hypothetical $10,000 investment in The Investment
Company of America over the past 70 years, from January 1, 1934 through December
31, 2003, showing the high, low and closing values for each year.
Fund figures reflect deduction of the maximum sales charge of 5.75% on the
$10,000 investment. Thus, the net amount invested was $9,425.*
The figures in the table below the chart include the fund's total return for
each of those years. As you look through the table, you will see that the fund's
total return can fluctuate greatly from year to year. In some years, it was well
into double digits. In other years, the fund had a negative return. Over the
entire period, a $10,000 investment in the fund, with all dividends reinvested,
would have grown to $48,891,609, compared with $18,777,238 in the S&P 500.
Over the same period, $10,000 in a savings account would have grown to $194,885
with all interest compounded.+
You can use this table to estimate how the value of your own holdings has grown.
Let's say, for example, that you have been reinvesting all of your dividends and
want to know how your investment has done since the end of 1993. At that time,
the value of the investment illustrated here was $15.7 million. Since then, it
has more than tripled, to $48.9 million. Thus, in the same period, the value of
your 1993 investment -- regardless of size -- has also more than tripled.
* The maximum initial sales charge was 8.5% prior to July 1, 1988. As outlined
in the prospectus, the sales charge is reduced for investments of $25,000
or more. There is no sales charge for reinvested dividends or capital
gain distributions.
+ Based on figures from the U.S. League of Savings Institutions and the Federal
Reserve Board, reflecting all kinds of savings deposits (maximum allowable
interest rates imposed by law until 1983). Savings accounts are
guaranteed; the fund is not.
AVERAGE ANNUAL TOTAL RETURNS
For periods ended December 31, 2003
[Download Table]
CLASS A SHARES*
reflecting 5.75% maximum sales charge
1 year +19.1%
5 years +3.3%
10 years +11.3%
*Results for other share classes can be found on page 32.
AVERAGE ANNUAL RETURNS FOR
70 YEARS (1/1/34-12/31/03)
reflecting 5.75% maximum sales charge:
[Download Table]
Income return 3.2%
Capital return 9.7%
Total return 12.9%
Value added by reinvestment of dividends
[Begin Mountain Chart]
ICA with dividends reinvested $48,891,609(1)
S&P 500 with dividends reinvested $18,777,238
ICA not including dividends $ 5,713,492(2)
original investment $ 10,000
[Begin Mountain Chart]
[Download Table]
Year ended ICA with dividends ICA not including
December 31,2003 reinvested(1) dividends (2)
original investment $ 10,000 $10,000
1/1/1934 9,400 9,400
3/31/1934 12,000 12,000
9/30/1934 9,700 9,700
12/31/1934 11,800 11,800
3/31/1935 11,100 11,100
12/31/1935 21,600 21,600
4/30/1936 21,700 21,700
12/31/1936 31,600 31,000
3/31/1937 34,900 34,200
12/31/1937 19,400 18,300
3/31/1938 16,400 15,500
12/31/1938 24,800 23,200
5/17/1939 19,200 18,000
10/26/1939 26,400 24,400
12/31/1939 25,000 22,900
4/9/1940 26,100 23,800
5/22/1940 18,300 16,700
12/31/1940 24,400 21,500
4/22/1941 20,200 17,600
7/28/1941 25,500 21,900
12/31/1941 22,600 18,800
4/28/1942 20,700 17,100
11/17/1942 25,600 20,500
12/31/1942 26,400 20,900
1/6/1943 26,400 20,900
6/5/1943 34,600 27,200
12/31/1943 35,000 26,900
1/3/1944 34,900 26,800
12/11/1944 42,800 32,100
12/31/1944 43,200 32,100
12/1/1945 58,200 42,500
12/31/1945 59,100 42,900
5/28/1946 69,300 50,200
10/9/1946 51,700 37,000
12/31/1946 57,700 40,700
2/8/1947 59,700 42,100
5/19/1947 47,600 33,300
12/31/1947 58,200 39,300
2/11/1948 51,200 34,600
6/14/1948 64,500 43,200
12/31/1948 58,400 37,700
6/13/1949 51,900 33,200
12/31/1949 63,900 39,400
7/31/1950 61,500 37,300
11/24/1950 75,500 45,300
12/31/1950 76,600 45,200
1/31/1951 77,500 45,700
9/13/1951 90,600 52,500
12/31/1951 90,300 51,200
5/1/1952 87,700 49,300
11/26/1952 98,400 54,200
12/31/1952 101,300 55,300
1/5/1953 101,500 55,400
9/14/1953 90,500 48,000
12/31/1953 101,700 53,400
1/11/1954 102,200 53,600
11/26/1954 151,000 77,300
12/31/1954 158,900 80,800
1/6/1955 153,700 78,200
12/5/1955 197,400 98,400
12/31/1955 199,200 98,500
1/23/1956 188,600 93,300
8/2/1956 228,300 111,600
12/31/1956 220,600 106,300
7/10/1957 234,700 111,600
12/23/1957 191,200 89,400
12/31/1957 194,400 90,900
1/2/1958 196,500 91,900
12/31/1958 281,500 128,000
2/9/1959 276,300 125,700
8/3/1959 317,800 143,000
12/31/1959 321,400 142,900
1/5/1960 322,600 143,400
3/8/1960 294,400 130,100
12/31/1960 336,000 145,600
1/3/1961 333,400 144,500
11/29/1961 416,600 177,700
12/31/1961 413,600 175,400
1/3/1962 412,800 175,100
6/25/1962 302,200 126,600
12/31/1962 358,800 148,200
3/1/1963 363,000 149,000
11/13/1963 435,300 176,700
12/31/1963 440,900 177,800
1/2/1964 443,300 178,800
11/18/1964 524,000 208,200
12/31/1964 512,600 202,300
6/28/1965 515,300 201,400
11/30/1965 636,800 247,800
12/31/1965 650,700 251,600
2/11/1966 695,600 268,900
10/7/1966 554,900 211,100
12/31/1966 657,100 248,000
1/4/1967 653,900 246,800
9/25/1967 848,300 315,000
12/31/1967 846,900 312,500
3/5/1968 767,400 281,400
11/29/1968 1,016,100 368,900
12/31/1968 990,600 356,600
2/6/1969 998,000 359,200
12/17/1969 861,500 301,400
12/31/1969 884,800 309,600
1/5/1970 900,900 315,200
5/26/1970 671,600 232,800
12/31/1970 908,000 307,400
1/4/1971 899,300 304,500
4/28/1971 1,041,800 349,600
12/31/1971 1,062,700 349,700
1/3/1972 1,061,100 349,200
12/11/1972 1,236,400 399,200
12/31/1972 1,231,100 394,700
1/5/1973 1,240,700 397,800
12/13/1973 969,400 300,900
12/31/1973 1,024,100 317,900
3/13/1974 1,078,700 331,700
10/3/1974 753,600 227,500
12/31/1974 840,300 245,500
1/2/1975 860,300 251,400
7/15/1975 1,192,600 342,300
12/31/1975 1,137,700 317,700
1/2/1976 1,146,300 320,100
12/15/1976 1,445,000 393,400
12/31/1976 1,474,400 398,100
1/3/1977 1,468,300 396,500
10/25/1977 1,332,000 350,400
12/31/1977 1,436,400 374,300
3/1/1978 1,346,200 347,500
9/11/1978 1,868,500 475,300
12/31/1978 1,647,500 414,400
2/27/1979 1,616,200 406,600
9/21/1979 1,993,900 489,100
12/31/1979 1,963,300 475,700
4/21/1980 1,749,600 419,500
11/18/1989 2,440,100 574,000
12/31/1980 2,380,200 552,200
4/27/1981 2,540,300 583,100
9/25/1981 2,250,800 505,100
12/31/1981 2,401,100 530,900
8/12/1982 2,283,500 487,000
12/7/1982 3,273,700 683,800
12/31/1982 3,212,000 670,600
1/24/1983 3,149,700 657,600
10/10/1983 3,954,400 800,700
12/31/1983 3,859,700 774,500
1/5/1984 3,938,600 790,300
7/24/1984 3,487,700 684,700
12/31/1984 4,117,200 792,000
1/8/1985 4,042,300 777,600
12/31/1985 5,491,900 1,017,900
1/10/1986 5,378,100 996,800
8/26/1986 6,822,100 1,244,500
12/31/1986 6,685,700 1,200,500
8/25/1987 8,965,000 1,587,100
12/4/1987 6,490,200 1,124,100
12/31/1987 7,049,200 1,220,900
1/20/1988 6,898,300 1,194,800
10/20/1988 8,057,700 1,361,600
12/31/1988 7,898,300 1,327,400
1/3/1989 7,952,300 1,321,200
10/9/1989 10,570,700 1,717,600
12/31/1989 10,338,600 1,652,800
7/16/1990 11,034,400 1,738,600
9/24/1990 9,349,200 1,461,700
12/31/1990 10,409,000 1,598,800
1/9/1991 9,964,600 1,530,600
12/31/1991 13,171,900 1,969,900
4/8/1992 12,725,800 1,891,000
12/8/1992 14,053,700 2,062,300
12/31/1992 14,092,300 2,052,200
12/31/1993 15,729,400 2,234,200
2/2/1994 16,250,300 2,308,200
12/31/1994 15,753,900 2,180,600
12/13/1995 20,601,500 2,800,100
12/31/1995 20,578,700 2,779,700
1/10/1996 20,131,200 2,719,200
11/29/1996 24,949,000 3,317,300
12/31/1996 24,560,600 3,247,900
1/2/1997 24,449,100 3,233,100
10/7/1997 32,201,100 4,203,600
12/31/1997 31,881,200 4,142,700
1/9/1998 30,538,200 3,968,200
11/27/1998 38,263,600 4,912,000
12/31/1998 39,193,500 5,008,200
7/16/1999 44,986,500 5,706,500
12/14/1999 43,402,300 5,461,600
12/31/1999 45,682,200 5,748,500
6/2/2000 48,297,100 6,033,200
12/20/2000 45,816,400 5,674,900
12/31/2000 47,435,200 5,875,500
2/1/2001 48,641,700 6,024,900
9/21/2001 39,682,300 4,850,900
12/31/2001 45,258,600 5,507,500
3/19/2002 46,842,700 5,674,200
10/9/2002 34,117,000 4,091,000
12/31/2002 38,709,100 4,616,900
3/11/2003 35,519,000 4,211,800
12/31/2003 48,891,600 5,713,500
Year ended S&P 500 with dividends
December 31,2003 reinvested
original investment $ 10,000
1/1/1934 10,000
2/6/1934 11,700
7/26/1934 8,500
12/31/1934 9,900
3/14/1935 8,400
11/19/1935 14,500
12/31/1935 14,600
11/9/1936 19,800
12/31/1936 19,500
3/6/1937 21,200
11/24/1937 12,000
12/31/1937 12,700
3/31/1938 10,300
11/9/1938 17,200
12/31/1938 16,600
4/8/1939 12,900
12/31/1939 16,500
1/3/1940 16,900
6/10/1940 12,200
12/31/1940 14,900
1/10/1941 15,300
12/31/1941 13,200
4/28/1942 11,400
12/31/1942 15,900
7/14/1943 21,100
12/31/1943 20,000
2/7/1944 19,800
12/31/1944 23,900
12/10/1945 33,100
12/31/1945 32,600
5/29/1946 36,500
10/9/1946 27,300
12/31/1946 30,000
2/8/1947 31,800
5/17/1947 27,200
12/31/1947 31,700
2/14/1948 28,800
6/15/1948 36,100
12/31/1948 33,400
6/13/1949 30,600
12/31/1949 39,700
1/14/1950 39,400
12/31/1950 52,300
10/15/1951 63,800
12/31/1951 64,800
2/20/1952 63,200
12/31/1952 76,700
9/14/1953 68,000
12/31/1953 76,000
12/31/1954 115,900
1/17/1955 111,400
11/14/1955 154,300
12/31/1955 152,400
1/23/1956 144,500
8/2/1956 170,400
12/31/1956 162,400
7/15/1957 174,200
10/22/1957 139,600
12/31/1957 144,900
12/31/1958 207,600
2/9/1959 202,000
8/3/1959 232,400
12/31/1959 232,500
10/25/1960 208,300
12/31/1960 233,600
12/12/1961 300,200
12/31/1961 296,500
6/26/1962 219,500
12/31/1962 270,700
1/2/1963 268,900
12/31/1963 332,400
11/20/1964 391,800
12/31/1964 387,100
6/28/1965 377,300
11/15/1965 433,700
12/31/1965 435,400
2/6/1966 444,100
10/7/1966 353,300
12/31/1966 391,500
9/25/1967 485,600
12/31/1967 485,300
3/5/1968 443,700
11/29/1968 560,900
12/31/1968 539,000
5/14/1969 556,500
12/31/1969 493,500
5/26/1970 376,000
12/31/1970 513,000
4/28/1971 587,700
11/23/1971 515,100
12/31/1971 586,300
12/11/1972 702,300
12/31/1972 697,700
1/11/1973 710,600
12/5/1973 560,500
12/31/1973 595,200
1/3/1974 608,900
10/3/1974 392,200
12/31/1974 437,700
7/15/1975 623,500
12/31/1975 600,600
9/21/1976 736,500
12/31/1976 744,300
11/2/1977 653,100
12/31/1977 691,000
3/6/1978 637,100
9/12/1978 804,900
12/31/1978 736,500
10/5/1979 887,800
12/31/1979 873,500
3/27/1980 801,700
11/28/1980 1,193,000
12/31/1980 1,157,000
1/6/1981 1,177,100
9/25/1981 993,700
12/31/1981 1,100,000
8/12/1982 952,400
11/9/1982 1,348,600
12/31/1982 1,337,000
1/3/1983 1,315,200
10/10/1983 1,696,700
12/31/1983 1,638,600
7/24/1984 1,503,700
11/6/1984 1,760,500
12/31/1984 1,741,400
1/4/1985 1,704,300
12/31/1985 2,293,900
1/22/1986 2,209,300
12/2/1986 2,846,900
12/31/1986 2,722,000
8/25/1987 3,852,000
12/4/1987 2,588,700
12/31/1987 2,865,000
1/20/1988 2,813,400
10/21/1988 3,379,700
12/31/1988 3,339,500
10/9/1989 4,438,700
12/31/1989 4,395,800
7/16/1990 4,669,500
10/11/1990 3,774,000
12/31/1990 4,259,100
1/9/1991 4,017,600
12/31/1991 5,553,900
4/8/1992 5,290,600
12/18/1992 6,040,000
12/31/1992 5,976,500
1/8/1993 5,885,100
12/31/1993 6,577,500
2/2/1994 6,806,400
4/4/1994 6,231,300
12/31/1994 6,664,000
12/13/1995 9,234,500
12/31/1995 9,165,300
1/10/1996 8,905,600
11/25/1996 11,473,200
12/31/1996 11,268,200
12/5/1997 15,211,800
12/31/1997 15,026,300
1/9/1998 14,364,500
12/29/1998 19,495,500
12/31/1998 19,320,200
1/14/1999 19,052,300
12/31/1999 23,384,800
3/24/2000 24,358,100
12/20/2000 20,344,900
12/31/2000 21,256,400
1/30/2001 22,116,900
9/21/2001 15,685,400
12/31/2001 18,732,000
1/4/2002 19,130,600
10/9/2002 12,823,500
12/31/2002 14,593,600
3/11/2003 13,325,800
12/31/2003 18,777,200
[end mountain chart]
[Enlarge/Download Table]
Year ended December 31 1934 1935 1936 1937 1938 1939 1940
Year-by-year summary of results (dollars in thousands)
Dividends reinvested -- -- $0.4 1.0 0.2 0.5 0.9
Value at year-end $11.8 21.6 31.6 19.4 24.8 25.0 24.4
Dividends in cash -- -- $0.4 1.0 0.2 0.5 0.8
Value at year-end $11.8 21.6 31.0 18.3 23.2 22.9 21.5
