THE INVESTMENT COMPANY OF AMERICA
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1998 (as amended August 17, 1998)
This document is not a prospectus but should be read in conjunction with the
current prospectus of The Investment Company of America (the "fund" or "ICA")
dated March 1, 1998. The prospectus may be obtained from your investment
dealer or financial planner or by writing to the fund at the following address:
THE INVESTMENT COMPANY OF AMERICA
ATTENTION: SECRETARY
333 SOUTH HOPE STREET
LOS ANGELES, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
<TABLE>
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TABLE OF CONTENTS
ITEM PAGE NO.
<S> <C>
DESCRIPTION OF CERTAIN SECURITIES 1
INVESTMENT RESTRICTIONS 3
FUND DIRECTORS AND OFFICERS 6
ADVISORY BOARD 11
MANAGEMENT 13
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 15
PURCHASE OF SHARES 18
REDEEMING SHARES 24
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 25
EXECUTION OF PORTFOLIO TRANSACTIONS 27
GENERAL INFORMATION 28
INVESTMENT RESULTS 29
FINANCIAL STATEMENTS ATTACHED
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DESCRIPTION OF CERTAIN SECURITIES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Policies and Risks."
EQUITY SECURITIES - The fund may invest without limitation in securities with
equity conversion rights and that are rated in any investment quality category;
however, the fund has no current intention (at least during the next 12 months)
to invest in securities rated below the top three quality categories by
Standard & Poor's Corporation ("Standard & Poor's") or Moody's Investors
Service, Inc. ("Moody's") or unrated but determined to be of equivalent quality
by Capital Research and Management Company ("Investment Adviser").
BOND RATINGS - The fund may invest in debt securities which are rated in the
top three quality categories by Standard & Poor's or Moody's or unrated but
determined to be of equivalent quality by the Investment Adviser. Standard &
Poor's rates the long-term debt securities of various entitites in categories
ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC"
may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within the major rating categories. Moody's rates the
long-term debt securities of various entities from "Aaa" to "C." Moody's
applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from "Aa" through "B" in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category. The top three rating categories are described below:
STANDARD & POOR'S CORPORATION:
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions, than debt in higher categories."
MOODY'S INVESTORS SERVICE, INC.:
"Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities, or fluctuation of protective elements may be
of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities."
"Bonds rated A are judged to be of upper medium grade obligations. These
bonds possess many favorable investment attributes. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity issued by corporations or governmental
bodies), (2) commercial bank obligations (E.G., certificates of deposit
(interest-bearing time deposits), and bankers' acceptances (time drafts on a
commercial bank where the bank accepts an irrevocable obligation to pay at
maturity)), (3) savings association and savings bank obligations (e.g.,
certificates of deposit issued by savings banks or savings and loan
associations), (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, at the time of purchase, or may be redeemed, in
one year or less, and (5) corporate bonds and notes that mature, at the time of
purchase, or that may be redeemed, in one year or less.
CURRENCY TRANSACTIONS - Although the fund has no current intention (at least
during the next 12 months) to do so, it has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date and price, both of which are set at the time of the
contract. The fund intends to enter into forward currency contracts solely to
hedge into the U.S. dollar its exposure to other currencies. The fund will
segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code (the "Code") may affect the
extent to which the fund may enter into forward contracts. Such transactions
may also affect, for U.S. federal income tax purposes, the character and timing
of income, gain or loss recognized by the fund.
OTHER SECURITIES - The fund may also invest in securities that have equity and
debt characteristics such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of
non-convertible preferred stocks generally move with changes in interest rates
and the issuer's credit quality, similar to the factors affecting debt
securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
common stock or other securities at a stated exchange ratio. These securities
prior to conversion pay a fixed rate of interest or a dividend. Because
convertible securities have both debt and equity characteristics, their value
varies in response to may factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the issuer's credit
quality.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions, which are fundamental
policies and cannot be changed without a majority vote of its outstanding
shares. A majority vote is defined in the Investment Company Act of 1940 (the
"1940 Act") as the vote of the lesser of (i) 67% or more of the outstanding
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (ii) more
than 50% of the outstanding voting securities. Investment limitations
expressed in the following restrictions are considered at the time securities
are purchased and are based on the fund's net assets unless otherwise
indicated.
These restrictions (which do not apply to the purchase of securities issued or
guaranteed by the U.S. Government) provide that the fund shall make no
investment:
Which involves promotion or business management by the fund;
In any security about which reliable information is not available with respect
to the history, management, assets, earnings, and income of the issuer;
If the investment would cause more than 5% of the value of the total assets of
the fund, as they exist at the time of investment, to be invested in the
securities of any one issuer;
If the investment would cause more than 20% of the value of the total assets of
the fund to be invested in the securities in any one industry;
If the investment would cause the fund to own more than 10% of the outstanding
voting securities of any one issuer, provided that this restriction shall apply
as to 75% of the fund's total assets; or
In any security which has not been placed on the fund's Eligible List. (See the
prospectus).
The fund is not permitted to buy securities on margin, sell securities short,
borrow money, or to invest in real estate. (Although it has not been the
practice of the fund to make such investments (and it has no current intention
of doing so at least for the next 12 months), the fund may invest in the
securities of real estate investment trusts.)
The fund has also adopted other fundamental policies which cannot be changed
without shareholder approval. These policies require the fund not to:
Concentrate its investment in any particular industry or group of industries.
Some degree of concentration may occur from time to time (within the 20%
limitation of the Certificate of Incorporation) as certain industries appear to
present desirable fields for investment.
Engage generally in the making of loans. Although the fund has reserved the
right to make loans to unaffiliated persons subject to certain restrictions,
including requirements concerning collateral and amount of any loan, no loans
have been made since adoption of this fundamental policy more than 50 years
ago.
Act as underwriter of securities issued by others, engage in distribution of
securities for others, engage in the purchase and sale of commodities or
commodity contracts, borrow money, invest in real estate, or make investments
in other companies for the purpose of exercising control or management.
Pledge, encumber or assign all or any part of its property and assets as
security for a debt.
Invest in the securities of other investment companies.
Notwithstanding the restriction on investing in the securities of other
investment companies, the fund may invest in securities of other investment
companies if deemed advisable by its officers in connection with the
administration of a deferred compensation plan adopted by Directors pursuant to
an exemptive order granted by the Securities and Exchange Commission.
Additional investment restrictions adopted by the fund and which may be changed
without shareholder approval, provide that the fund may not:
Purchase and sell securities for short-term profits; however, securities will
be sold without regard to the time that they have been held whenever investment
judgement makes such action seem advisable.
Purchase or retain the securities of any issuer if those officers and directors
of the fund or the Investment Adviser who own beneficially more than one half
of 1% of such issuer together own more than 5% of the securities of such
issuer.
Invest in securities of companies which, with their predecessors, have a record
of less than three years' continuous operations.
Invest in puts, calls, straddles, spreads or any combination thereof.
Purchase partnership interests in oil, gas or mineral exploration, drilling or
mining ventures.
Invest in excess of 10% of the market value of its total assets in securities
which may require registration under the Securities Act of 1933 prior to sale
by the fund (restricted securities), or other securities that are not readily
marketable.
FUND DIRECTORS AND OFFICERS
Directors and Director Compensation
<TABLE>
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NAME, ADDRESS POSITION PRINCIPAL AGGREGATE TOTAL TOTAL NUMBER
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION OF FUND
REGISTRANT DURING PAST 5 YEARS (INCLUDING (INCLUDING BOARDS ON
(POSITIONS WITHIN VOLUNTARILY VOLUNTARILY WHICH
THE ORGANIZATIONS DEFERRED DEFERRED DIRECTOR
LISTED MAY HAVE COMPENSATION/1/) COMPENSATION/1/) SERVES/3/
CHANGED DURING THIS FROM THE FUND FROM ALL FUNDS
PERIOD) DURING FISCAL MANAGED BY
YEAR ENDED CAPITAL RESEARCH
12/31/97 AND MANAGEMENT
COMPANY/2/ FOR
THE YEAR ENDED
12/31/97
<S> <C> <C> <C> <C> <C>
Charles H. Director Private investor $62,800 $122,300 3
Black and consultant;
525 Alma Real former Executive
Drive Vice President and
Pacific Director,
Palisades, CA KaiserSteel
90272 Corporation
Age: 71
Ann S. Bowers Director Senior Trustee, The $59,100 $59,100 1
The Noyce Noyce Foundation;
Foundation Human resources
450 Sheridan consultant,
Avenue Enterprise 2000
Palo Alto, CA
94306
Age: 60
Malcolm R. Director Chairman Emeritus, $52,600/4/ $52,600 1
Currie Hughes Aircraft
28780 Wagon Company
Road
Agoura, CA
91301
Age: 70
+William R. Senior Senior Vice None/5/ None/5/ 4
Grimsley Vice President and
P.O. Box 7650 President Director, Capital
San Francisco, and Research and
CA 94120 Director Management Company
Age: 59 Nominee/6/
+Jon B. Chairman Vice Chairman of None/5/ None/5/ 4
Lovelace, Jr. of the Board, Capital
333 South Hope the Board Research and
Street Management Company
Los Angeles,
CA 90071
Age: 71
John G. Director The IBJ Professor $62,900/4/ $162,400 8
McDonald of Finance,
Graduate Graduate School of
School of Business,
Business Stanford University
Stanford
University
Stanford, CA
94305
Age: 60
Bailey Morris-Eck Director Vice President, $53,800 $53,800 1
Brookings Brookings
Institution Institution; Senior
1775 Advisor, Inter-American Affairs,
Massachusetts Clinton
Avenue, N.W. Administration;
Washington, Senior Fellow,
D.C. 20036 Institute for
Age: 53 International
Economics;
Consultant, THE
INDEPENDENT OF
LONDON
Richard G. Director Chairman, President $51,953/4/ $97,600 13
Newman and CEO, AECOM
3250 Wilshire Technology
Blvd. Corporation
Los Angeles, (architectural
CA 90010 engineering)
Age: 63
+William C. President Senior Partner, The None/5/ None/5/ 1
Newton and Capital Group
333 South Hope Director Partners, L.P.
Street
Los Angeles,
CA 90071
Age: 67
+James W. Executive Senior Partner, The None/5/ None/5/ 8
Ratzlaff Vice Capital Group
P.O. Box 7650 President Partners L.P.
San Francisco, and
CA 94120 Director
Age: 61
Olin C. Director President of the $53,400 $80,900 3
Robison Salzburg Seminar;
The Marble President Emeritus,
Works Middlebury College
2 Maple Street
Middlebury, VT
05753
Age: 61
+R. Michael Senior Chairman of the None/5/ None/5/ 2
Shanahan Vice Board and Principal
333 South Hope President Executive Officer,
Street and Capital Research
Los Angeles, Director and Management
CA 90071 Nominee/6/ Company
Age: 59
William J. Director Chairman and Chief $51,200/4/ $51,200 1
Spencer Executive Officer,
2706 SEMATECH (research
Montopolis and development
Drive consortium)
Austin, TX
78741
Age: 67
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
the 1940 Act, on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund Inc. Capital Research and Management
Company also manages American Variable Insurance Series and Anchor Pathway Fund
which serve as the underlying investment vehicles for certain variable
insurance contracts and Bond Portfolio for Endowments, Inc. and Endowments,
Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Includes funds managed by Capital Research and Management Company and
affiliates.
/4/ Since the deferred compensation plan's adoption, the total amount of
deferred compensation accrued by the fund (plus earnings thereon) as of the
fiscal year ended December 31, 1997 for participating Directors is as follows:
Malcolm R. Currie ($114,734), John G. McDonald ($262,554), Richard G. Newman
($98,378) and William J. Spencer ($58,173). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the Director.
/5/ William R. Grimsley, Jon B. Lovelace, Jr., William C. Newton, James W.
Ratzlaff and R. Michael Shanahan are affiliated with the Investment Adviser
and, accordingly, receive no compensation from the fund.
/6/ William R. Grimsley and R. Michael Shanahan have been nominated as
directors for election at 1998 Annual Meeting of Shareholders.