Annual percentage returns assuming dividends reinvested
Income return 0.0 % 0.0 1.8 3.2 0.9 2.2 3.6
Capital return 18.2 % 83.1 44.0 (41.7) 26.7 (1.4) (6.0)
ICA total return 18.2% 83.1 45.8 (38.5) 27.6 0.8 (2.4)
Fund expenses(3) 0.94% 1.13 1.19 1.53 1.89 2.02 1.88
Year ended December 31 1941 1942 1943 1944 1945 1946 1947
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 1.3 1.2 1.1 1.2 1.2 1.8 2.4
Value at year-end 22.6 26.4 35.0 43.2 59.1 57.7 58.2
Dividends in cash 1.1 1.0 0.9 0.9 0.9 1.3 1.7
Value at year-end 18.8 20.9 26.9 32.1 42.9 40.7 39.3
Annual percentage returns assuming dividends reinvested
Income return 5.2 5.3 4.2 3.5 2.8 3.0 4.2
Capital return (12.6) 11.5 28.6 19.8 34.0 (5.4) (3.3)
ICA total return (7.4) 16.8 32.8 23.3 36.8 (2.4) 0.9
Fund expenses(3) 1.95 2.13 1.72 1.45 1.06 0.98 1.10
Year ended December 31 1948 1949 1950 1951 1952 1953 1954
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 2.7 2.7 3.2 3.4 3.5 3.9 4.1
Value at year-end 58.4 63.9 76.6 90.3 101.3 101.7 158.9
Dividends in cash 1.8 1.7 1.9 2.0 2.0 2.1 2.1
Value at year-end 37.7 39.4 45.2 51.2 55.3 53.4 80.8
Annual percentage returns assuming dividends reinvested
Income return 4.6 4.6 4.9 4.4 3.9 3.9 4.0
Capital return (4.2) 4.8 14.9 13.4 8.3 (3.5) 52.1
ICA total return 0.4 9.4 19.8 17.8 12.2 0.4 56.1
Fund expenses(3) 1.08 0.96 1.01 0.93 0.81 0.85 0.88
Year ended December 31 1955 1956 1957 1958 1959 1960 1961
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 5.1 5.6 6.2 6.5 7.0 8.1 8.4
Value at year-end 199.2 220.6 194.4 281.5 321.4 336.0 413.6
Dividends in cash 2.6 2.7 3.0 3.0 3.2 3.6 3.6
Value at year-end 98.5 106.3 90.9 128.0 142.9 145.6 175.4
Annual percentage returns assuming dividends reinvested
Income return 3.2 2.8 2.8 3.4 2.5 2.5 2.5
Capital return 22.2 8.0 (14.7) 41.4 11.7 2.0 20.6
ICA total return 25.4 10.8 (11.9) 44.8 14.2 4.5 23.1
Fund expenses(3) 0.86 0.80 0.76 0.68 0.64 0.62 0.59
Year ended December 31 1962 1963 1964 1965 1966 1967 1968
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 9.1 9.6 10.7 12.1 15.5 18.4 22.6
Value at year-end 358.8 440.9 512.6 650.7 657.1 846.9 990.6
Dividends in cash 3.8 3.9 4.3 4.7 5.9 6.9 8.3
Value at year-end 148.2 177.8 202.3 251.6 248.0 312.5 356.6
Annual percentage returns assuming dividends reinvested
Income return 2.2 2.7 2.4 2.4 2.4 2.8 2.7
Capital return (15.4) 20.2 13.9 24.5 (1.4) 26.1 14.3
ICA total return (13.2) 22.9 16.3 26.9 1.0 28.9 17.0
Fund expenses(3) 0.61 0.59 0.58 0.57 0.52 0.50 0.49
Year ended December 31 1969 1970 1971 1972 1973 1974 1975
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 25.3 27.3 28.6 29.9 33.4 52.2 49.8
Value at year-end 884.8 908.0 1,062.7 1,231.1 1,024.1 840.3 1,137.7
Dividends in cash 9.0 9.4 9.6 9.7 10.6 15.9 14.3
Value at year-end 309.6 307.4 349.7 394.7 317.9 245.5 317.7
Annual percentage returns assuming dividends reinvested
Income return 2.6 3.1 3.1 2.8 2.7 5.1 5.9
Capital return (13.3) (0.5) 13.9 13.1 (19.5) (23.0) 29.5
ICA total return (10.7) 2.6 17.0 15.9 (16.8) (17.9) 35.4
Fund expenses(3) 0.48 0.55 0.51 0.49 0.47 0.49 0.48
Year ended December 31 1976 1977 1978 1979 1980 1981 1982
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 46.4 49.8 56.0 70.0 91.3 115.9 146.1
Value at year-end 1,474.4 1,436.4 1,647.5 1,963.3 2,380.2 2,401.1 3,212.0
Dividends in cash 12.8 13.3 14.4 17.3 21.7 26.4 31.6
Value at year-end 398.1 374.3 414.4 475.7 552.2 530.9 670.6
Annual percentage returns assuming dividends reinvested
Income return 4.1 3.4 3.9 4.2 4.7 4.9 6.1
Capital return 25.5 (6.0) 10.8 15.0 16.5 (4.0) 27.7
ICA total return 29.6 (2.6) 14.7 19.2 21.2 0.9 33.8
Fund expenses(3) 0.46 0.49 0.49 0.47 0.46 0.45 0.46
Year ended December 31 1983 1984 1985 1986 1987 1988 1989
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 147.2 160.4 174.9 203.8 267.5 318.7 370.8
Value at year-end 3,859.7 4,117.2 5,491.9 6,685.7 7,049.2 7,989.3 10,338.6
Dividends in cash 30.3 31.7 33.2 37.3 47.5 54.4 60.7
Value at year-end 774.5 792.0 1,017.9 1,200.5 1,220.9 1,327.4 1,652.8
Annual percentage returns assuming dividends reinvested
Income return 4.6 4.2 4.2 3.7 4.0 4.5 4.6
Capital return 15.6 2.5 29.2 18.0 1.4 8.8 24.8
ICA total return 20.2 6.7 33.4 21.7 5.4 13.3 29.4
Fund expenses(3) 0.44 0.47 0.43 0.41 0.42 0.48 0.52
Year ended December 31 1990 1991 1992 1993 1994 1995 1996
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 406.3 320.4 357.8 374.4 407.2 450.1 480.1
Value at year-end 10,409.0 13,171.9 14,092.3 15,729.4 15,753.9 20,578.7 24,560.6
Dividends in cash 64.1 48.7 53.0 54.0 57.3 61.7 64.3
Value at year-end 1,598.8 1,969.9 2,052.2 2,234.2 2,180.6 2,779.7 3,247.9
Annual percentage returns assuming dividends reinvested
Income return 3.9 3.1 2.7 2.7 2.6 2.9 2.3
Capital return (3.2) 23.4 4.3 8.9 (2.4) 27.7 17.0
ICA total return 0.7 26.5 7.0 11.6 0.2 30.6 19.3
Fund expenses(3) 0.55 0.59 0.58 0.59 0.60 0.60 0.59
Year ended December 31 1997 1998 1999 2000 2001 2002 2003
Year-by-year summary of results (dollars in thousands)
Dividends reinvested 510.3 584.1 651.8 743.4 804.1 833.3 864.3(1)
Value at year-end 31,881.2 39,193.5 45,682.2 47,435.2 45,258.6 38,709.1 48,891.6
Dividends in cash 67.0 75.4 82.8 93.0 99.0 100.7 102.2(2)
Value at year-end 4,142.7 5,008.2 5,748.5 5,875.5 5,507.5 4,616.9 5,713.5
Annual percentage returns assuming dividends reinvested
Income return 2.1 1.8 1.7 1.6 1.7 1.8 2.2
Capital return 27.7 21.1 14.9 2.2 (6.3) (16.3) 24.1
ICA total return 29.8 22.9 16.6 3.8 (4.6) (14.5) 26.3
Fund expenses(3) 0.56 0.55 0.55 0.56 0.57 0.59 0.59
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com.
The results shown are before taxes on fund distributions and sale of fund
shares. The S&P 500 is unmanaged and does not reflect the effects of sales
charges, commissions or expenses.
(1) Includes dividends of $10,434,715 and capital gain distributions of
$22,488,688 reinvested in the years 1936-2003.
(2) Includes reinvested capital gain distributions of $3,255,361, but does not
reflect income dividends of $1,617,961 taken in cash.
(3) Fund expense percentages are provided as additional information. They
should not be subtracted from any other figure on the table because all
fund results already reflect their effect.
[end mountain chart]
[photo of a soup kitchen during the Great Depression]
[Begin Photo Caption]
Great Depression: An all too typical sight during the 1930s-- a soup kitchen.
It was during this harsh economic era that ICA was born.
[End Photo Caption]
ICA AT 70: A LOOK BACK AT SEVEN DECADES
It was, perhaps, America's darkest era: the Great Depression. At its worst point
in the early 1930s, one in seven adults was unemployed. Factories and banks
failed. There were record numbers of farm and home foreclosures. As poverty
soared, bread lines and soup kitchens sprouted. A popular song reflected the
grim era: "Brother, can you spare a dime?" Few could. To many Americans, the
stock market crash of 1929 was to blame, and investing in equities was thought
to be a fool's game.
Against this gloomy backdrop, a young stock analyst, Jonathan Bell Lovelace, was
asked to take control of a closed-end leveraged financial trust. Its name: The
Investment Company of America. When he took over on December 6, 1933, ICA had
net assets of $4.7 million. Now, as it marks its 70th year, The Investment
Company of America is the third-largest mutual fund in the United States, with
$66.5 billion in assets.
On the next few pages, we'll look at ICA and chart its remarkable growth over
seven decades and many stock market cycles. We'll also look at the legacy of
Jonathan Bell Lovelace, and his impact on ICA and its investment adviser --
built by him -- Capital Research and Management Company.
[Begin Sidebar]
1934-43
The early years
[End Sidebar]
Investors who think the stock market's rise and fall between 1998 and 2002 was
dramatic should look at the 1930s. As the United States struggled to right
itself during the Great Depression, the stock market was quite volatile. After
delivering a total return of 25.4% in 1934, its first full year of operations,
ICA soared in 1935 and 1936, gaining 83.1% and 45.8%, respectively. In 1937,
however, the stock market fell sharply, and so did ICA, plunging 38.5% -- its
worst year ever.
By the end of the fund's first decade, the United States found itself in World
War II. Unemployment dwindled as Americans went back to work. As the U.S. became
the arsenal of democracy, its economy -- and ICA -- boomed. For its first ten
years, the fund rose at a compound rate of 14.0% a year; its benchmark, the
Standard & Poor's 500 Composite Index, delivered an average annual total return
of 7.2%.
In those days, the U.S. was a blue-collar nation, dominated by "smokestack"
industries. ICA's investment holdings generally reflected this. But changes were
afoot: the decade also saw the splitting of the atom, the first jet plane, and
the first television broadcast.
[begin mountain chart]
Growth of a $10,000 investment (1934-43)
with dividends reinvested
[Download Table]
ICA S&P 500
1933 $10,000 $10,000
1934 $12,542 $ 9,851
1935 $22,961 $14,555
1936 $33,481 $19,479
1937 $20,607 $12,670
1938 $26,285 $16,604
1939 $26,508 $16,542
1940 $25,868 $14,918
1941 $23,966 $13,193
1942 $27,982 $15,880
1943 $37,151 $19,980
Year ended December 31
[end mountain chart]
[Begin Sidebar]
FUND FACTS at December 31, 1943
$3,723,660 ASSETS UNDER MANAGEMENT
10 LARGEST EQUITY HOLDINGS
Greyhound
Paramount Pictures
B.F. Goodrich
National Supply
Great Northern Railway
American Home Products
Standard Oil (New Jersey)
Canada Dry Ginger Ale
Philco
Oliver Farm Equipment
[End Sidebar]
[photo of President Franklin D. Roosevelt]
[Begin Photo Caption]
Nothing to Fear: President Franklin D. Roosevelt gave Americans hope during the
Great Depression.
[End Photo Caption]
[begin sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com. Results shown are at
net asset value. If a sales charge (maximum 5.75%) had been deducted, the
results would have been lower.
[end sidebar]
[Begin Sidebar]
1944-53
War and peace
[End Sidebar]
[Begin mountain chart]
Growth of a $10,000 investment (1944-53)
with dividends reinvested
[Download Table]
ICA S&P 500
1943 $10,000 $10,000
1944 $12,334 $11,972
1945 $16,874 $16,331
1946 $16,474 $15,012
1947 $16,624 $15,868
1948 $16,685 $16,727
1949 $18,259 $19,864
1950 $21,879 $26,160
1951 $25,778 $32,440
1952 $28,925 $38,390
1953 $29,055 $38,016
Year ended December 31
[End mountain chart]
[Begin Sidebar]
FUND FACTS at December 31, 1953
12,326 SHAREHOLDERS
$26,727,549 ASSETS UNDER MANAGEMENT
10 LARGEST EQUITY HOLDINGS
General Electric
B.F. Goodrich
Westinghouse Electric
International Paper
United Aircraft
American Automobile Insurance
Carrier
Aluminum Company of America
Texas Gulf Producing
Sperry
[End Sidebar]
[photo of a woman on an airplane wing]
[Begin Photo Caption]
Rosie the Riveter: With millions of American men in the armed forces, women kept
the defense industry running during World War II.
[End Photo Caption]
With America's wartime economy at full peak, ICA's second decade got off to a
good start. The fund generated a total return of 23.3% in 1944; it did even
better in 1945, surging 36.8%. But as the war ended, the nation demobilized and
millions of servicemen came home. Defense spending -- which accounted for as
much as 38.0% of the U.S. economy during the war -- was slashed. The stock
market sagged. In 1946, ICA slipped 2.4%, and was essentially flat for the next
two years.
As the nation adjusted to peacetime, things began to pick up. Thanks to the GI
bill, millions of veterans went to college; it was the beginning of America's
gradual shift to a service-oriented, white-collar economy. Those veterans got
married too, and the Baby Boom was on. After years of economic depression and
wartime deprivation, the nation's standard of living began to rise.