OTHER OFFICERS
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NAME AND ADDRESS AGE POSITION(S) WITH PRINCIPAL OCCUPATION(S)
REGISTRANT DURING PAST 5 YEARS
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Gregg E. Ireland 48 Vice President Senior Vice President, Capital
3000 K Street, N.W. Research and Management Company
Washington, DC 20007
Anne M. Llewellyn 50 Vice President Associate, Capital Research and
333 South Hope Street Management Company
Los Angeles, CA 90071
James B. Lovelace 41 Vice President Senior Vice President, Capital
333 South Hope Street Research and Management Company
Los Angeles, CA 90071
Donald D. O'Neal 37 Vice President Vice President, Capital Research and
P.O. Box 7650 Management Company
San Francisco, CA 94120
Patricia L. Pinney 41 Vice President Vice President, Capital Research
333 South Hope Street Company
Los Angeles, CA 90071
Vincent P. Corti 41 Secretary Vice President - Fund Business
333 South Hope Street Management Group, Capital Research and
Los Angeles, CA 90071 Management Company
Mary C. Hall 40 Treasurer Senior Vice President - Fund Business
135 South State College Management Group, Capital Research and
Blvd. Management Company
Brea, CA 92821
Julie F. Williams 49 Assistant Vice President - Fund Business
333 South Hope Street Secretary Management Group, Capital Research and
Los Angeles, CA 90071 Management Company
R. Marcia Gould 43 Assistant Vice President - Fund Business
135 South State College Treasurer Management Group, Capital Research and
Blvd. Management Company
Brea, CA 92821
</TABLE>
All of the officers listed are officers or employees of the Investment Adviser
or affiliated companies. No compensation is paid by the fund to any Director
or officer who is a director, officer or employee of the Investment Adviser or
affiliated companies. Each unaffiliated Director is paid a fee of $36,000 per
annum, plus $2,000 for each Board of Directors meeting attended, plus $600 for
each meeting attended as a member of a committee of the Board of Directors. In
addition, members of the Proxy Committee receive an annual fee determined at
the end of the year by the Board of Directors. For the fiscal year ended
December 31, 1997, each member of the Proxy Committee received a fee of $6,400.
No pension or retirement benefits are accrued as part of fund expenses. The
Directors and Advisory Board members may elect, on a voluntary basis, to defer
all or a portion of their fees through a deferred compensation plan in effect
for the fund. As of January 31, 1998 the officers and Directors and their
families as a group, owned beneficially or of record less than 1% of the
outstanding shares of the fund.
ADVISORY BOARD MEMBERS
Advisory Board Member Compensation
The Board of Directors has established an Advisory Board whose members are, in
the judgment of the Directors, highly knowledgeable about political and
economic matters. In addition to holding meetings with the Board of Directors,
members of the Advisory Board, while not participating in specific investment
decisions, consult from time to time with the Investment Adviser, primarily
with respect to trade and business conditions. Members of the Advisory Board,
however, possess no authority or responsibility with respect to the fund's
investments or management. The members of the Advisory Board and their current
or former principal occupations are as follows:
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL AGGREGATE TOTAL TOTAL NUMBER
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION OF FUND
REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING BOARDS ON
YEARS (POSITIONS VOLUNTARILY VOLUNTARILY WHICH
WITHIN THE DEFERRED DEFERRED ADVISORY
ORGANIZATIONS COMPENSATION/1/) COMPENSATION/1/) BOARD MEMBER
LISTED MAY FROM THE FUND FROM ALL FUNDS SERVES/3/
HAVE CHANGED DURING FISCAL MANAGED
DURING THIS YEAR ENDED BY CAPITAL
PERIOD) 12/31/97 RESEARCH AND
MANAGEMENT
COMPANY/2/ FOR
THE YEAR ENDED
12/31/97
<S> <C> <C> <C> <C> <C>
Thomas M. Advisory Partner, Faegre & $7,500 $7,500 1
Crosby, Jr. Board Benson (law firm)
2200 Norwest Member
Center
90 South
Seventh Street
Minneapolis,
MN 55402
Age: 59
Ellen H. Advisory President, Santa None/4/ None/4/ 1
Goldberg Board Fe Institute;
1399 Hyde Park Member Research
Road Professor,
Santa Fe, NM University of New
87501 Mexico
Age: 52
Allan E. Advisory Former Canadian $6,500 $6,500 1
Gotlieb Board Ambassador to the
P.O. Box 85 Member United States
Toronto,
Ontario M5L
1B9
Canada
Age: 70
William H. Advisory President, $6,500/3/ $75,750 5
Kling Board Minnesota Public
45 East Member Radio; President,
Seventh Street Greenspring Co.;
St. Paul, MN former President,
55101 American Public
Age: 55 Radio (now Public
Radio
International)
Robert J. Advisory Chichele Professor $6,500 $39,700 3
O'Neill Board of the History of
St. Mary's Member War and Fellow of
Close All Souls College
27 Church
Green
Witney, OXON
OX8 6AZ
United Kingdom
Age: 61
Norman R. Advisory Managing Director, $8,500 $39,900 3
Weldon Board Partisan
15600 N.W. Member Management Group;
67th Avenue Chairman of the
Miami Lakes, Board, Novoste
FL 33014 Corporation
Age: 63
</TABLE>
/1/ Amounts may be deferred by eligible advisory board members under a
non-qualified deferred compensation plan adopted by the fund in 1993. Deferred
amounts accumulate at an earnings rate determined by the total return of one or
more funds in The American Funds Group as designated by the Advisory Board
member.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the deferred compensation plan's adoption, the total amount of
deferred compensation accrued by the fund (plus earnings thereon) as of the
fiscal year ended December 31, 1997 for participating Advisory Board members is
as follows: William H. Kling ($32,000). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the Advisory Board member.
/4/ Ellen H. Goldberg was elected to the Advisory Board on January 1, 1998 and,
accordingly, did not receive any compensation from the fund during the fiscal
year ended December 31, 1997.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $175 billion of stocks,
bonds and money market instruments and serves over eight million investors of
all types. These investors include privately owned business and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the Agreement) between the fund and the Investment Adviser dated
February 19, 1997 will continue until April 30, 1999, unless sooner terminated,
and may be renewed from year to year thereafter, provided that any such renewal
has been specifically approved at least annually by (i) the Board of Directors,
or by the vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities, and (ii) the vote of a majority of directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the Investment Adviser has no
liability to the fund for its acts or omissions in performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it,
without penalty, upon 60 days' written notice to the other party and that the
Agreement automatically terminates in the event of its assignment (as defined
in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform executive, administrative, clerical and bookkeeping functions of the
company; provides suitable office space and utilities; necessary small office
equipment and general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund will pay all expenses not expressly assumed
by the Investment Adviser, including, but not limited to, custodian, transfer
and dividend disbursing agency fees and expenses; costs of the designing,
printing and mailing of reports, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares
(including registration and qualification expenses); expenses pursuant to the
fund's Plan of Distribution (described below); legal and auditing expenses;
compensation, fees and expenses paid to Directors and members of the Advisory
Board who are not affiliated with the Investment Adviser; association dues; and
costs of stationery and forms prepared exclusively for the fund.
As compensation for its services, the Investment Adviser receives a monthly fee
which is accrued daily, calculated at the annual rate of 0.39% on the first
$1.0 billion of net assets, plus 0.336% on net assets over $1.0 billion to $2.0
billion, plus 0.30% on net assets over $2.0 billion to $3.0 billion, plus
0.276% on net assets over $3.0 billion to $5.0 billion, plus 0.258% on net
assets over $5.0 billion to $8.0 billion, plus 0.246% on net assets over $8.0
billion to $13.0 billion, plus 0.24% on net assets over $13.0 billion to $21.0
billion, plus 0.235% on net assets over $21.0 billion to $34.0 billion, plus
0.231% on net assets in excess of $34.0 billion. The Agreement provides that
the Investment Adviser shall pay the fund an amount by which normal operating
expenses, with the exception of interest, taxes, brokerage costs, distribution
expenses pursuant to the Plan of Distribution, and extraordinary expenses, if
any, as may be incurred in connection with any merger, reorganization, or
recapitalization, exceed the lesser of (i) 1-1/2% of the average value of the
fund's net assets for the fiscal year up to $30 million, plus 1% of the average
value of the fund's net assets for the fiscal year in excess of $30 million, or
(ii) 25% of the gross investment income of the fund. Other expenses which are
not subject to this limitation are interest, taxes, and extraordinary items
such as litigation. Expenditures, including costs incurred in connection with
the purchase or sale of portfolio securities, which are capitalized in
accordance with generally accepted accounting principles applicable to
investment companies, are accounted for as capital items and not as expenses.
During the years ended December 31, 1997, 1996, and 1995, Investment Adviser's
total fees amounted to $90,386,000, $72,350,000 and $58,981,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the Principal Underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by
the Principal Underwriter on sales of fund shares during the year ended
December 31, 1997 amounted to $16,839,000 after allowance of $88,584,000 to
dealers. During the years ended December 31, 1996 and 1995 the Principal
Underwriter retained $16,461,000 and $14,773,000, after an allowance of
$88,318,000 and $80,935,000 respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors, and separately by
a majority of the Directors who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are interested persons of the fund may be considered
to have a direct or indirect financial interest in the operation of the Plan
due to present or past affiliations with the Investment Adviser and related
companies. Potential benefits of the Plan to the fund are improved shareholder
services, savings to the fund in transfer agency costs, savings to the fund in
advisory fees and other expenses, benefits to the investment process from
growth or stability of assets and maintenance of a financially healthy
management organization. The selection and nomination of Directors who are not
interested persons of the fund is committed to the discretion of the Directors
who are not interested persons during the existence of the Plan. The Plan is
reviewed quarterly and must be approved annually by the Board of Directors.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the fund's Board of Directors has approved the
category of expenses for which payment is being made. These include service
fees for qualified dealers and dealer commissions and wholesaler compensation
on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Code including a "401(k)" plan with 100
or more eligible employees). During the year ended December 31, 1997, the fund
paid or accrued $79,761,000 under the Plan.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries or affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status of
a "regulated investment company" under the provisions of Subchapter M of the
Code. Under Subchapter M, if the fund distributes within specified times at
least 90% of the sum of its investment company taxable income it will be taxed
only on that portion, if any, of the investment company taxable income which it
retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that at the end of
each fiscal quarter, (i) at least 50% of the market value of the fund's assets
is represented by cash, U.S. Government securities and other securities which,
must be limited, in respect of any one issuer to an amount not greater than 5%
of the fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies), or in two or more issuers
which the fund controls and which are engaged in the same or similar trades or
businesses or related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
net capital gain income and (ii) any amount on which the fund pays income tax
during the periods described above. The fund intends, to the extent
practicable, to meet these distribution requirements to minimize or avoid the
excise tax liability.
Distributions of investment company taxable income, including short-term
capital gains, generally are taxable to the shareholders as ordinary income,
regardless of whether such distributions are paid in cash or invested in
additional shares of the fund. The fund also intends to continue distributing
to shareholders all of the excess of net long-term capital gain over net
short-term capital loss on sales of securities. A capital gain distribution,
whether paid in cash or re-invested in shares, is taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has
held the shares or whether such gain was realized by the fund before the
shareholder acquired such shares and was reflected in the price paid for the
shares. If the net asset value of shares of the fund should, by reason of a
distribution of realized capital gains, be reduced below a shareholder's cost,
such distribution would be a taxable dividend to the shareholder, even though
the distribution is economically a return of capital.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are therefore
taxable as of December 31, provided that the fund pays the dividend after
December 31 but during January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains on assets held more than 18 months is 20%, and on assets held
more than one year and not more than 18 months is 28%; and the maximum
corporate tax applicable to ordinary income and net capital gain is 35%.
However, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000.
Naturally, the amount of tax payable by a shareholder with respect to either
distributions from the company or disposition of company shares will be
affected by a combination of tax law rules covering, E.G., deductions, credits,
deferrals, exemptions, sources of income and other matters. Under the Code, an
individual is entitled to establish and contribute to an Individual Retirement
Account ("IRA") each year (prior to the tax return filing deadline for that
year) whereby earnings on investments are tax-deferred. In addition, in some
cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and distributions may also be subject to state or local
taxes. Shareholders should consult their own tax advisers for additional
details as to their particular tax status.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums $50 minimum (except where a lower minimum
and Fund Numbers" for is noted under "Investment Minimums and
initial investment Fund Numbers").
minimums.
By contacting Visit any investment Mail directly to your investment dealer's
your investment dealer who is registered address printed on your account
dealer in the state where the statement.
purchase is made and who
has a sales agreement
with American Funds
Distributors.
By mail Make your check payable Fill out the account additions form at
to the fund and mail to the bottom of a recent account statement,
the address indicated on make your check payable to the fund,
the account application. write your account number on your check,
Please indicate an and mail the check and form in the
investment dealer on the envelope provided with your account
account application. statement.
By telephone Please contact your Complete the "Investments by Phone"
investment dealer to section on the account application or
open account, then American FundsLink Authorization Form.
follow the procedures Once you establish the privilege, you,
for additional your financial advisor or any person with
investments. your account information can call
American FundsLine(r) and make
investments by telephone (subject to
conditions noted in "Shareholder Account Services and Privileges -
Telephone and
Computer Purchases, Redemptions and
Exchanges" below).
By computer Please contact your Complete the American FundsLink
investment dealer to Authorization Form. Once you establish
open account, then the privilege, you, your financial
follow the procedures advisor or any person with your account
for additional information may access American FundsLine
investments. OnLine(SM) on the Internet and make
investments by computer (subject to
conditions noted in "Telephone and
Computer Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to Your bank should wire your additional
obtain your account investments in the same manner as
number(s), if necessary. described under "Initial Investment."