But peace soon gave way to new tensions. Just three years after the end of World
War II, a U.S.-Soviet showdown over Berlin heralded the dawn of the Cold War.
Communism swept China, and the U.S. found itself at war again, this time in
Korea.
During this decade of war and peace -- and war again -- the stock market did
quite well. From 1944 to 1953, the S&P 500 Index grew at an average annual
compound rate of 14.3%. ICA lagged, averaging an annual total return of 11.3%.
In relative terms, it was ICA's poorest decade. But over the first two full
decades of its existence, the fund, with dividends reinvested, still grew 48%
more than its benchmark.
[Begin Sidebar]
1954-63
Progress and prosperity
[End Sidebar]
Sandwiched between the end of the Korean War and the turbulence that defined
much of the 1960s, the decade from 1954 to 1963 was one of quiet progress in
America. From Southern California to New York's Long Island, suburbs grew
quickly, connected by thousands of miles of freeways. This love affair with the
road would spur the rapid growth of everything from shopping malls to motel
chains to fast-food restaurants. Television asserted itself as the dominant form
of entertainment. A vaccine for polio was developed. Alaska and Hawaii joined
the union. Politically, the placid years of Dwight Eisenhower gave way to the
excitement of John F. Kennedy's New Frontier. America set its sights on the
moon, while deepening its involvement in Vietnam. The decade ended on a tragic
note in November 1963, when Kennedy was assassinated.
For investors, it was generally a prosperous time. Even accounting for three
recessions and stock market declines in 1957 and 1962, the S&P 500 had an
average annual total return of 15.9% for the decade. ICA essentially kept pace,
at 15.8%.
Although ICA continued to focus mostly on U.S. companies, the fund's investment
adviser, Capital Research and Management Company, saw that many of those
companies were beginning to derive more revenue from abroad. A new word entered
the lexicon: "multinational," used to describe a company with business
operations in many countries. With the world's economies and markets becoming
increasingly intertwined, Capital Research opened its first research office
overseas, in Geneva. Today, the fund invests up to 15% of its net assets in
companies domiciled outside the United States and not included in the S&P 500
Index.
In addition to its growing international focus, ICA underwent another important
change. In April 1958, Capital began to manage its mutual funds with a method
that, to this day, remains unique in the investment business: the "multiple
portfolio counselor system." (Please see page 14.)
[photo of a family watching television]
[Begin Photo Caption]
Prime Time: Television spread rapidly in the 1950s, quickly becoming the
dominant mass-medium in the United States.
[End Photo Caption]
[Begin mountain chart]
Growth of a $10,000 investment (1954-63)
with dividends reinvested
[Download Table]
ICA S&P 500
1953 $10,000 $10,000
1954 $15,613 $15,257
1955 $19,579 $20,068
1956 $21,686 $21,378
1957 $19,109 $19,075
1958 $27,665 $27,337
1959 $31,590 $30,606
1960 $33,023 $30,755
1961 $40,645 $39,031
1962 $35,264 $35,634
1963 $43,333 $43,759
Year ended December 31
[End mountain chart]
[Begin Sidebar]
Fund facts at December 31, 1963
60,519 SHAREHOLDERS
$300,583,368 ASSETS UNDER MANAGEMENT
10 LARGEST EQUITY HOLDINGS
International Business Machines
Xerox
Burlington Industries
Delta Air Lines
Union Oil Company of California
Royal Dutch Petroleum
American Airlines
Southern Pacific
Northwest Airlines
Ford Motor
[End Sidebar]
[begin sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com. Results shown are at
net asset value. If a sales charge (maximum 5.75%) had been deducted, the
results would have been lower.
[end sidebar]
[Begin Sidebar]
1964-73
Upheaval and achievement
[End Sidebar]
For investors, this ten-year period is sometimes known as the "go-go years" --
the term used to describe the stock market's general rise during the decade. In
retrospect, however, the period wasn't as energetic as the phrase implies. The
S&P 500 Index suffered three negative years and, for the decade as a whole,
generated an average annual total return of 6.0%. Careful stock selection and
close attention to risk helped ICA do better, averaging 8.8% per year.
The latter part of the decade is rather famous for another term: the so-called
"nifty fifty" -- a group of mostly blue-chip stocks that did quite well for a
few years, but then plunged, leading to the sharp stock market downturn that
began in 1973. ICA's investment team doesn't follow fads, and decided that the
nifty fifty were significantly overvalued, so it generally avoided those stocks.
The stock market's muted growth during the decade was also a reflection of the
nation's growing economic difficulties, namely surging inflation and interest
rates.
There were other troubles. Americans were sharply divided over Vietnam, beset by
social upheaval, and within the space of two months in 1968, the assassinations
of Robert Kennedy and Martin Luther King. Near the end of the ten-year period
came Watergate. But there were bright spots too, including the first heart
transplant operation and the birth of the environmental movement. Intel
introduced the world's first microprocessor and the Boeing 747 took to the
skies, revolutionizing travel for millions. But the most notable journey was
made by just two men who, in July 1969, walked on the moon.
During this momentous decade, ICA continued to grow, gaining its 100,000th
shareholder, while net assets climbed to more than $1.3 billion. It also saw
three of ICA's current portfolio counselors enter the investment business.
Together, the three of them now have more than a century's worth of investment
experience.
[Begin Photo Caption]
[photo of a man walking on the moon]
One Small Step: Arguably the most spectacular achievement of the 20th century,
Apollo 11's landing on the moon reflected America's economic and technological
prowess.
[End Photo Caption]
[Begin Sidebar]
Growth of a $10,000 investment (1964-73)
with dividends reinvested
[Download Table]
ICA S&P 500
1963 $10,000 $10,000
1964 $11,626 $11,648
1965 $14,758 $13,099
1966 $14,903 $11,779
1967 $19,209 $14,600
1968 $22,469 $16,216
1969 $20,069 $14,847
1970 $20,595 $15,434
1971 $24,102 $17,641
1972 $27,922 $20,991
1973 $23,227 $17,908
Year ended December 31
[End mountain chart]
[Begin Sidebar]
Fund facts at December 31, 1973
137,424 SHAREHOLDERS
$1,322,210,288 ASSETS UNDER MANAGEMENT
10 LARGEST EQUITY HOLDINGS
Philip Morris
Atlantic Richfield
Exxon
Connecticut General Insurance
Federal National Mortgage
RCA
Standard Oil Company of California
Texaco
American Telephone and Telegraph
Sperry Rand
[End Sidebar]
[Begin Sidebar]
1974-83
Long-term growth
[End Sidebar]
[photo of a car at a gas station next to sign announcing a gas shortage]
[Begin Photo Caption]
Fill 'er Up: America's growing dependence on imported oil was driven home by an
Arab oil embargo in 1973-1974.
[End Photo Caption]
[Begin mountain chart]
Growth of a $10,000 investment (1974-83)
with dividends reinvested
[Download Table]
ICA S&P 500
1973 $10,000 $10,000
1974 $ 8,206 $ 7,353
1975 $11,109 $10,091
1976 $14,397 $12,505
1977 $14,026 $11,610
1978 $16,088 $12,373
1979 $19,172 $14,676
1980 $23,242 $19,438
1981 $23,447 $18,481
1982 $31,365 $22,463
1983 $37,690 $27,530
Year ended December 31
[End mountain chart]
[Begin Sidebar]
Fund facts at December 31, 1983
128,983 SHAREHOLDERS
$2,359,908,594 ASSETS UNDER MANAGEMENT
10 LARGEST EQUITY HOLDINGS
International Business Machines
Philip Morris
American Telephone and Telegraph
Capital Cities Communications
General Electric
Eastman Kodak
NCR
Boeing
Time
Times Mirror
[End Sidebar]
The decade picked up where the previous one left off: with bad news. Inflation
and interest rates were at sky-high levels and the stock market was in the midst
of its worst slump since the 1930s. Vietnam was finally over, but Watergate was
about to force Richard Nixon from the presidency. The combination of scandal,
war and economic turbulence took a toll, with many Americans losing faith in
their government and financial institutions. But scientific, medical and
technological breakthroughs continued, including the birth of the first test
tube baby, the implantation of an artificial heart and the first space shuttle
mission. Near the end of the decade, the United States suffered a severe
recession, with the Federal Funds rate topping 19.0% in 1981 and an unemployment
rate that reached 10.8%.
Despite the gloomy headlines, patient investors were well rewarded over the
decade. ICA generated an average annual total return of 14.2% over the ten-year
period, well ahead of the S&P 500's 10.7%. As in decades past, the fund's
investment results were based on a long-term perspective, thorough research and
careful attention to risk.
ICA's investment adviser, Capital Research and Management Company, significantly
increased its investment research capability during this period. During the
stock market decline that ended in 1974, when some investment firms were pruning
staff, Capital made several key hires. Of ICA's current nine portfolio
counselors, three entered the investment business in this decade.
Thus, most of the men and women now managing ICA's portfolio have been on hand
for many years. Capital also continued to emphasize its commitment to global
investing by opening research offices in London, Tokyo and Hong Kong.
With $1.3 billion in net assets at the beginning of 1974, ICA was already one of
the biggest mutual funds in the United States. It would get bigger still: Ten
years later, net assets had grown more than 78%, to nearly $2.4 billion. The
decade also saw ICA embark on one of its best periods, on both an absolute and
relative basis. After experiencing a negative total return of 2.6% in 1977, the
fund would deliver positive total returns for each of the next 23 years.
[begin sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com. Results shown are at
net asset value. If a sales charge (maximum 5.75%) had been deducted, the
results would have been lower.
[end sidebar]
[Begin Sidebar]
1984-93
Triumph of capitalism
[End Sidebar]
[photo of people standing onto of the Berlin Wall]
[Begin Photo Caption]
East Meets West: The fall of the Berlin Wall in 1989 heralded the end of the
cold war, bringing democracy and the free market to Eastern Europe and most of
the former Soviet Union.
[End Photo Caption]
[Begin mountain chart]
Growth of a $10,000 investment (1984-93)
with dividends reinvested
[Download Table]
ICA S&P 500
1983 $10,000 $10,000
1984 $10,667 $10,627
1985 $14,229 $13,999
1986 $17,322 $16,612
1987 $18,263 $17,484
1988 $20,699 $20,380
1989 $26,786 $26,827
1990 $26,968 $25,993
1991 $34,127 $33,894
1992 $36,511 $36,473
1993 $40,753 $40,141
Year ended December 31
[End mountain chart]
[Begin Sidebar]
Fund facts at December 31, 1993
1,147,629 SHAREHOLDERS
$19,005,029,805 ASSETS UNDER MANAGEMENT
10 LARGEST EQUITY HOLDINGS
Federal National Mortgage
Royal Dutch Petroleum
Time Warner
Philip Morris
Tele-Communications
MCI Communications
BankAmerica
Caterpillar
American Telephone and Telegraph
International Business Machines
[End Sidebar]
As rapid as ICA's growth was between 1974 and 1983, it pales in comparison with
the decade that followed. The fund welcomed more than a million new shareholders
between 1984 and 1993 -- an increase of nearly 800%.
Those shareholders were well rewarded during the decade. Despite a sharp stock
market downturn in 1987 and a recession in the early 1990s, the fund produced a
positive total return each year, achieving an average annual total return of
15.1%. This was slightly better than the S&P 500's 14.9%. Overall, the fund's
net assets swelled from $2.4 billion to $19 billion.
Many favorable developments helped lift the stock market higher. In the United
States, inflation and interest rates declined steadily. Overseas, the Berlin
Wall came down and the Soviet Union collapsed, ending the Cold War. The world
seemed safer and U.S. defense spending began to decline in real terms. After the
turbulence of the 1960s and 1970s, Americans became more optimistic about the
future.
From a business and investment standpoint, there were several notable events
that would affect the U.S. economy and ICA. In 1984, AT&T's nationwide telephone
monopoly was broken up; its divestiture signaled rapid growth and innovation in
the telecommunications industry. Another important development during the decade
was the lowering of many trade barriers. In 1992, the United States and its two
biggest trading partners, Canada and Mexico, created the North American Free
Trade Agreement. That same year, the Maastricht Treaty was signed, creating the
European Union.
The lowering of trade barriers has been significant for ICA, since it invests in
big, well-established U.S. companies that typically have extensive business
operations around the world. As global trade grew rapidly during the decade,
Capital Research continued to expand its investment research, particularly in
Europe and Asia. By the end of 1993, Capital's budget for investment research
topped $50 million, and its investment professionals made more than 7,000
research visits in the United States and around the world.
[Begin Sidebar]
1994-2003
The best-- and worst-- of times
[End Sidebar]
The stock market enjoyed one of its best periods during this decade. It also
suffered through one of its worst. From 1995 through 1999, ICA's benchmark, the
Standard & Poor's 500 Composite Index, averaged gains of more than 20% per year,
an unprecedented feat. In March 2000, the S&P 500 began falling from its lofty
perch; by October 2002, it had shed 47% of its value.
For the entire ten-year period, ICA had an average annual total return of 12.0%,
compared with the S&P's 11.1%. But it's the last few years of the decade -- from
1998 to the end of 2002 -- that exemplify much of what ICA has always tried to
achieve: solid and consistent investment results for its shareholders over long
periods of time, through many stock market cycles.
From its low on August 31, 1998 to its high on March 24, 2000, the S&P 500's
total return was 62.7%; ICA's was 52.6%. But from that high-water mark to the
low of October 9, 2002, the value of the S&P -- as we mentioned -- was nearly
cut in half. ICA's total return was -28.3%. Looking at the entire stock market
cycle, from August 31, 1998 to October 9, 2002, the S&P lost 14.3%. ICA gained
9.5%.
As it has so many times in the past, careful investment research and attention
to risk helped ICA weather the storm. ICA's focus on dividends has also
contributed to its long-term success. When the stock market is falling, dividend
payments can cushion the blow for investors. When the stock market is rising,
they're added to capital gains. And when dividends are reinvested, they produce
still more dividends. Over ICA's first seven decades -- from January 1, 1934 to
December 31, 2003 -- reinvested dividends accounted for 36% of its total return.
Little wonder that Albert Einstein once called compounding "the eighth wonder of
the world."
[photo of the remains of the World Trade Centers in New York]
[Begin Photo Caption]
End of an Era: September 11, 2001 plunged America into a period of war and
uncertainty -- yet ICA has remained resilient.
[End Photo Caption]
[Begin mountain chart]
Growth of a $10,000 investment (1994-2003)
with dividends reinvested
[Download Table]
ICA S&P 500
1993 $10,000 $10,000
1994 $10,016 $10,132
1995 $13,083 $13,934
1996 $15,615 $17,131
1997 $20,269 $22,845
1998 $24,917 $29,373
1999 $29,043 $35,553
2000 $30,157 $32,317
2001 $28,773 $28,479
2002 $24,609 $22,187
2003 $31,083 $28,548
Year ended December 31
[End mountain chart]
[Begin Sidebar]
Fund facts at December 31, 2003
3,456,507 SHAREHOLDERS
$66,534,093,875 ASSETS UNDER MANAGMENT
10 LARGEST EQUITY HOLDINGS
Altria Group
Fannie Mae
SBC Communications
Dow Chemical
Time Warner
Lowe's Companies
Caterpillar
Eli Lilly
Texas Instruments
ChevronTexaco
[End Sidebar]
[begin sidebar]
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com. Results shown are at
net asset value. If a sales charge (maximum 5.75%) had been deducted, the
results would have been lower.
[end sidebar]
THE LOVELACE LEGACY
[photo of Jonathan Bell Lovelace]
[Begin Photo Caption]
The founder of Capital Research and Management Company: Jonathan Bell Lovelace.
[End Photo Caption]
[photo of Harleston (Hardy) Hall, Jules Hoffman, Jon Lovelace, Jr., Al Drasdo,
Sr. and Jonathan Bell Lovelace]
[Begin Photo Caption]
Jonathan Bell Lovelace (right) presiding over a Capital Research investment
meeting in the 1950s. From left: Harleston (Hardy) Hall, Jules Hoffman, Jon
Lovelace, Jr. and Al Drasdo, Sr.
[End Photo Caption]
When he founded Capital Research and Management Company -- the investment
adviser to ICA -- more than 70 years ago, Jonathan Bell Lovelace probably
couldn't have imagined how big both were destined to become. In ICA's case, $4.7
million in assets have grown to $66.5 billion today, making it the third-biggest
mutual fund in the United States. And with more than $750 billion under
management, Capital itself is a true giant in the investment world.
But one thing has stayed the same: Jonathan's stamp on the company. JBL (as he
came to be known) believed in hard work, honesty and fairness -- simple virtues
that would benefit investors while making Capital itself a good place to work.
That ethic is his legacy, and it flourishes to this day.
JBL's investment philosophy lives on too. He believed in thoroughly researching
a company before purchasing shares of its stock. He wanted to know, among other
things, the company's management, its future prospects, customers and
competitors. Combining this scrutiny with a close examination of the company's
books, JBL tried to ascertain whether its stock was overvalued or undervalued.
It was an investment style that was somewhat of an anomaly to the time in which
it was developed -- the 1920s -- but over the years, through wars, recessions
and many stock market cycles, it would prove its mettle.
JBL passed away in 1979. But he is fondly remembered by those fortunate enough
to have known him.
"When I think of Jonathan Bell Lovelace," says Mike Shanahan, an ICA portfolio
counselor who joined Capital in 1965, "I think of three things: first and
foremost was his insistence on integrity. This meant doing what's right, not
what's expedient or popular. And live it every day. He was an honest man who
believed in trust and fairness. Second, he encouraged people to seek
unconventional opportunities and take risks. Not blind risks, but risks based on
thorough, sensible research. Finally, he insisted that people work as a team and
support one another, remembering always who they're working for: the
shareholders."
Gregg Ireland, now an ICA portfolio counselor, also had the privilege of meeting
JBL. It was just after Gregg joined Capital more than 30 years ago. JBL made a
lasting impression. "Everyone tried to live up to his high standards for
excellence, through discipline and attention to detail in the investment
process. But I was also impressed with his high ethical standards and compassion
for others. He had impeccable manners and treated everyone from the receptionist
and mail runner on up with great respect. Consequently, others tried to do the
same. This was the Capital culture then and it is the Capital culture now. And
it all started with the depth and quality of the man."
[Begin Sidebar]
A UNIQUE WAY OF MANAGING MONEY
In the 1950s, a period of rapid growth for ICA, Capital Research began to
examine the way in which its investment portfolios were managed. Typically,
mutual funds are managed by an individual or by committee. Each way --
individualism and teamwork -- has both advantages and drawbacks. In 1958, an
alternative was proposed: Why not create a third way that blends the best
attributes of both? Capital's founder, Jonathan Bell Lovelace, approved the
idea, and the multiple portfolio counselor system was born. Today, all 29 of the
American Funds are managed in this unique way.
How does it work? An investment portfolio is divided into portions. In ICA's
case, ten portions. Nine are managed by each of the fund's portfolio counselors.
The tenth is managed by the fund's research analysts -- an opportunity for them
to invest directly in the companies they know so well. Each portion is run
independently, subject to the fund's overall guidelines.
A WEALTH OF INVESTMENT EXPERIENCE
ICA's nine portfolio counselors bring together 238 years of investment
experience to managing your investment. Here are the years of experience for
these primary decision-makers for the fund:
[Download Table]
Years of investment experience
Mike Shanahan 39
Jim Rothenberg 34
Jim Drasdo 32
Gregg Ireland 31
Dina Perry 26
Joyce Gordon 24
Jim Lovelace 22
Don O'Neal 18
Ross Sappenfield 12
[End Sidebar]
INVESTMENT PORTFOLIO DECEMBER 31, 2003
[Download Table]
Percent of
LARGEST INVESTMENT CATEGORIES net assets
CAPITAL GOODS 8.75 %
FOOD, BEVERAGE & TOBACCO 8.58
MATERIALS 7.24
Percent of
LARGEST INDUSTRY HOLDINGS Net Assets
Beverages & Tobacco 6.29%
Oil & Gas 5.93
Diversified Telecommunication Services 5.20
Pharmaceuticals 4.98
Commercial Banks 3.93
Percent of
LARGEST EQUITY HOLDINGS net assets
Altria Group 4.58 %
Fannie Mae 2.01
SBC Communications 1.78
Dow Chemical 1.73
Time Warner 1.73
Lowe's Companies 1.70
Caterpillar 1.53
Eli Lilly 1.43
Texas Instruments 1.28
ChevronTexaco 1.27
[Enlarge/Download Table]
Shares or Market value
EQUITY SECURITIES (COMMON AND PREFERRED STOCKS AND CONVERTIBLE DEBENTURES) - 82.50% principal amount (000)
ENERGY
ENERGY EQUIPMENT & SERVICES - 0.82%
Baker Hughes Inc. 8,225,000 $ 264,516
Schlumberger Ltd. 5,100,000 279,072
OIL & GAS - 5.93%
Burlington Resources Inc. 9,050,000 501,189
ChevronTexaco Corp. 9,745,500 841,914
ConocoPhillips 2,200,000 144,254
ENI SpA 26,000,000 488,223
Exxon Mobil Corp. 8,221,500 337,082
Marathon Oil Corp. 10,550,000 349,099
Murphy Oil Corp. 2,050,000 133,885
Royal Dutch Petroleum Co. (New York registered) 7,620,000 399,212
"Shell" Transport and Trading Co., PLC (ADR) (New York registered) 5,500,000 247,665
"Shell" Transport and Trading Co., PLC 2,900,000 21,489
TOTAL SA 900,000 166,515
Unocal Corp. 8,690,000 320,053
4,494,168
MATERIALS
CHEMICALS - 1.98%
Air Products and Chemicals, Inc. 200,000 10,566
Dow Chemical Co. 27,700,000 1,151,489
Rohm and Haas Co. 3,600,000 153,756
METALS & MINING - 3.60%
Alcan Inc. 5,800,000 272,310
Alcoa Inc. 11,846,400 450,163
Alumina Ltd. 19,804,346 97,846
Barrick Gold Corp. 9,250,000 210,067
BHP Billiton Ltd. 9,412,655 86,285
Inco Ltd. (1) 5,253,000 209,174
Newmont Mining Corp. 9,500,000 461,795
Phelps Dodge Corp. (1) 1,345,000 102,341
Placer Dome Inc. 10,000,000 179,100
Rio Tinto PLC 12,000,000 330,214
PAPER & FOREST PRODUCTS - 1.66%
Georgia-Pacific Corp., Georgia-Pacific Group 10,599,298 325,080
International Paper Co. 7,297,235 314,584
MeadWestvaco Corp. 3,800,000 113,050
Weyerhaeuser Co. 5,475,000 350,400
4,818,220
CAPITAL GOODS
AEROSPACE & DEFENSE - 3.08%
Boeing Co. 13,000,000 547,820
General Dynamics Corp. 3,372,900 304,876
Honeywell International Inc. 4,000,000 133,720
Lockheed Martin Corp. 5,300,000 272,420
Northrop Grumman Corp. 2,340,000 223,704
Raytheon Co. 14,446,000 433,958
United Technologies Corp. 1,400,000 132,678
CONSTRUCTION & ENGINEERING - 0.05%
Fluor Corp. 824,300 32,675
ELECTRICAL EQUIPMENT - 0.17%
Cooper Industries, Inc., Class A 2,000,000 115,860
INDUSTRIAL CONGLOMERATES - 2.47%
3M Co. 1,200,000 102,036
General Electric Co. 21,750,000 673,815
Siemens AG 875,000 69,742
Tyco International Ltd. 30,400,000 805,600
MACHINERY - 2.98%
Caterpillar Inc. 12,300,000 1,021,146
Cummins Inc. 1,700,000 83,198
Deere & Co. 8,000,000 520,400
Illinois Tool Works Inc. 2,500,000 209,775
Parker Hannifin Corp. 2,500,000 148,750
5,832,173
COMMERCIAL SERVICES & SUPPLIES
COMMERCIAL SERVICES & SUPPLIES - 0.11%
Pitney Bowes Inc. 1,000,000 40,620
Waste Management, Inc. 1,100,000 32,560
73,180
TRANSPORTATION
AIR FREIGHT & LOGISTICS - 0.39%
FedEx Corp. 3,870,000 261,225
AIRLINES - 0.24%
Delta Air Lines, Inc. 942,100 11,126
Southwest Airlines Co. 9,000,000 145,260
ROAD & RAIL - 0.44%
Burlington Northern Santa Fe Corp. 8,300,000 268,505
Norfolk Southern Corp. 1,211,200 28,645
714,761
AUTOMOBILES & COMPONENTS
AUTO COMPONENTS - 0.23%
Delphi Corp. 15,000,000 153,150
AUTOMOBILES - 1.61%
Ford Motor Co. 2,500,000 40,000
General Motors Corp. 15,450,000 825,030
Honda Motor Co., Ltd. 1,825,000 80,877
Toyota Motor Corp. 3,750,000 126,385
1,225,442
CONSUMER DURABLES & APPAREL
HOUSEHOLD DURABLES - 0.07%
Newell Rubbermaid Inc. 2,000,000 45,540
TEXTILES, APPAREL & LUXURY GOODS - 0.01%
NIKE, Inc., Class B 127,700 8,742
54,282
HOTELS, RESTAURANTS & LEISURE
HOTELS, RESTAURANTS & LEISURE - 0.60%
Carnival Corp., units 8,997,100 357,455
McDonald's Corp. 1,600,000 39,728
397,183
MEDIA
MEDIA - 3.76%
Antena 3 Television, SA (1) 28,517 1,251
Comcast Corp., Class A (1) 11,345,800 372,936
Comcast Corp., Class A, special nonvoting stock (1) 3,000,000 93,840
Dow Jones & Co., Inc. 1,887,000 94,067
Hughes Electronics Corp. (1) 1,811,075 29,973
Interpublic Group of Companies, Inc. (1) 10,975,000 171,210
Knight-Ridder, Inc. 550,500 42,592
Liberty Media Corp., Class A (1) 16,280,000 193,569
News Corp. Ltd., preferred (ADR) 202,563 6,128
Time Warner Inc. (formerly AOL Time Warner Inc.) (1) 63,800,000 1,147,762
Viacom Inc., Class A 600,000 26,562
Viacom Inc., Class B, nonvoting 7,300,000 323,974
2,503,864
RETAILING
INTERNET & CATALOG RETAIL - 0.13%
eBay Inc. (1) 1,300,000 83,967
MULTILINE RETAIL - 1.66%
Dollar General Corp. 2,750,000 57,722
Kohl's Corp. (1) 3,000,000 134,820
May Department Stores Co. 4,800,000 139,536
Target Corp. 20,100,000 771,840
SPECIALTY RETAIL - 2.26%
Limited Brands, Inc. 20,749,400 374,112
Lowe's Companies, Inc. 20,368,300 1,128,200
2,690,197
FOOD & STAPLES RETAILING
FOOD & STAPLES RETAILING - 0.51%
Albertson's, Inc. 2,726,500 61,755
Walgreen Co. 7,595,000 276,306
338,061
FOOD, BEVERAGE & TOBACCO
BEVERAGES & TOBACCO - 6.29%
Altria Group, Inc. 56,000,000 3,047,520
Anheuser-Busch Companies, Inc. 3,250,000 171,210
Coca-Cola Co. 3,750,000 190,312
PepsiCo, Inc. 9,600,000 447,552
R.J. Reynolds Tobacco Holdings, Inc. (2) 4,461,666 259,446
UST Inc. 2,000,000 71,380
FOOD PRODUCTS - 2.29%
General Mills, Inc. 6,035,000 273,385
H.J. Heinz Co. 7,950,000 289,619
Sara Lee Corp. 9,816,100 213,108
Unilever NV (New York registered) 11,500,000 746,350
5,709,882
HOUSEHOLD & PERSONAL PRODUCTS
HOUSEHOLD PRODUCTS - 0.04%
Kimberly-Clark Corp. 500,000 29,545
PERSONAL PRODUCTS - 0.47%
Avon Products, Inc. 4,635,000 312,816
342,361
HEALTH CARE EQUIPMENT & SERVICES
HEALTH CARE EQUIPMENT & SUPPLIES - 0.25%
Applera Corp. - Applied Biosystems Group 5,170,500 107,081
Becton, Dickinson and Co. 1,500,000 61,710
HEALTH CARE PROVIDERS & SERVICES - 0.87%
Aetna Inc. 2,000,000 135,160
CIGNA Corp. 1,700,000 97,750
HCA Inc. 8,020,000 344,539