Please indicate an
investment dealer on the
account. Instruct your
bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street, Sixth
Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the
account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(r) (see description
below):
<TABLE>
<CAPTION>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
<S> <C> <C>
AMCAP Fund(r) 02
$1,000
American Balanced Fund(r) 11
500
American Mutual Fund(r) 03
250
Capital Income Builder(r) 12
1,000
Capital World Growth and Income Fund(sm) 33
1,000
EuroPacific Growth Fund(r) 16
250
Fundamental Investors(sm) 10
250
The Growth Fund of America(r) 05
1,000
The Income Fund of America(r) 06
1,000
The Investment Company of America(r) 04
250
The New Economy Fund(r) 14
1,000
New Perspective Fund(r) 07
250
SMALLCAP World Fund(r) 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(r) 40
1,000
American High-Income Trust(sm) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond Fund(r) 31
1,000
Intermediate Bond Fund of America(sm) 23
1,000
Limited Term Tax-Exempt Bond Fund of America(sm) 43
1,000
The Tax-Exempt Bond Fund of America(r) 19
1,000
The Tax-Exempt Fund of California(r)* 20
1,000
The Tax-Exempt Fund of Maryland(r)* 24
1,000
The Tax-Exempt Fund of Virginia(r)* 25
1,000
U.S. Government Securities Fund(sm) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(r) 09
2,500
The Tax-Exempt Money Fund of America(sm) 39
2,500
The U.S. Treasury Money Fund of America(sm) 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for IRAs. Minimums are reduced to $50
for purchases through "Automatic Investment Plans" (except for the money market
funds) or to $25 for purchases by retirement plans through payroll deductions
and may be reduced or waived for shareholders of other funds in The American
Funds Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS.
The minimum is $50 for additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
Amount of Purchase SALES CHARGE AS DEALER
at the Offering Price PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10%
5.75% 5.00%
$50,000 but less than $100,000 4.71
4.50 3.75
BOND FUNDS
Less than $25,000 4.99
4.75 4.00
$25,000 but less than $50,000 4.71
4.50 3.75
$50,000 but less than $100,000 4.17
4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63
3.50 2.75
$250,000 but less than $500,000 2.56
2.50 2.00
$500,000 but less than $1,000,000 2.04
2.00 1.60
$1,000,000 or more none (see below)
none
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for
purchases by any employer-sponsored 403(b) plan or purchases by any defined
contribution plan qualified under Section 401(a) of
the Code including a "401(k)" plan with 100 or more eligible employees, and for
purchases made at net asset value by certain
retirement plans of organizations with collective retirement plan assets of $50
million or more: 1.00% on amounts of $1 million to $2
million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts over
$3 million to $50 million, 0.25% on amounts over $50
million to $100 million, and 0.15% on amounts over $100 million. The level of
dealer commissions will be determined based on sales
made over a 12-month period commencing from the date of the first sale at net
asset value.
The Principal Underwriter, at its expense (from a designated percentage of its
income), currently provides additional compensation to dealers. Currently these
payments are limited to the top one hundred dealers who have sold shares of the
fund or other funds in The American Funds Group. These payments will be based
on a pro rata share of a qualifying dealer's sales. American Funds Distributors
will, on an annual basis, determine the advisability of continuing these
payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified under
Section 401(a) of the Code including a "401(k)" plan with 100 or more eligible
employees or any other purchaser investing at least $1 million in shares of the
fund (or in combination with shares of other funds in The American Funds Group
other than the money market funds) may purchase shares at net asset value;
however, a contingent deferred sales charge of 1% is imposed on certain
redemptions made within twelve months of the purchase. Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferred
sales charge. (See "Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by the Investment
Adviser, employees of Washington Management Corporation, employees and partners
of The Capital Group Companies, Inc. and its affiliated companies, certain
family members of the above persons, and trusts or plans primarily for such
persons; (2) current registered representatives, retired registered
representatives with respect to accounts established while active, or full-time
employees (and their spouses, parents, and children) of dealers who have sales
agreements with the Principal Underwriter (or who clear transactions through
such dealers) and plans for such persons or the dealers; (3) companies
exchanging securities with the fund through a merger, acquisition or exchange
offer; (4) trustees or other fiduciaries purchasing shares for certain
retirement plans, foundations and endowments with assets of $50 million or
more; (5) insurance company separate accounts; (6) accounts managed by
subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $50,000 or more made within a
13-month period subject to a statement of intention (the "Statement"). The
Statement is not a binding obligation to purchase the indicated amount. When a
shareholder elects to utilize a Statement in order to qualify for a reduced
sales charge, shares equal to 5% of the dollar amount specified in the
Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by American Funds
Service Company (the "Transfer Agent"). All dividends and any capital gain
distributions on shares held in escrow will be credited to the shareholder's
account in shares (or paid in cash, if requested). If the intended investment
is not completed within the specified 13-month period, the purchaser will remit
to the Principal Underwriter the difference between the sales charge actually
paid and the sales charge which would have been paid if the total of such
purchases had been made at a single time. If the difference is not paid within
45 days after written request by the Principal Underwriter or the securities
dealer, the appropriate number of shares held in escrow will be redeemed to pay
such difference. If the proceeds from this redemption are inadequate, the
purchaser will be liable to the Principal Underwriter for the balance still
outstanding. The Statement may be revised upward at any time during the
13-month period, and such a revision will be treated as a new Statement, except
that the 13-month period during which the purchase must be made will remain
unchanged and there will be no retroactive reduction of the sales charges paid
on prior purchases. Existing holdings eligible for rights of accumulation (see
the prospectus and account application) may be credited toward satisfying the
Statement. During the Statement period reinvested dividends and capital gain
distributions, investments in money market funds, and investments made under a
right of reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, (i) if all parties are purchasing shares for
their own account(s), which may include purchases through employee benefit
plan(s) such as an IRA, individual-type 403(b) plan or single-participant
Keogh-type plan or by a business solely controlled by these individuals (for
example, the individuals own the entire business) or by a trust (or other
fiduciary arrangement) solely for the benefit of these individuals or (ii)
these individuals are making gifts to other individuals or charities.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are (1) for a single trust estate or fiduciary
account, including an employee benefit plan other than those described above,
or (2) made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or the Transfer
Agent; this offering price is effective for orders received prior to the time
of determination of the net asset value and, in the case of orders placed with
dealers, accepted by the Principal Underwriter prior to its close of business.