746,240
PHARMACEUTICALS & BIOTECHNOLOGY
PHARMACEUTICALS - 4.98%
Abbott Laboratories 1,500,000 69,900
AstraZeneca PLC (Sweden) 6,127,000 298,055
AstraZeneca PLC (United Kingdom) 5,800,900 277,255
AstraZeneca PLC (ADR) 5,444,200 263,390
Bristol-Myers Squibb Co. 21,657,600 619,407
Eli Lilly and Co. 13,510,000 950,158
Merck & Co., Inc. 2,200,000 101,640
Novartis AG 1,000,000 45,220
Novartis AG (ADR) 256,556 11,773
Pfizer Inc 13,772,480 486,582
Schering-Plough Corp. 3,611,300 62,801
Wyeth 3,000,000 127,350
3,313,531
BANKS
COMMERCIAL BANKS - 3.93%
Bank of America Corp. 10,228,240 822,657
BANK ONE CORP. 2,035,000 92,776
FleetBoston Financial Corp. 15,436,300 673,794
HSBC Holdings PLC 29,678,750 464,717
HSBC Holdings PLC (ADR) 1,070,000 84,337
Wachovia Corp. 529,400 24,665
Wells Fargo & Co. 7,630,000 449,331
THRIFTS & MORTGAGE FINANCE - 2.47%
Fannie Mae 17,860,000 1,340,572
Freddie Mac 3,150,000 183,708
Washington Mutual, Inc. 3,000,000 120,360
4,256,917
DIVERSIFIED FINANCIALS
DIVERSIFIED FINANCIAL SERVICES - 0.11%
Citigroup Inc. 1,500,000 72,810
CAPITAL MARKETS - 1.21%
J.P. Morgan Chase & Co. 21,900,000 804,387
CONSUMER FINANCE - 0.56%
Capital One Financial Corp. 3,000,000 183,870
Capital One Financial Corp. 6.25% Upper DECS 2005 1,450,000 units 69,513
MBNA Corp. 4,800,000 119,280
1,249,860
INSURANCE
INSURANCE - 3.53%
Allstate Corp. 10,493,300 451,422
American International Group, Inc. 10,663,900 706,803
Aon Corp. 2,183,800 52,280
Chubb Corp. 5,075,000 345,608
Chubb Corp. 7.00% convertible preferred 2005 1,400,000 units 39,984
Hartford Financial Services Group, Inc. 2,700,000 159,381
Lincoln National Corp. 1,700,000 68,629
SAFECO Corp. 3,650,000 142,095
St. Paul Companies, Inc. 3,300,000 130,845
XL Capital Ltd., Class A 3,250,000 252,038
2,349,085
SOFTWARE & SERVICES
IT SERVICES - 1.05%
Automatic Data Processing, Inc. 5,475,000 216,865
Computer Sciences Corp. (1) 1,440,300 63,704
Electronic Data Systems Corp. 11,350,000 278,529
Sabre Holdings Corp., Class A 6,009,680 129,749
SOFTWARE - 0.82%
Microsoft Corp. 19,880,000 547,495
1,236,342
TECHNOLOGY HARDWARE & EQUIPMENT
COMMUNICATIONS EQUIPMENT - 1.36%
Cisco Systems, Inc. (1) 28,800,000 699,552
Motorola, Inc. 5,500,000 77,385
Motorola, Inc. 7.00% convertible preferred 2004 2,400,000 units 104,232
Nokia Corp. (ADR) 1,500,000 25,500
COMPUTERS & PERIPHERALS - 2.42%
EMC Corp. (1) 3,500,000 45,220
Hewlett-Packard Co. 23,850,000 547,835
International Business Machines Corp. 7,095,000 657,565
Sun Microsystems, Inc. (1) 79,500,000 356,955
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.02%
Agilent Technologies, Inc. (1) 6,000,000 175,440
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) $ 6,655,000 7,304
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) (4) $ 4,445,000 4,878
Hitachi, Ltd. 23,000,000 138,330
Sanmina-SCI Corp. (1) 11,850,000 149,429
Solectron Corp. (1) 23,500,000 138,885
Solectron Corp. 7.25% ACES convertible preferred 2004 4,000,000 units 66,720
3,195,230
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.53%
Altera Corp. (1) 2,250,000 51,075
Applied Materials, Inc. (1) 11,750,000 263,788
Intel Corp. 2,140,000 68,908
KLA-Tencor Corp. (1) 1,325,000 77,738
Linear Technology Corp. 4,965,700 208,907
Maxim Integrated Products, Inc. 2,528,200 125,904
Micron Technology, Inc. (1) 12,500,000 168,375
Samsung Electronics Co., Ltd. 485,000 183,657
Taiwan Semiconductor Manufacturing Co. Ltd. (1) 115,500,000 216,286
Texas Instruments Inc. 29,067,700 854,009
Xilinx, Inc. (1) 3,250,000 125,905
2,344,552
TELECOMMUNICATION SERVICES
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.20%
ALLTEL Corp. 3,500,000 163,030
ALLTEL Corp. 7.75% 2005 500,000 units 24,850
AT&T Corp. 17,897,500 363,319
BT Group PLC 35,000,000 117,504
Deutsche Telekom AG (1) 15,046,000 274,032
SBC Communications Inc. 45,450,000 1,184,882
Sprint Corp. - FON Group 29,635,000 486,607
Telefonica, SA (1) 16,794,261 245,373
Telefonos de Mexico, SA de CV, Class L (ADR) 3,000,000 99,090
Verizon Communications Inc. 14,250,000 499,890
WIRELESS TELECOMMUNICATION SERVICES - 1.27%
AT&T Wireless Services, Inc. (1) 58,541,000 467,743
Sprint Corp. 7.125% convertible preferred 2004 5,400,000 units 38,340
Vodafone Group PLC 40,000,000 98,800
Vodafone Group PLC (ADR) 9,500,000 237,880
4,301,340
UTILITIES
ELECTRIC UTILITIES - 1.48%
Ameren Corp. 2,307,000 106,122
American Electric Power Co., Inc. 5,544,200 169,154
Dominion Resources, Inc. 7,131,912 455,230
FPL Group, Inc. 1,000,000 65,420
Southern Co. 4,386,500 132,692
TXU Corp. 2,400,000 56,928
MULTI-UTILITIES & UNREGULATED POWER - 1.20%
Duke Energy Corp. 24,075,000 492,334
El Paso Corp. 7,194,000 58,919
Public Service Enterprise Group Inc. 5,000,000 219,000
Williams Companies, Inc. 9.00% FELINE PACS convertible preferred 2005 2,000,000 units 26,220
1,782,019
MISCELLANEOUS - 1.39%
Other equity securities in initial period of acquisition 923,861
TOTAL EQUITY SECURITIES (cost: $39,638,406,000) 54,892,751
Principal amount Market value
CORPORATE BONDS & NOTES - 1.68% (000) (000)
AUTOMOBILES & COMPONENTS
AUTOMOBILES - 0.08%
General Motors Acceptance Corp. 6.875% 2011 $ 50,000 53,937
MEDIA
MEDIA - 0.03%
AOL Time Warner Inc. 5.625% 2005 21,045 22,038
TELECOMMUNICATION SERVICES
TELECOMMUNICATION SERVICES - 1.33%
AT&T Corp.: (3)
6.50% 2006 (4) Euro 9,815 13,213
7.00% 2006 $ 80,065 88,608
7.80% 2011 247,575 285,463
Deutsche Telekom International Finance BV 8.125% 2012 (3) Euro 30,000 46,281
Sprint Capital Corp.:
7.90% 2005 $ 202,710 216,015
8.375% 2012 197,500 231,106
WIRELESS TELECOMMUNICATION SERVICES - 0.22%
AT&T Wireless Services, Inc.:
7.35% 2006 26,250 28,722
7.50% 2007 74,500 83,591
8.125% 2012 30,000 35,344
1,028,343
UTILITIES
MULTI-UTILITIES & UNREGULATED POWER - 0.02%
Williams Companies, Inc. 6.625% 2004 3,550 3,657
Williams Holdings of Delaware, Inc. 6.50% 2008 11,000 11,426
15,083
TOTAL CORPORATE BONDS & NOTES (cost: $932,396,000) 1,119,401
U.S. TREASURY & AGENCY OBLIGATIONS - 4.62%
FEDERAL AGENCY
PASS-THROUGH OBLIGATIONS - 1.86%
Fannie Mae: (5)
6.00% 2017 564,253 594,431
6.50% 2017 563,782 599,535
6.50% 2032 43,977 46,077
NON-PASS-THROUGH OBLIGATIONS - 0.16%
Fannie Mae: 5.25% 2007 99,000 106,458
1,346,501
U.S. TREASURY NOTES AND BONDS
U.S. TREASURY NOTES & BONDS - 2.60%
3.00% February 2004 600,000 601,968
1.875% September 2004 565,000 568,175
1.50% February 2005 555,000 556,299
1,726,442
TOTAL U.S. TREASURY & AGENCY OBLIGATIONS (cost: $3,002,029,000) 3,072,943
Principal amount Market value
SHORT-TERM SECURITIES - 10.96% (000) (000)
U.S. TREASURIES - 5.88%
U.S. Treasury Bills 0.840%-1.035% due 1/2-6/24/2004 3,920,433 3,912,880
CORPORATE SHORT-TERM NOTES - 3.66%
Abbott Laboratories Inc. 1.00% due 1/6-1/13/2004 (4) 25,000 24,992
AIG Funding, Inc. 1.01%-1.02% due 1/9/2004 20,000 19,995
American General Finance Corp. 1.04%-1.06% due 1/12-2/18/2004 77,000 76,943
American Express Credit Corp. 1.04%-1.06% due 2/2-2/25/2004 120,000 119,840
Anheuser-Busch Cos. Inc. 1.00% due 2/6-3/12/2004 (4) 54,400 54,328
Archer Daniels Midland Co. 1.08% due 1/20/2004 (4) 28,500 28,483
Bank of America Corp. 1.09%-1.10% due 3/15-4/13/2004 146,700 146,302
BellSouth Corp. 1.01%-1.03% due 1/6-1/21/2004 (4) 100,000 99,968
Caterpillar Financial Serivces Corp. 1.02%-1.03% due 1/20-3/18/2004 50,000 49,907
ChevronTexaco Corp. 1.01% due 1/7/2004 21,000 20,996
Citicorp 1.04%-1.07% due 1/9-2/24/2004 145,000 144,847
Clorox Co. 1.01%-1.02% due 1/16-1/29/2004 64,670 64,625
Coca-Cola Co. 1.02%-1.03% due 1/5-3/5/2004 150,000 149,895
E.I. DuPont de Nemours & Co. 1.03%-1.05% due 1/23-3/2/2004 130,300 130,144
Exxon Asset Management Co. 1.00% due 1/8/2004 (4) 50,000 49,989
Exxon Project Investment Corp. 1.00% due 1/20-1/21/2004 (4) 44,000 43,975
Gannett Co. 1.02%-1.06% due 1/8-1/23/2004 (4) 121,295 121,250
General Electric Capital Services, Inc. 1.08%-1.09% due 1/21-3/10/2004 130,000 129,853
Harley-Davidson Funding Corp. 1.02% due 1/26-2/13/2004 (4) 25,000 24,973
Household Finance Corp. 1.07%-1.08% due 1/14-2/9/2004 130,000 129,904
IBM Credit Corp. 1.00%-1.02% due 1/9-1/16/2004 100,000 99,964
Johnson & Johnson 1.00% due 1/9-1/29/2004 (4) 61,000 60,962
J.P. Morgan Chase & Co. 1.07%-1.08% due 2/2-2/3/2004 80,000 79,919
Kimberly-Clark Worldwide Inc. 1.00% due 1/23-2/13/2004 (4) 54,000 53,944
Medtronic Inc. 1.01%-1.02% due 1/27-1/28/2004 (4) 30,000 29,976
Merck & Co. Inc. 1.01%-1.02% due 1/15-1/23/2004 55,000 54,967
Minnesota Mining and Manufacturing Co. 1.02% due 1/22/2004 25,000 24,984
Pfizer Inc 1.01%-1.05% due 1/5-1/29/2004 (4) 150,417 150,356
Procter & Gamble Co. 1.01%-1.05% due 1/16-2/9/2004 (4) 145,000 144,910
SBC International Inc. 1.02%-1.04% due 1/13-2/10/2004 (4) 46,695 46,647
United Parcel Service Inc. 0.93% due 1/30/2004 20,800 20,781
Verizon Network Funding Corp. 1.03% due 2/11-2/20/2004 35,000 34,954
FEDERAL AGENCY DISCOUNT NOTES - 1.04%
Fannie Mae 0.99%-1.04% due 1/6-2/2/2004 91,200 91,149
Federal Farm Credit Banks 1.00%-1.08% due 2/20-5/14/2004 150,000 149,706
Federal Home Loan Bank 1.01%-1.04% due 1/7-1/22/2004 71,507 71,484
Freddie Mac 1.03% due 1/15/2004 25,000 24,989
International Bank for Reconstruction and Development 0.97%-1.01% 250,800 250,618
due 1/13-2/6/2004
Student Loan Marketing Assn. 1.01% due 1/7/2004 40,000 39,992
Student Loan Marketing Assn. 1.00% due 1/13-5/20/2004 28,700 28,690
Student Loan Marketing Assn. 0.963%-1.001% due 5/20-6/17/2004 (3) 35,000 34,965
CERTIFICATES OF DEPOSIT - 0.38%
BANK ONE CORP. 1.03% due 1/26/2004 50,000 49,999
State Street Bank & Trust 1.05% due 2/17/2004 50,000 49,999
Wells Fargo & Co. 1.04%-1.06% due 1/13-3/30/2004 150,000 149,997
TOTAL SHORT-TERM SECURITIES (cost: $7,287,349,000) 7,288,041
TOTAL INVESTMENT SECURITIES (cost: $50,860,180,000) 66,373,136
NEW TAIWANESE DOLLAR (cost: $7,289,000) NT$250,707 7,393
OTHER ASSETS LESS LIABILITIES 153,565
NET ASSETS $66,534,094
(1) Security did not produce income during the last 12 months.
(2) The fund owns 5.27% of the outstanding voting securities of R.J. Reynolds
Tobacco Holdings, Inc. and thus is considered an affiliate of this company
under the Investment Company Act of 1940.
(3) Coupon rate may change periodically.
(4) Purchased in a private placement transaction; resale may be
limited to qualified institutional buyers; resale to the public
may require registration.
(5) Pass-through securities backed by a pool of
mortgages or other loans on which principal payments are
periodically made. Therefore, the effective maturities
are shorter than the stated maturities.
ADR = American Depositary Receipts
See Notes to Financial Statements
EQUITY SECURITIES APPEARING IN THE PORTFOLIO SINCE JUNE 30, 2003
Alcan
Antena 3 Television
BT Group
Chubb
Citigroup
Cooper Industries
Delphi
Freddie Mac
General Dynamics
Hitachi
Hughes Electronics
Inco
Lockheed Martin
News Corp.