In the case of orders sent directly to the fund or the Transfer Agent, an
investment dealer MUST be indicated. The dealer is responsible for promptly
transmitting purchase orders to the Principal Underwriter. Orders received by
the investment dealer, the Transfer Agent, or the fund after the time of the
determination of the net asset value will be entered at the next calculated
offering price. Prices which appear in the newspaper are not always indicative
of prices at which you will be purchasing and redeeming shares of the fund
since such prices generally reflect the previous day's closing price whereas
purchases and redemptions are made at the next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at 4:00 p.m., New York Time each
day the New York Stock Exchange is open. For example, if the Exchange closes
at 1:00 p.m. on one day and at 4:00 p.m. on the next, the fund's share price
would be determined as of 4:00 p.m. New York time on both days. The New York
Stock Exchange is currently closed on weekends and on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The
net asset value per share is determined as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share
Any purchase order may be rejected by the Principal Underwriter or by the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly
or indirectly to any person or entity, where, after the sale, such person or
entity would own beneficially directly or indirectly more than 3% of the
outstanding shares of the fund without the consent of a majority of the fund's
Directors.
REDEEMING SHARES
<TABLE>
<CAPTION>
<S> <C>
By writing to American Funds Send a letter of instruction specifying the name of the
Service Company (at the fund, the number of shares or dollar amount to be sold,
appropriate address indicated your name and account number. You should also enclose
under "Fund Organization and any share certificates you wish to redeem. For
Management - Principal Underwriter redemptions over $50,000 and for certain redemptions of
and Transfer Agent" in the $50,000 or less (see below), your signature must be
prospectus) guaranteed by a bank, savings association, credit
union, or member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc.
that is an eligible guarantor institution. You should
verify with the institution that it is an eligible
guarantor prior to signing. Additional documentation
may be required for redemption of shares held in
corporate, partnership or fiduciary accounts.
Notarization by a Notary Public is not an
acceptable signature guarantee.
By contacting your investment If you redeem shares through your investment dealer,
dealer you may be charged for this service. SHARES HELD FOR
YOU IN YOUR INVESTMENT DEALER'S STREET NAME MUST BE
REDEEMED THROUGH THE DEALER.
You may have a redemption You may use this option, provided the account is
check sent to you by using registered in the name of an individual(s), a UGMA/UTMA
American FundsLine(r) or American custodian, or a non-retirement plan trust. These
FundsLine OnLine(SM) or by redemptions may not exceed $50,000 per shareholder each
telephoning, faxing, or day and the check must be made payable to the
telegraphing American Funds shareholder(s) of record and be sent to the address of
Service Company (subject to the record provided the address has been used with the
conditions noted in this section account for at least 10 days. See "Fund Organization
and in "Telephone and Computer and Management - Principal Underwriter and Transfer
Purchases, Sales and Exchanges" in Agent" in the prospectus and "Exchange Privilege" below
the prospectus) for the appropriate telephone or fax number.
In the case of the money Upon request (use the account application for the money
market funds, you may have market funds) you may establish telephone redemption
redemptions wired to your privileges (which will enable you to have a redemption
bank by telephoning American Funds sent to your bank account) and/or check writing
Service Company ($1,000 or more) privileges. If you request check writing privileges,
or by writing a check ($250 or you will be provided with checks that you may use to
more) draw against your account. These checks may be made
payable to anyone you designate and must be signed by
the authorized number of registered shareholders
exactly as indicated on your checking account signature
card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Code including a "401(k)" plan with 100
or more eligible employees. The charge is 1% of the lesser of the value of the
shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares. Shares held for the longest
period are assumed to be redeemed first for purposes of calculating this
charge. The charge is waived for exchanges (except if shares acquired by
exchange were then redeemed within 12 months of the initial purchase); for
distributions from qualified retirement plans and other employee benefit plans;
for redemptions resulting from participant-directed switches among investment
options within a participant-directed employer-sponsored retirement plan; for
distributions from 403(b) plans or IRAs due to death, disability or attainment
of age 591/2; for tax-free returns of excess contributions to IRAs; for
redemptions through certain automatic withdrawals not exceeding 10% of the
amount that would otherwise be subject to the charge; and for redemptions in
connection with loans made by qualified retirement plans.
REDEMPTIONS - The fund's Certificate of Incorporation permits the fund to
direct the Transfer Agent to redeem the Common shares owned by any holder of
capital stock of the fund if the value of such shares in the account of such
holder is less than the required minimum initial investment amount applicable
to that account as set forth in the fund's current registration statement under
the 1940 Act, and subject to such further terms and conditions as the Board of
Directors of the fund may from time to time adopt. Prior notice of at least 60
days will be given to a shareholder before the involuntary redemption provision
is made effective with respect to the shareholder's account. The shareholder
will have not less than 30 days from the date of such notice within which to
bring the account up to the minimum determined as set forth above.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or closing of the
account, the plan may be terminated and the related investment reversed. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, the
Transfer Agent or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestment of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine(r)
and American FundsLine OnLine(SM) (See "American FundsLine(r) and American
FundsLine OnLine(SM)" below), or by telephoning 800/421-0180 toll-free, faxing
(see "Principal Underwriter and Transfer Agent" in the prospectus for the
appropriate fax numbers) or telegraphing American Funds Service Company. (See
"Telephone and Computer Redemptions and Exchanges" below.) Shares held in
corporate-type retirement plans for which Capital Guardian Trust Company serves
as trustee may not be exchanged by telephone, computer, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the company of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from the Transfer Agent. Purchases through automatic
investment plans and certain retirement plans will be confirmed at least
quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM)- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(r) and American
FundsLine OnLine(SM). To use these services, call 800/325-3590 from a
TouchTone(tm) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com. Redemptions and exchanges through American
FundsLine(r) and American FundsLine OnLine(SM) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges - Telephone and
Computer Redemptions and Exchanges" below. You will need your fund number (see
the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone, computer (including American FundsLine(r) and American FundsLine
OnLine(SM)), fax or telegraph redemption and/or exchange options, you agree to
hold the fund, American Funds Service Company, any of its affiliates or mutual
funds managed by such affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone because of technical difficulties, market conditions, or
a natural disaster, redemption and exchange requests may be made in writing
only.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations. Subject to the above policy,
when two or more brokers are in a position to offer comparable prices and
executions, preference may be given to brokers who have sold shares of the fund
or have provided investment research, statistical, and other related services
for the benefit of the fund and/or other funds served by the Investment
Adviser.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more
than 15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, J. P. Morgan
Company, Inc. Was among the top 10 dealers that acted as principals in
portfolio transactions. The fund held securities of J.P. Morgan Company in the
amount of $270,900,000 as of the close of its most recent fiscal year.