Public Service Enterprise Group
Telefonica
Toyota Motor
EQUITY SECURITIES ELIMINATED FROM THE PORTFOLIO SINCE JUNE 30, 2003
Cendant
Concord EFS
Consolidated Edison
Dell
Eastman Kodak
LSI Logic
Sallie Mae
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (dollars and shares in thousands,
at December 31, 2003 except per-share amounts)
[Download Table]
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $50,723,529) $66,113,690
Affiliated issuer (cost: $136,651) 259,446 $66,373,136
Cash denominated in non-U.S. currencies
(cost: $7,289) 7,393
Cash 194
Receivables for:
Sales of fund's shares 108,923
Dividends and interest 153,231 262,154
66,642,877
LIABILITIES:
Payables for:
Purchases of investments 17,875
Repurchases of fund's shares 55,109
Investment advisory services 13,298
Services provided by affiliates 19,733
Deferred Directors' and Advisory Board compensation 2,457
Other fees and expenses 311 108,783
NET ASSETS AT DECEMBER 31, 2003 $66,534,094
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $50,826,322
Undistributed net investment income 195,455
Distributions in excess of net realized gain (1,047)
Net unrealized appreciation 15,513,364
NET ASSETS AT DECEMBER 31, 2003 $66,534,094
[Download Table]
Authorized shares
of capital stock - Net Shares Net asset value
$.001 par value assets outstanding per share(1)
Class A 2,500,000 $58,353,415 2,023,474 $28.84
Class B 250,000 3,010,555 104,738 28.74
Class C 250,000 1,984,779 69,155 28.70
Class F 250,000 897,109 31,136 28.81
Class 529-A 325,000 379,858 13,180 28.82
Class 529-B 75,000 100,019 3,476 28.78
Class 529-C 150,000 114,807 3,989 28.78
Class 529-E 75,000 16,217 563 28.78
Class 529-F 75,000 2,781 97 28.81
Class R-1 75,000 14,155 492 28.77
Class R-2 100,000 187,782 6,526 28.77
Class R-3 300,000 230,908 8,017 28.80
Class R-4 75,000 40,287 1,398 28.82
Class R-5 150,000 1,201,422 41,664 28.84
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and 529-A, for
which the maximum offering prices per share were $30.60 and $30.58,
respectively.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
for the year ended December 31, 2003 (dollars in thousands)
[Enlarge/Download Table]
INVESTMENT INCOME:
Income:
Dividends (net of non-U.S. withholding
tax of $13,173; also includes
$16,954 from affiliate) $1,092,138
Interest (net of non-U.S. withholding
tax of $5) 409,338 $1,501,476
Fees and expenses:
Investment advisory services 134,807
Distribution services 156,293
Transfer agent services 47,349
Administrative services 6,111
Reports to shareholders 3,590
Registration statement and prospectus 1,336
Postage, stationery and supplies 6,148
Directors' and Advisory Board compensation 1,085
Auditing and legal 164
Custodian 1,744
State and local taxes 533
Other 222
Total expenses before reimbursement 359,382
Reimbursement of expenses 345 359,037
Net investment income 1,142,439
NET REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized gain (loss) on:
Investments 503,438
Non-U.S. currency transactions (3,185) 500,253
Net unrealized appreciation on:
Investments 11,791,706
Non-U.S. currency translations 135 11,791,841
Net realized gain and
unrealized appreciation
on investments and non-U.S. currency 12,292,094
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $13,434,533
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended December 31
2003 2002
OPERATIONS:
Net investment income $1,142,439 $991,657
Net realized gain on investments and
non-U.S. currency transactions 500,253 836,731
Net unrealized appreciation (depreciation)
on investments and non-U.S. currency translations 11,791,841 (10,409,465)
Net increase (decrease) in net assets
resulting from operations 13,434,533 (8,581,077)
DIVIDENDS AND DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (1,107,178) (1,050,322)
Distributions from net realized gain
on investments (477,739) (948,702)
Total dividends and distributions paid
to shareholders (1,584,917) (1,999,024)
CAPITAL SHARE TRANSACTIONS 4,923,852 4,053,315
TOTAL INCREASE (DECREASE) IN NET ASSETS 16,773,468 (6,526,786)
NET ASSETS:
Beginning of year 49,760,626 56,287,412
End of year (including
undistributed
net investment income: $195,455 and $161,948,
respectively) $66,534,094 $49,760,626
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Investment Company of America (the "fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks long-term growth of capital and income,
placing greater emphasis on future dividends than on current income.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
[Enlarge/Download Table]
---------------------------------------------------------------------------------------------------------
Share class Initial sales charge Contingent deferred sales Conversion feature
charge upon redemption
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Class 529-E None None None
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation. Each share class has identical voting rights, except for the
exclusive right to vote on matters affecting only its class. Share classes have
different fees and expenses ("class-specific fees and expenses"), primarily due
to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official
closing price of, or the last reported sale price on, the exchange or
market on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Prices for each security are
taken from the principal exchange or market in which the security
trades. Fixed-income securities are valued at prices obtained from an
independent pricing service, when such prices are available. However,
where the investment adviser deems it appropriate, such securities
will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Short-term
securities maturing within 60 days are valued at amortized cost, which
approximates market value. The ability of the issuers of the debt
securities held by the fund to meet their obligations may be affected
by economic developments in a specific industry, state or region.
Forward currency contracts are valued at the mean of their
representative quoted bid and asked prices. Securities and other
assets for which representative market quotations are not readily
available are fair valued as determined in good faith by authority of
the fund's Board of Directors. Various factors may be reviewed in
order to make a good faith determination of a security's fair value.
These factors include, but are not limited to, the type and cost of
the security; contractual or legal restrictions on resale of the
security; relevant financial or business developments of the issuer;
actively traded similar or related securities; conversion or exchange
rights on the security; related corporate actions; significant events
occurring after the close of trading in the security; and changes in
overall market conditions.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are recorded by the fund as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. In the event a security is purchased with a delayed
payment date, the fund will segregate liquid assets sufficient to meet
its payment obligations. Dividend income is recognized on the
ex-dividend date and interest income is recognized on an accrual
basis. Market discounts, premiums and original issue discounts on
fixed-income securities are amortized daily over the expected life of
the security.
CLASS ALLOCATIONS - Income, fees and expenses (other than
class-specific fees and expenses) and realized and unrealized gains
and losses are allocated daily among the various share classes based
on their relative net assets. Class-specific fees and expenses, such
as distribution, administrative and shareholder services, are charged
directly to the respective share class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and
distributions paid to shareholders are recorded on the ex-dividend
date.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are
translated into U.S. dollars at the exchange rates in effect at the
end of the reporting period. Purchases and sales of investment
securities and income and expenses are translated into U.S. dollars at
the exchange rates on the dates of such transactions. In the
accompanying financial statements, the effects of changes in non-U.S.
exchange rates on investment securities are included with the net
realized gain or loss and net unrealized appreciation or depreciation
on investments. The realized gain or loss and unrealized appreciation
or depreciation resulting from all other transactions denominated in
non-U.S. currencies are disclosed separately.
SECURITIES LENDING - The fund may lend portfolio securities from time
to time in order to earn additional income; however, it does not
currently intend to engage in an ongoing or regular securities lending
program. When the fund lends securities, it receives collateral in an
amount not less than 100% of the market value of the loaned securities
throughout the period of the loan. The market value of the loaned
securities is determined at the close of business of the fund and any
additional required collateral is delivered on the next business day.
If the borrower defaults on its obligation to return the securities
loaned, the fund could experience delays and costs in recovering the
securities loaned or in gaining access to the collateral. Income
earned is included in interest income in the accompanying financial
statements. There were no securities on loan as of December 31, 2003.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may
include, but are not limited to, investment and repatriation restrictions;
revaluation of currencies; adverse political, social and economic developments;
government involvement in the private sector; limited and less reliable investor
information; lack of liquidity; certain local tax law considerations; and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.
3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses;
deferred expenses; and cost of investments sold. The fiscal year in which
amounts are distributed may differ from the year in which the net investment
income and net realized gains are recorded by the fund. The fund may also
designate a portion of the amount paid to redeeming shareholders as a
distribution for tax purposes. As of December 31, 2003, the cost of investment
securities and cash denominated in non-U.S. currencies, for federal income tax
purposes was $50,864,147,000.
During the year ended December 31, 2003, the fund reclassified $1,754,000 from
undistributed net investment income to undistributed net realized gains; and
reclassified $23,558,000 from undistributed net realized gains to additional
paid-in capital to align financial reporting with tax reporting.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
[Download Table]
(dollars in thousands)
Undistributed net investment income and currency gains $ 197,913
Gross unrealized appreciation on investment securities 16,470,459
Gross unrealized depreciation on investment securities (954,077)
The tax character of distributions paid to shareholders was as follows (dollars
in thousands):
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31, 2003
Distributions from Distributions from Total
ordinary income long-term capital gains distributions paid
Share class
Class A $ 1,028,846 $ 419,520 $ 1,448,366
Class B 29,917 21,573 51,490
Class C 17,389 14,109 31,498
Class F 12,101 6,330 18,431
Class 529-A 5,082 2,625 7,707
Class 529-B 751 702 1,453
Class 529-C 843 794 1,637
Class 529-E 175 113 288
Class 529-F 26 18 44
Class R-1 106 100 206
Class R-2 1,323 1,334 2,657
Class R-3 1,981 1,596 3,577
Class R-4 493 294 787
Class R-5 8,145 8,631 16,776
Total $ 1,107,178 $ 477,739 $ 1,584,917
YEAR ENDED DECEMBER 31, 2002(1)
Distributions from Distributions from Total
ordinary income long-term capital gains distribution
Share class
Class A $ 1,008,396 $ 887,548 $ 1,895,944
Class B 21,641 32,496 54,137
Class C 10,712 17,283 27,995
Class F 6,321 6,593 12,914
Class 529-A 1,613 2,082 3,695
Class 529-B 269 555 824
Class 529-C 303 611 914
Class 529-E 47 74 121
Class 529-F 2 4 6
Class R-1 5 15 20
Class R-2 114 321 435
Class R-3 112 309 421
Class R-4 46 112 158
Class R-5 741 699 1,440
Total $ 1,050,322 $ 948,702 $ 1,999,024
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered
beginning February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5
shares were offered beginning May 15, 2002.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. These fees are based on a
declining series of annual rates beginning with 0.390% on the first $1 billion
of month-end net assets and decreasing to 0.222% on such assets in excess of $71
billion. For the year ended December 31, 2003, the investment advisory services
fee was $134,807,000, which was equivalent to an annualized rate of 0.245% of
average month-end net assets.
CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described below:
DISTRIBUTION SERVICES - The fund has adopted plans of distribution for
all share classes, except Class R-5. Under the plans, the Board of
Directors approves certain categories of expenses that are used to
finance activities primarily intended to sell fund shares. The plans
provide for annual expenses, based on a percentage of average daily
net assets, ranging from 0.25% to 1.00% as noted below. In some cases,
the Board of Directors has approved expense amounts lower than plan
limits.
[Enlarge/Download Table]
------------------------------------------------ ----------------------------- -----------------------------
Share class Currently approved limits Plan limits
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class A 0.25% 0.25%
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class 529-A 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes B and 529-B 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes C, 529-C and R-1 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class R-2 0.75 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes 529-E and R-3 0.50 0.75
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes F, 529-F and R-4 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
All share classes may use up to 0.25% of average daily net assets to
pay service fees, or to compensate AFD for paying service fees, to
firms that have entered into agreements with AFD for providing certain
shareholder services. Expenses in excess of these amounts, up to
approved limits, may be used to compensate dealers and wholesalers for
shares sold.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses AFD
for amounts billed within the prior 15 months but only to the extent
that the overall annual expense limit of 0.25% is not exceeded. As of
December 31, 2003, there were no unreimbursed expenses subject to
reimbursement for classes A or 529-A.
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all classes of shares other than classes A
and B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant class also pays AFS additional amounts for certain transfer
agent services. CRMC and AFS may use these fees to compensate third
parties for performing these services. During the start-up period for
classes R-1, R-2, R-3 and R-4, CRMC has voluntarily agreed to pay a
portion of these fees. Each 529 share class is subject to an
additional annual administrative services fee of 0.10% of its
respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services
fees in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party. Administrative services
fees are presented gross of any payments made by CRMC.
Expenses under the agreements described above for the year ended
December 31, 2003, were as follows (dollars in thousands):
[Enlarge/Download Table]
--------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class A $115,045 $44,840 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 22,876 2,509 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 13,761 Included $2,064 $426 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 1,490 Included 894 127 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 241 Included 363 36 $ 242
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 655 Included 98 37 66
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 723 Included 108 31 72
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 51 Included 15 2 10
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 3 Included 2 -* 1
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 80 Included 12 7 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 743 Included 149 599 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 566 Included 170 160 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 59 Included 36 4 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 374 6 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $156,293 $47,349 $4,285 $1,435 $391
--------------------------------------------------------------------------------------------------------------
* Amount less than one thousand.
DEFERRED DIRECTORS' AND ADVISORY BOARD COMPENSATION - Since the adoption of the
deferred compensation plan in 1993, Directors and Advisory Board members who are
unaffiliated with CRMC may elect to defer the cash payment of part or all of
their compensation. These deferred amounts, which remain as liabilities of the
fund, are treated as if invested in shares of the fund or other American Funds.
These amounts represent general, unsecured liabilities of the fund and vary
according to the total returns of the selected funds. Directors' and Advisory
Board compensation in the accompanying financial statements includes $767,000 in
current fees (either paid in cash or deferred) and a net increase of $318,000 in
the value of the deferred amounts.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.
5. WARRANTS
As of December 31, 2003, the fund had warrants outstanding which may be
exercised at any time for the purchase of 821,806 Class A shares at
approximately $5.24 per share. If these warrants had been exercised as of
December 31, 2003, the net asset value of Class A shares would have been reduced
by $0.01 per share.
6. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
[Enlarge/Download Table]
Reinvestments of
Share class Sales(1) dividends and distributions
Amount Shares Amount Shares
Year ended December 31, 2003
Class A $ 6,429,510 254,074 $ 1,345,897 51,626
Class B 827,539 32,970 49,796 1,889
Class C 799,522 31,497 30,207 1,142
Class F 464,775 18,386 16,747 633
Class 529-A 172,085 6,749 7,706 292
Class 529-B 44,857 1,779 1,453 55
Class 529-C 54,628 2,144 1,637 61
Class 529-E 8,128 322 288 11
Class 529-F 2,042 80 44 2
Class R-1 12,587 509 205 8
Class R-2 169,458 6,780 2,655 99
Class R-3 207,420 8,202 3,564 132
Class R-4 33,326 1,338 786 29
Class R-5 1,051,747 40,574 16,539 600
Total net increase
(decrease) $ 10,277,624 405,404 $ 1,477,524 56,579
Year ended December 31, 2002(2)
Class A $ 6,693,985 255,431 $ 1,756,908 69,477
Class B 1,057,376 40,132 52,386 2,107
Class C 837,810 31,926 26,931 1,092
Class F 381,789 14,772 11,110 448
Class 529-A 168,803 6,496 3,695 152
Class 529-B 44,496 1,722 824 34
Class 529-C 50,297 1,938 913 38
Class 529-E 6,158 243 121 5
Class 529-F 385 16 6 -*
Class R-1 1,100 46 20 1
Class R-2 28,401 1,199 434 18
Class R-3 27,920 1,172 419 17
Class R-4 9,005 390 157 7
Class R-5 57,752 2,155 1,273 52
Total net increase
(decrease) $ 9,365,277 357,638 $ 1,855,197 73,448
Share class Repurchases(1) Net increase
Amount Shares Amount Shares
Year ended December 31, 2003
Class A $ (6,159,887) (246,645) $ 1,615,520 59,055
Class B (215,596) (8,756) 661,739 26,103
Class C (181,857) (7,314) 647,872 25,325
Class F (137,980) (5,568) 343,542 13,451
Class 529-A (9,943) (387) 169,848 6,654
Class 529-B (2,113) (83) 44,197 1,751
Class 529-C (3,569) (138) 52,696 2,067
Class 529-E (346) (13) 8,070 320
Class 529-F (16) (1) 2,070 81
Class R-1 (1,768) (69) 11,024 448
Class R-2 (34,537) (1,371) 137,576 5,508
Class R-3 (34,172) (1,356) 176,812 6,978
Class R-4 (8,547) (346) 25,565 1,021
Class R-5 (40,965) (1,547) 1,027,321 39,627
Total net increase
(decrease) $ (6,831,296) (273,594) $ 4,923,852 188,389
Year ended December 31, 2002(2)
Class A $ (6,665,696) (264,017) $ 1,785,197 60,891
Class B (230,619) (9,342) 879,143 32,897
Class C (148,918) (6,075) 715,823 26,943
Class F (103,788) (4,193) 289,111 11,027
Class 529-A (2,983) (122) 169,515 6,526
Class 529-B (737) (31) 44,583 1,725
Class 529-C (1,301) (54) 49,909 1,922
Class 529-E (112) (5) 6,167 243
Class 529-F (1) -* 390 16
Class R-1 (77) (3) 1,043 44
Class R-2 (4,693) (199) 24,142 1,018
Class R-3 (3,568) (150) 24,771 1,039
Class R-4 (451) (20) 8,711 377
Class R-5 (4,215) (170) 54,810 2,037
Total net increase
(decrease) $ (7,167,159) (284,381) $ 4,053,315 146,705
* Amount less than one thousand.