Brokerage commissions paid on portfolio transactions, excluding dealer
concessions on underwritings, for the years ended December 31, 1997, 1996, and
1995 amounted to $16,553,000, $11,978,000 and $11,505,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081, as Custodian. Non-U.S. securities may be held by the Custodian,
pursuant to sub-custodial arrangements, in non-U.S. banks or non-U.S. branches
of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $20,141,000 for the fiscal year ended December 31, 1997.
INDEPENDENT ACCOUNTANTS - Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, has served as the fund's independent accountant since its
inception, providing audit services, preparation of tax returns and review of
certain documents to be filed with the Securities and Exchange Commission. The
financial statements included in this Statement of Additional Information have
been so included in reliance on the report of the independent accountants given
on the authority of said firm as experts in auditing and accounting. The
selection of the fund's independent accountant is reviewed and determined
annually by the Board of Directors.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio and financial statements audited annually by the fund's
independent accountants, Price Waterhouse LLP, whose selection is determined
annually by the Directors. In an effort to reduce the volume of mail
shareholders receive from the fund when a household owns more than one account,
the Transfer Agent has taken steps to eliminate duplicate mailings of
shareholder reports. To receive additional copies of a report shareholders
should contact the Transfer Agent.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; blackout periods on
personal investing for certain investment personnel; ban on short-term trading
profits for investment personnel; limitations on service as a director of
publicly traded companies; and disclosure of personal securities transactions.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the Directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
THE WARRANTS OF THE FUND - On December 31, 1997, there were outstanding 38,193
option warrants, unlimited in time, to purchase shares of the fund. As
originally issued in 1933 in exchange for shares of a predecessor trust, each
warrant permitted the purchase of one share of the fund at $115 per share. By
reason of adjustments for stock dividends and stock splits, each outstanding
warrant now represents an option to purchase approximately 21.940 shares at
approximately $5.242 per share, and, if all warrants were exercised,
approximately 837,954 shares would be issued. Whenever the offering price of
the fund's shares exceeds the price at which shares may be purchased by the
exercise of warrants, the holders of such warrants may, by exercising their
options, purchase shares at a price lower than the offering price of shares.
No warrants are currently owned by officers or Directors of the fund.
The financial statements, including the investment portfolio and the report of
Independent Auditors, contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $28.25
Maximum offering price per share
(100/94.25 of net asset value per share, which takes into
account the fund's current maximum sales charge) $29.97
</TABLE>
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 1.84% based on a 30-day (or one month) period ended
December 31, 1997, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's one year total return and average annual total returns for the five-
and ten-year periods ending on December 31, 1997 were 22.34%, 16.35% and
15.60%, respectively. The average annual total return (T) is computed by
equating the value at the end of the period (ERV) with a hypothetical initial
investment of $1,000 (P) over a period of years (n) according to the following
formula as required by the Securities and Exchange Commission: P(1+T)/n/ =
ERV.
To calculate total return, an initial investment is divided by the offering
price (which includes the sales charge) as of the first day of the period in
order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Directors. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the periods. Total return may be calculated for the one-, five-,
ten-year and for other periods. The average annual total return over periods
greater than one year may also be computed by utilizing ending values as
determined above.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. Total return for the
unmanaged indices will be calculated assuming reinvestment of dividends and
interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated. In
addition, the company will provide lifetime average total return figures.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard & Poor's 500 Stock Composite
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also, from time to time, combine its results with those of other
funds in The American Funds Group for purposes of illustrating investment
strategies involving multiple funds.
The fund may also refer to results and surveys compiled by organizations such
as CDA Investment Technologies, Ibbotson Associates, Lipper Analytical Services
("Lipper"), Morningstar, Inc., Wiesenberger Investment Companies Services and
the U.S. Department of Commerce. Additionally, the company may, from time to
time, refer to results published in various newspapers or periodicals,
including BARRON'S, FORBES, FORTUNE, INSTITUTIONAL INVESTOR, KIPLINGER'S
PERSONAL FINANCE MAGAZINE, MONEY, U.S. NEWS AND WORLD REPORT and THE WALL
STREET JOURNAL.
The fund may from time to time compare its investment results with the
following:
(1) Average of Savings Institution deposits, which is a measure of all kinds
of savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings deposits offer a
guaranteed rate of return on principal, but no opportunity for capital growth.
The period shown may include periods during which the maximum rates paid on
some savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (E.G. food,
clothing, shelter, and fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
The fund may also from time to time illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
EXPERIENCE OF THE INVESTMENT ADVISER - Capital Research and Management Company
manages nine growth and growth-income funds that are at least 10 years old.
In the rolling 10-year periods since January 1, 1968 (133 in all), those funds
have had better total returns than their comparable Lipper indexes in 124 of
the 133 periods.
Note that past results are not an indication of future investment results.
Also, the company has different investment policies than some of the funds
mentioned above. These results are included solely for the purpose of
informing investors about the experience and history of Capital Research and
Management Company.
The investment results set forth below were calculated as described in the
fund's prospectus. The fund's results will vary from time to time depending
upon market conditions, the composition of the fund's portfolio and operating
expenses of the fund, so that any investment results reported by the fund
should not be considered representative of what an investment in the fund may
earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objectives and policies.
The investment results set forth below were calculated as described in the
fund's prospectus.
ICA VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
10-Year ICA DJIA/1/ S&P 500/2/ Average
Periods Savings
1/1 -12/31 Account/3/
<S> <C> <C> <C> <C>
1988 - 1997 +326% +452% +424% +55%
1987 - 1996 +246 +366 +314 +57
1986 - 1995 +253 +360 +299 +62
1985 - 1994 + 261 +349 +282 +69
1984 - 1993 + 284 +333 +301 +81
1983 - 1992 + 314 +367 +346 +92
1982 - 1991 + 417 +452 +404 +105
1981 - 1990 + 312 +328 +267 +116
1980 - 1989 + 396 +426 +402 +121
1979 - 1988 + 357 +340 +352 +122
1978 - 1987 + 362 +289 +313 +124
1977 - 1986 + 327 +221 +264 +125
1976 - 1985 + 355 +211 +281 +123
1975 - 1984 + 362 +237 +297 +119
1974 - 1983 + 255 +154 +175 +113
1973 - 1982 + 146 +75 +91 +106
1972 - 1981 + 113 +63 +87 +95
1971 - 1980 + 147 +86 +125 +85
1970 - 1979 + 109 +66 +77 +79
1969 - 1978 + 57 +32 +36 +75
1968 - 1977 + 60 +39 +42 +72
1967 - 1976 + 111 +90 +90 +69
1966 - 1975 + 65 +30 +38 +67
1965 - 1974 + 55 +3 +13 +63
1964 - 1973 + 119 +60 +79 +60
1963 - 1972 + 223 +123 +158 +57
1962 - 1971 + 142 +74 + 98 +55
1961 - 1970 + 155 +94 +119 +52
1960 - 1969 + 160 +67 +112 +50
</TABLE>
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
THE BENEFITS OF SYSTEMATIC INVESTING IN ICA..........