(1) Includes exchanges between share classes of the fund.
(2) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered
beginning February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5
shares were offered beginning May 15, 2002.
7. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of December 31, 2003, the total value
of restricted securities was $952,844,000, which represented 1.43% of the net
assets of the fund.
8. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $13,380,815,000 and $11,676,344,000, respectively, during the
year ended December 31, 2003.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended December 31, 2003, the custodian fee of $1,744,000 included $78,000
that was offset by this reduction, rather than paid in cash.
FINANCIAL HIGHLIGHTS (1)
[Enlarge/Download Table]
Income (loss) from investment operations(2)
Net
Net asset gains(losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
Class A:
Year ended 12/31/2003 $23.48 $.54 $5.55 $6.09
Year ended 12/31/2002 28.53 .49 (4.56) (4.07)
Year ended 12/31/2001 31.07 .44 (1.87) (1.43)
Year ended 12/31/2000 32.46 .56 .65 1.21
Year ended 12/31/1999 31.07 .49 4.45 4.94
Class B:
Year ended 12/31/2003 23.41 .34 5.53 5.87
Year ended 12/31/2002 28.47 .30 (4.57) (4.27)
Year ended 12/31/2001 31.01 .19 (1.83) (1.64)
Period from 3/15/2000 to 12/31/2000 31.13 .26 1.55 1.81
Class C:
Year ended 12/31/2003 23.38 .31 5.53 5.84
Year ended 12/31/2002 28.44 .30 (4.58) (4.28)
Period from 3/15/2001 to 12/31/2001 29.05 .09 (.14) (.05)
Class F:
Year ended 12/31/2003 23.46 .51 5.55 6.06
Year ended 12/31/2002 28.52 .49 (4.59) (4.10)
Period from 3/15/2001 to 12/31/2001 29.10 .27 (.13) .14
Class 529-A:
Year ended 12/31/2003 23.48 .52 5.55 6.07
Period from 2/15/2002 to 12/31/2002 27.88 .46 (3.91) (3.45)
Class 529-B:
Year ended 12/31/2003 23.45 .28 5.54 5.82
Period from 2/15/2002 to 12/31/2002 27.88 .28 (3.92) (3.64)
Class 529-C:
Year ended 12/31/2003 23.45 .29 5.54 5.83
Period from 2/19/2002 to 12/31/2002 27.47 .28 (3.50) (3.22)
Class 529-E:
Year ended 12/31/2003 23.45 .42 5.54 5.96
Period from 3/1/2002 to 12/31/2002 28.27 .38 (4.52) (4.14)
Class 529-F:
Year ended 12/31/2003 23.47 .48 5.55 6.03
Period from 9/16/2002 to 12/31/2002 23.98 .16 (.19) (.03)
Class R-1:
Year ended 12/31/2003 23.46 .31 5.54 5.85
Period from 6/6/2002 to 12/31/2002 27.27 .20 (3.36) (3.16)
Class R-2:
Year ended 12/31/2003 23.46 .31 5.54 5.85
Period from 5/21/2002 to 12/31/2002 28.23 .23 (4.34) (4.11)
Class R-3:
Year ended 12/31/2003 23.47 .41 5.55 5.96
Period from 6/4/2002 to 12/31/2002 27.58 .27 (3.69) (3.42)
Class R-4:
Year ended 12/31/2003 23.47 .51 5.55 6.06
Period from 5/28/2002 to 12/31/2002 28.22 .32 (4.33) (4.01)
Class R-5:
Year ended 12/31/2003 23.48 .56 5.59 6.15
Period from 5/15/2002 to 12/31/2002 28.37 .39 (4.50) (4.11)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class A:
Year ended 12/31/2003 $(.52) $(.21) $(.73) $28.84
Year ended 12/31/2002 (.52) (.46) (.98) 23.48
Year ended 12/31/2001 (.52) (.59) (1.11) 28.53
Year ended 12/31/2000 (.52) (2.08) (2.60) 31.07
Year ended 12/31/1999 (.51) (3.04) (3.55) 32.46
Class B:
Year ended 12/31/2003 (.33) (.21) (.54) 28.74
Year ended 12/31/2002 (.33) (.46) (.79) 23.41
Year ended 12/31/2001 (.31) (.59) (.90) 28.47
Period from 3/15/2000 to 12/31/2000 (.25) (1.68) (1.93) 31.01
Class C:
Year ended 12/31/2003 (.31) (.21) (.52) 28.70
Year ended 12/31/2002 (.32) (.46) (.78) 23.38
Period from 3/15/2001 to 12/31/2001 (.21) (.35) (.56) 28.44
Class F:
Year ended 12/31/2003 (.50) (.21) (.71) 28.81
Year ended 12/31/2002 (.50) (.46) (.96) 23.46
Period from 3/15/2001 to 12/31/2001 (.37) (.35) (.72) 28.52
Class 529-A:
Year ended 12/31/2003 (.52) (.21) (.73) 28.82
Period from 2/15/2002 to 12/31/2002 (.49) (.46) (.95) 23.48
Class 529-B:
Year ended 12/31/2003 (.28) (.21) (.49) 28.78
Period from 2/15/2002 to 12/31/2002 (.33) (.46) (.79) 23.45
Class 529-C:
Year ended 12/31/2003 (.29) (.21) (.50) 28.78
Period from 2/19/2002 to 12/31/2002 (.34) (.46) (.80) 23.45
Class 529-E:
Year ended 12/31/2003 (.42) (.21) (.63) 28.78
Period from 3/1/2002 to 12/31/2002 (.33) (.35) (.68) 23.45
Class 529-F:
Year ended 12/31/2003 (.48) (.21) (.69) 28.81
Period from 9/16/2002 to 12/31/2002 (.13) (.35) (.48) 23.47
Class R-1:
Year ended 12/31/2003 (.33) (.21) (.54) 28.77
Period from 6/6/2002 to 12/31/2002 (.30) (.35) (.65) 23.46
Class R-2:
Year ended 12/31/2003 (.33) (.21) (.54) 28.77
Period from 5/21/2002 to 12/31/2002 (.31) (.35) (.66) 23.46
Class R-3:
Year ended 12/31/2003 (.42) (.21) (.63) 28.80
Period from 6/4/2002 to 12/31/2002 (.34) (.35) (.69) 23.47
Class R-4:
Year ended 12/31/2003 (.50) (.21) (.71) 28.82
Period from 5/28/2002 to 12/31/2002 (.39) (.35) (.74) 23.47
Class R-5:
Year ended 12/31/2003 (.58) (.21) (.79) 28.84
Period from 5/15/2002 to 12/31/2002 (.43) (.35) (.78) 23.48
Ratio of Ratio of
Net assets, expenses net income
Total end of period to average to average
return(3) (in millions) net assets net assets
Class A:
Year ended 12/31/2003 26.30% $58,353 .59% 2.14%
Year ended 12/31/2002 (14.47) 46,129 .59 1.89
Year ended 12/31/2001 (4.59) 54,315 .57 1.49
Year ended 12/31/2000 3.84 56,212 .56 1.74
Year ended 12/31/1999 16.55 56,095 .55 1.54
Class B:
Year ended 12/31/2003 25.30 3,011 1.38 1.33
Year ended 12/31/2002 (15.18) 1,841 1.39 1.18
Year ended 12/31/2001 (5.30) 1,302 1.35 .66
Period from 3/15/2000 to 12/31/2000 5.87 439 1.34 (5) 1.06 (5)
Class C:
Year ended 12/31/2003 25.22 1,985 1.45 1.25
Year ended 12/31/2002 (15.20) 1,025 1.45 1.17
Period from 3/15/2001 to 12/31/2001 (.19) 480 1.52 (5) .38 (5)
Class F:
Year ended 12/31/2003 26.18 897 .69 2.01
Year ended 12/31/2002 (14.59) 415 .70 1.92
Period from 3/15/2001 to 12/31/2001 .48 190 .72 (5) 1.17 (5)
Class 529-A:
Year ended 12/31/2003 26.19 380 .64 2.06
Period from 2/15/2002 to 12/31/2002 (12.57) 153 .71 (5) 2.17 (5)
Class 529-B:
Year ended 12/31/2003 25.05 100 1.58 1.12
Period from 2/15/2002 to 12/31/2002 (13.22) 41 1.58 (5) 1.30 (5)
Class 529-C:
Year ended 12/31/2003 25.07 115 1.57 1.13
Period from 2/19/2002 to 12/31/2002 (11.91) 45 1.57 (5) 1.32 (5)
Class 529-E:
Year ended 12/31/2003 25.70 16 1.04 1.65
Period from 3/1/2002 to 12/31/2002 (14.72) 6 1.03 (5) 1.90 (5)
Class 529-F:
Year ended 12/31/2003 26.05 3 .79 1.88
Period from 9/16/2002 to 12/31/2002 (.14) - (4) .23 .68
Class R-1:
Year ended 12/31/2003 25.18 14 1.47 (6) 1.18
Period from 6/6/2002 to 12/31/2002 (11.68) 1 1.47 (5)(6) 1.49 (5)
Class R-2:
Year ended 12/31/2003 25.18 188 1.43 (6) 1.21
Period from 5/21/2002 to 12/31/2002 (14.64) 24 1.43 (5)(6) 1.61 (5)
Class R-3:
Year ended 12/31/2003 25.70 231 1.05 (6) 1.60
Period from 6/4/2002 to 12/31/2002 (12.49) 24 1.05 (5)(6) 2.00 (5)
Class R-4:
Year ended 12/31/2003 26.19 40 .68 (6) 2.00
Period from 5/28/2002 to 12/31/2002 (14.31) 9 .69 (5)(6) 2.25 (5)
Class R-5:
Year ended 12/31/2003 26.58 1,201 .36 2.11
Period from 5/15/2002 to 12/31/2002 (14.59) 48 .37 (5) 2.56 (5)
[Enlarge/Download Table]
Year ended December 31
2003 2002 2001 2000 1999
Portfolio turnover rate for all classes of shares 24% 27% 22% 25% 28%
(1) Based on operations for the period shown (unless otherwise noted)
and, accordingly, may not be representative of a full year.
(2) Year ended 1999 is based on shares outstanding on the last day of
the year; all other periods are based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent
deferred sales charges.
(4) Amount less than 1 million.
(5) Annualized.
(6) During the start-up period for this class, CRMC voluntarily agreed
to pay a portion of the fees relating to transfer agent services.
Had CRMC not paid such fees, expense ratios would have been 1.51%,
1.76% and 1.06% for classes R-1, R-2 and R-3, respectively, during
the year ended December 31, 2003, and 2.43%, 1.57%, 1.11% and .73%
for classes R-1, R-2, R-3 and R-4, respectively, during the period
ended December 31, 2002. The expense ratio for class R-4 was not affected
by any payments made by CRMC during the year ended December 31, 2003.
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE INVESTMENT COMPANY OF AMERICA:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of The Investment Company of America (the
"Fund") at December 31, 2003, and the results of its operations, the changes in
its net assets and its financial highlights for each of the periods presented in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 26, 2004
TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year.
During the fiscal year ended December 31, 2003, the fund paid a long-term
capital gain distribution of $477,739,000. The fund also designated as a capital
gain distribution a portion of earnings and profits paid to shareholders in
redemption of their shares.
As a result of recent tax legislation, individual shareholders are now eligible
for reduced tax rates on qualified dividend income received during the year. For
purposes of computing the dividends eligible for reduced tax rates, 85% of the
dividends paid by the fund from net investment income are considered qualified
dividend income.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 82% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. government
obligations. For purposes of computing this exclusion, 4% of the dividends paid
by the fund from net investment income were derived from interest on direct U.S.
government obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH
WILL BE MAILED IN JANUARY 2004 TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR
2003 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
OTHER SHARE CLASS RESULTS (UNAUDITED)
[Enlarge/Download Table]
Class B, Class C, Class F and Class 529
Returns for periods ended December 31, 2003: 1 year 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 +20.30% +0.98%(1)
Not reflecting CDSC +25.30% +1.68%(1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +24.22% +2.10%(2)
Not reflecting CDSC +25.22% +2.10%(2)
CLASS F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm +26.18% +2.89%(2)
CLASS 529-A SHARES
Reflecting 5.75% maximum sales charge +18.95% +2.11%(4)
Not reflecting maximum sales charge +26.19% +5.39%(4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +20.05% +2.38%(4)
Not reflecting CDSC +25.05% +4.46%(4)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +24.07% +5.34%(5)
Not reflecting CDSC +25.07% +5.34%(5)
CLASS 529-E SHARES(3) +25.70% +3.86%(6)
CLASS 529-F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm +26.05% +19.51%(7)
Figures shown are past results and are not predictive of future periods. Current
and future results may be lower or higher than those shown. Because share prices
may decline, the value of your holdings may decrease. For the most current
information and month-end results, visit americanfunds.com.
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return 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) Average annual total return from February 15, 2002, when Class 529-A and
Class 529-B shares were first sold.
(5) Average annual total return from February 19, 2002, when Class 529-C shares
were first sold.
(6) Average annual total return from March 1, 2002, when Class 529-E shares were
first sold.
(7) Average annual total return from September 16, 2002, when Class 529-F
shares were first sold.
BOARD OF DIRECTORS, ADVISORY BOARD AND OFFICERS
[Enlarge/Download Table]
"NON-INTERESTED" DIRECTORS
YEAR FIRST
ELECTED
A DIRECTOR
NAME AND AGE OF THE FUND(1) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
LOUISE H. BRYSON, 59 1999 Executive Vice President, Distribution and Business Development,
Lifetime Television; Director and former Chairman of the Board, KCET -
Los Angeles (public television station); former Senior Vice President,
fx Networks, Inc: Fox Inc.
MARY ANNE DOLAN, 56 2000 Founder and President, M.A.D., Inc. (communications company); former
Editor-in-Chief, The Los Angeles Herald Examiner
MARTIN FENTON, 68 2000 Chairman of the Board and CEO, Senior Resource Group LLC (development
and management of senior living communities)
LEONARD R. FULLER, 57 2002 President and CEO, Fuller Consulting (financial management consulting
firm)
CLAUDIO X. GONZALEZ LAPORTE, 69 2001 Chairman of the Board and CEO, Kimberly-Clark de Mexico, S.A.
JOHN G. MCDONALD, 66 1976 The IBJ Professor of Finance, Graduate School of Business, Stanford
University
BAILEY MORRIS-ECK, 59 1993 Director and Programming Chair, WYPR Baltimore/ Washington (public
radio station); Senior Associate, Financial News (London); Senior
Associate, Reuters Foundation; Senior Fellow, Institute for
International Economics; Consultant, The Independent of London
RICHARD G. NEWMAN, 69 1996 Chairman of the Board and CEO, AECOM Technology Corporation
(engineering, consulting and professional services
OLIN C. ROBISON, PH.D., 67 1987 President of the Salzburg Seminar; President Emeritus, Middlebury
College
WILLIAM J. SPENCER, PH.D., 73 1997 Chairman of the Board and CEO, SEMATECH (research and development
consortium); Trustee, William Jewell College; Trustee, Associated
Universities, Inc.
"NON-INTERESTED" DIRECTORS
NUMBER OF
BOARDS WITHIN
THE FUND
COMPLEX(2)
ON WHICH
NAME AND AGE DIRECTOR SERVES OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
LOUISE H. BRYSON, 59 1 None
MARY ANNE DOLAN, 56 3 None
MARTIN FENTON, 68 16 None
LEONARD R. FULLER, 57 14 None
CLAUDIO X. GONZALEZ LAPORTE, 69 1 America Movil S.A.; General Electric Company; Grupo Alfa; Grupo Carso;
The Home Depot; Kellogg Company; Kimberly-Clark Corp.; The Mexico Fund
JOHN G. MCDONALD, 66 8 iStar Financial, Inc.; Plum Creek Timber Co.; Scholastic Corporation;
Varian, Inc.
BAILEY MORRIS-ECK, 59 3 The Nevis Fund, Inc.
RICHARD G. NEWMAN, 69 13 Sempra Energy; Southwest Water Company
OLIN C. ROBISON, PH.D., 67 3 None
WILLIAM J. SPENCER, PH.D., 73 1 None
"INTERESTED" DIRECTORS(4)
YEAR FIRST
ELECTED A
DIRECTOR OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR THE
POSITION WITH FUND OF THE FUND(1) PRINCIPAL UNDERWRITER OF THE FUND
R. MICHAEL SHANAHAN, 65 1994 Chairman of the Board and Principal Executive
Chairman of the Board Officer, Capital Research and Management Company; Director, American
Funds Distributors, Inc.;(5) Director, The Capital Group Companies,
Inc.;(5) Chairman of the Board, Capital Management Services, Inc.;(5)
Director, Capital Strategy Research, Inc. (5)
JAMES F. ROTHENBERG, 57 2000 President and Director, Capital Research and
President Management Company; Director, American Funds Distributors, Inc.; (5)
Director, American Funds Service Company; (5) Director, The Capital
Group Companies, Inc.; (5) Director, Capital Group Research, Inc. (5)
JAMES B. LOVELACE,(6) 47 1994 Senior Vice President and Director, Capital
Senior Vice President Research and Management Company
DONALD D. O'NEAL, 43 1994 Senior Vice President, Capital Research and
Senior Vice President Management Company
PAUL G. HAAGA, JR., 55 2002 Executive Vice President and Director, Capital
Research and Management Company;
Director, The Capital Group Companies, Inc.;(5)
Director, American Funds Distributors, Inc.(5)
"INTERESTED" DIRECTORS(4)
NUMBER OF
BOARDS
WITHIN THE
FUND COMPLEX(2)
NAME, AGE AND ON WHICH
POSITION WITH FUND DIRECTOR SERVES OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
R. MICHAEL SHANAHAN, 65 2 None
Chairman of the Board
JAMES F. ROTHENBERG, 57 3 None
President
JAMES B. LOVELACE,(6) 47 2 None
Senior Vice President
DONALD D. O'NEAL, 43 2 None
Senior Vice President
PAUL G. HAAGA, JR., 55 17 None
Chairman Emeritus
JON B. LOVELACE, JR., 77 Chairman Emeritus, Capital Research and Management Company
ADVISORY BOARD MEMBERS
YEAR FIRST
ELECTED TO
ADVISORY PRINCIPAL OCCUPATION(S)
NAME AND AGE BOARD(1) DURING PAST FIVE YEARS
THOMAS M. CROSBY, JR., 65 1995 Partner, Faegre & Benson (law firm)
SAM L. GINN, 66 2003 Retired; former Chairman of the Board, Vodafone Group Plc.; former
Chairman of the Board and CEO,
AirTouch Communications
ELLEN H. GOLDBERG, PH.D., 58 1998 President, Santa Fe Institute; Research Professor, University of New
Mexico
L. DANIEL JORNDT, 62 2003 Retired; former Chairman of the Board and CEO, Walgreen Company
WILLIAM H. KLING, 61 1985 President, American Public Media Group
LUIS G. NOGALES, 60 2003 President, Nogales Partners; Managing Director, Nogales Investors
Management LLC (private equity fund)
ROBERT J. O'NEILL, PH.D., 67 1988 Deputy Chairman of the Council and Chairman of the International
Advisory Panel, Graduate School of Government, University of Sydney,
Australia; Member of the Board of Directors, The Lowy Institute for
International Policy Studies, Sydney, Australia; Chairman of the
Council, Australian Strategic Policy Institute; former Chichele
Professor of the History of War and Fellow, All Souls College,
University of Oxford; former Chairman of the Council, International
Institute for Strategic Studies
NORMAN R. WELDON, PH.D., 69 1977 Managing Director, Partisan Management Group, Inc.; former Chairman of
the Board, Novoste Corporation; former President and Director, Corvita
Corporation
ADVISORY BOARD MEMBERS
NUMBER OF
BOARDS WITHIN
THE FUND
COMPLEX(2)
ON WHICH
ADVISORY BOARD
NAME AND AGE MEMBER SERVES OTHER DIRECTORSHIPS HELD(3)
THOMAS M. CROSBY, JR., 65 1 None
SAM L. GINN, 66 1 Chevron Texaco Corporation; Fremont Group; Hewlett-Packard Company
ELLEN H. GOLDBERG, PH.D., 58 1 None
L. DANIEL JORNDT, 62 1 Kellogg Company
WILLIAM H. KLING, 61 6 Irwin Financial Corporation; St. Paul Companies
LUIS G. NOGALES, 60 1 Arbitron, Inc.; Edison International; K-B Home; Kaufman & Broad, S.A.
ROBERT J. O'NEILL, PH.D., 67 3 None
NORMAN R. WELDON, PH.D., 69 3 Novoste Corporation
OTHER OFFICERS
YEAR FIRST
ELECTED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND AN OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR
POSITION WITH FUND OF THE FUND(1) THE PRINCIPAL UNDERWRITER OF THE FUND
GREGG E. IRELAND, 54 1994 Senior Vice President, Capital Research and
Senior Vice President Management Company
JOYCE E. GORDON, 47 1998 Senior Vice President, Capital Research Company(5)
Vice President
ANNE M. LLEWELLYN, 56 1984 Associate, Capital Research and Management
Vice President Company
VINCENT P. CORTI, 47 1994 Vice President-- Fund Business Management
Secretary Group, Capital Research and Management Company
THOMAS M. ROWLAND, 62 1998 Senior Vice President, Capital Research and
Treasurer Management Company; Director, American Funds Service Company(5)
R. MARCIA GOULD, 49 1993 Vice President -- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND
OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION:
FUND SECRETARY.
(1) Directors and officers of the fund are elected on an annual basis.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series,(R) which serves as the underlying
investment vehicle for certain variable insurance contracts; and Endowments,
whose shareholders are limited to certain nonprofit organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Director as a director of a public company or a
registered investment company.
(4) "Interested persons" within the meaning of the 1940 Act on the basis of
their affiliation with the fund's investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter).
(5) Company affiliated with Capital Research and Management Company.
(6) James B. Lovelace is the son of Jon B. Lovelace, Jr.
RESULTS OF MEETING OF SHAREHOLDERS HELD AUGUST 11, 2003 (UNAUDITED)
[Enlarge/Download Table]
Shares outstanding (all classes) on record date (June 13, 2003) 2,170,491,631
Total shares voting on August 11, 2003 1,448,023,027 (66.7%)
[Enlarge/Download Table]
PROPOSAL 1: ELECTION OF DIRECTORS
Percent Percent
of shares of shares
Director Votes for voting for Votes withheld withheld
Louise H. Bryson 1,430,279,755 99% 17,743,272 1%
Mary Anne Dolan 1,430,599,250 99 17,423,777 1
Martin Fenton 1,429,327,237 99 18,695,790 1
Leonard R. Fuller 1,430,165,275 99 17,857,752 1
Claudio X. Gonzalez Laporte 1,428,268,450 99 19,754,577 1
Paul G. Haaga, Jr. 1,430,267,886 99 17,755,141 1
James B. Lovelace 1,430,859,121 99 17,163,906 1
John G. McDonald 1,428,943,723 99 19,079,304 1
Bailey Morris-Eck 1,430,515,935 99 17,507,092 1
Richard G. Newman 1,429,340,877 99 18,682,150 1
Donald D. O'Neal 1,431,066,317 99 16,956,710 1
Olin C. Robison 1,430,496,294 99 17,526,733 1
James F. Rothenberg 1,430,949,449 99 17,073,578 1
R. Michael Shanahan 1,431,065,185 99 16,957,842 1
William J. Spencer 1,429,618,082 99 18,404,945 1
[Enlarge/Download Table]
PROPOSAL 2: RATIFICATION OF ACCOUNTANTS
Percent Percent Percent
of shares of shares of shares
Votes for voting for Votes against voting against Abstentions abstaining
1,420,846,347 98% 8,414,915 1% 18,761,765 1%
OFFICES
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 AUDITORS
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
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. Other share classes,
which are generally not available for certain employer-sponsored retirement
plans, have no up-front sales charges but are subject to additional annual
expenses and fees. Annual expenses for Class B shares were 0.79 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 annual 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 annual 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 CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
OF THE INVESTMENT COMPANY OF AMERICA AND COLLEGEAMERICA CAREFULLY. THIS AND
OTHER IMPORTANT INFORMATION IS CONTAINED IN THE PROSPECTUS, WHICH CAN BE
OBTAINED FROM YOUR FINANCIAL ADVISER AND SHOULD BE READ CAREFULLY BEFORE
INVESTING. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR
VISIT THE AMERICAN FUNDS WEBSITE AT AMERICANFUNDS.COM.
"AMERICAN FUNDS PROXY VOTING GUIDELINES" -- WHICH DESCRIBES HOW WE VOTE PROXIES
RELATING TO PORTFOLIO SECURITIES -- IS AVAILABLE UPON REQUEST, FREE OF CHARGE,
BY CALLING AMERICAN FUNDS SERVICE COMPANY, VISITING THE AMERICAN FUNDS WEBSITE
OR ACCESSING THE U.S. SECURITIES AND EXCHANGE COMMISSION WEBSITE AT WWW.SEC.GOV.
This report is for the information of shareholders of The Investment Company of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after March 31, 2004, this report must be accompanied by an
American Funds statistical update for the most recently completed calendar
quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 25 million shareholder accounts.
OUR UNIQUE COMBINATION OF STRENGTHS INCLUDES THESE FIVE FACTORS:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. Nearly 70% of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World Fund(SM)
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
> The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(R)
The Income Fund of America(R)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND FUNDS
Emphasis on current income through bonds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities Fund(SM)
o TAX-EXEMPT BOND FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-904-0204
Litho in USA BDC/L/8060
Printed on recycled paper
ITEM 2 - Code of Ethics
This Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, 333 South Hope Street, Los
Angeles, California 90071.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that John G. McDonald, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Fees billed by the registrant's auditors for each of the last two fiscal years,
including fees for non-audit services billed to the adviser and affiliates for
engagements that relate directly to the operations and financial reporting of
the registrant, and a description of the nature of the services comprising the
fees, are listed below:
Registrant:
a) Audit Fees:
2002 $87,000
2003 $97,000
b) Audit- Related Fees:
2002 $1,500
2003 none
The audit-related fees consist of
assurance and related services relating
to the fund's investments in a non-U.S.
jurisdiction.
c) Tax Fees:
2002 $ 8,000
2003 $10,000
The tax fees consist of professional
services relating to the preparation of
the fund's tax returns including returns
relating to the fund's investments in a
non-U.S. jurisdiction.
d) All Other Fees:
2002 none
2003 none
ITEM 4 - Principal Accountant Fees and Services (continued)
Adviser and affiliates (includes only fees for non-audit
services billed to the adviser and affiliates for
engagements that relate directly to the operations and
financial reporting of the registrant and were subject to the
pre-approval policies described below):
b) Audit- Related Fees:
2002 none
2003 none
c) Tax Fees:
2002 none
2003 none
d) All Other Fees:
2002 none
2003 none
The registrant's Audit Committee will pre-approve all audit and permissible
non-audit services that the Committee considers compatible with maintaining the
auditors' independence. The pre-approval requirement will extend to all
non-audit services provided to the registrant, the investment adviser, and any
entity controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the registrant, if the engagement
relates directly to the operations and financial reporting of the registrant.
The Committee will not delegate its responsibility to pre-approve these services
to the investment adviser. The Committee may delegate to one or more Committee
members the authority to review and pre-approve audit and permissible non-audit
services. Actions taken under any such delegation will be reported to the full
Committee at its next meeting. The pre-approval requirement is waived with
respect to non-audit services if certain conditions are met. The pre-approval
requirement was not waived for any of the services listed above under paragraphs
b, c and d.
Aggregate non-audit fees paid to the registrant's auditors, including fees for
all services billed to the adviser and affiliates were $2,086,000 for fiscal
year 2002 and $10,000 for fiscal year 2003. The non-audit services represented
by these amounts were brought to the attention of the Committee and considered
to be compatible with maintaining the auditors' independence.
ITEM 5 - Audit Committee Disclosure for Listed Companies
Not applicable.
ITEM 6 - Reserved
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 - Reserved
ITEM 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance with
rule 30a-2 under the Investment Company Act of 1940 have concluded, based
on their evaluation of the Registrant's disclosure controls and procedures
(as such term is defined in such rule), 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 last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) 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, Chairman and CEO
Date: March 8, 2004
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, Chairman and CEO
Date: March 8, 2004
By /s/ Thomas M. Rowland
Thomas M. Rowland, Treasurer
Date: March 8, 2004
Dates Referenced Herein and Documents Incorporated by Reference
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