<TABLE>
<CAPTION>
An initial investment of $1,000 in ICA on January 1 would have grown to these amounts
over the past 10, 20, 30, and 40 years:
<S> <C> <C> <C>
10 years 20 years 30 years 40 years
(1/1/88 - 12/31/97) (1/1/78 - 12/31/97) (1/1/68 - 12/31/97) (1/1/58 -12/31/97)
$ 4,262 $ 20,912 $ 35,474 $ 154,586
</TABLE>
<TABLE>
<CAPTION>
$1,000 invested in ICA followed by annual $500 investments (all investments made on
January 1) would have grown to these amounts over the past 10, 20, 30, 40 years:
<S> <C> <C> <C>
10 years 20 years 30 years 40 years
(1/1/88 - 12/31/97) (1/1/78 - 12/31/97) (1/1/68 - 12/31/97) (1/1/58 - 12/31/97)
$ 14,496 $ 79,837 $ 236,015 $705,776
</TABLE>
<TABLE>
<CAPTION>
$2,000 invested in ICA on January 1 of each year would have grown to these amounts
over the past 5, 10, 20 and 30 years:
<S> <C> <C> <C>
5 years 10 years 20 years 30 years
(1/1/93 - 12/31/97) (1/1/88 - 12/31/97) (1/1/78 - 12/31/97) (1/1/68 - 12/31/97)
$ 17,267 $ 49,460 $ 278,351 $ 875,891
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM...
<TABLE>
<CAPTION>
If you had invested Periods ... and taken all
$10,000 in ICA 1/1-12/31 distributions in
this many years ago... shares,
Number your investment
of Years would have been
worth this
much at December 31,
1997
Value
<S> <C> <C>
1 1997 $12,233
2 1996 - 1997 14,600
3 1995 - 1997 19,071
4 1994 -1997 19,105
5 1993 -1997 21,324
6 1992 -1997 22,808
7 1991 -1997 28,859
8 1990 -1997 29,063
9 1989 -1997 37,609
10 1988 -1997 42,624
11 1987 -1997 44,959
12 1986 -1997 54,729
13 1985 -1997 72,989
14 1984 -1997 77,830
15 1983 -1997 93,563
16 1982 -1997 125,103
17 1981 -1997 126,226
18 1980 -1997 153,023
19 1979 -1997 182,432
20 1978 -1997 209,123
21 1977 -1997 203,753
22 1976 -1997 264,049
23 1975 -1997 357,761
24 1974 -1997 293,452
25 1973 -1997 244,138
26 1972 -1997 282,831
27 1971 -1997 331,027
28 1970 -1997 339,494
29 1969 -1997 303,321
30 1968 -1997 354,761
</TABLE>
Results of a $10,000 investment in ICA/a/
with capital gain distributions taken in shares
(For the lifetime of the company January 1, 1934 through December 31, 1997)
<TABLE>
<CAPTION>
TOTAL VALUE ASSUMING CAPITAL VALUE ASSUMING
DIVIDENDS REINVESTED DIVIDENDS IN CASH
Year Dividends Value of Dividends Value of
Ended Reinvested Investment Taken in Investment
12/31 During Year at Year-End Cash at Year-End
<S> <C> <C> <C> <C>
1934 --- $11,822 --- $11,822
1935 --- 21,643 --- 21,643
1936 $398 31,560 $398 31,042
1937 1,006 19,424 976 18,339
1938 181 24,776 170 23,174
1939 536 24,986 498 22,860
1940 891 24,384 806 21,460
1941 1,262 22,590 1,089 18,816
1942 1,186 26,376 969 20,893
1943 1,101 35,019 861 26,861
1944 1,242 43,193 942 32,130
1945 1,191 59,091 878 42,948
1946 1,775 57,692 1,277 40,686
1947 2,409 58,217 1,672 39,332
1948 2,685 58,430 1,785 37,714
1949 2,661 63,941 1,689 39,436
1950 3,152 76,618 1,911 45,185
1951 3,391 90,274 1,970 51,159
1952 3,535 101,293 1,974 55,305
1953 3,927 101,747 2,113 53,362
1954 4,104 158,859 2,127 80,780
1955 5,124 199,215 2,579 98,530
1956 5,608 220,648 2,748 106,303
1957 6,228 194,432 2,969 90,911
1958 6,546 281,479 3,028 128,040
1959 7,013 321,419 3,161 142,882
1960 8,139 335,998 3,582 145,597
1961 8,383 413,552 3,603 175,370
1962 9,122 358,800 3,831 148,178
1963 9,620 440,900 3,936 177,833
1964 10,708 512,591 4,285 202,346
1965 12,112 650,689 4,742 251,553
1966 15,516 657,093 5,946 248,034
1967 18,359 846,941 6,869 312,473
1968 22,628 990,640 8,270 356,572
1969 25,318 884,824 9,024 309,611
1970 27,305 908,018 9,438 307,421
1971 28,565 1,062,651 9,569 349,727
1972 29,917 1,231,087 9,750 394,701
1973 33,353 1,024,067 10,569 317,911
</TABLE>
Results of a $10,000 investment in ICA (cont.)
<TABLE>
<CAPTION>
TOTAL VALUE ASSUMING CAPITAL VALUE ASSUMING
DIVIDENDS REINVESTED DIVIDENDS IN CASH
Year Dividends Value of Dividends Value of
Ended Reinvested Investment Taken in Investment
12/31 During Year at Year-End Cash at Year-End
<S> <C> <C> <C> <C>
1974 52,187 840,310 15,908 245,526
1975 49,800 1,137,660 14,318 317,655
1976 46,441 1,474,369 12,804 398,099
1977 49,838 1,436,402 13,279 374,307
1978 55,969 1,647,483 14,386 414,421
1979 69,960 1,963,310 17,347 475,669
1980 91,302 2,380,187 21,746 552,242
1981 115,901 2,401,091 26,420 530,864
1982 146,105 3,211,997 31,589 670,590
1983 147,156 3,859,712 30,264 774,518
1984 160,449 4,117,187 31,680 791,971
1985 174,890 5,491,890 33,152 1,017,904
1986 203,830 6,685,657 37,328 1,200,518
1987 267,489 7,049,178 47,452 1,220,928
1988 318,747 7,989,285 54,382 1,327,375
1989 370,835 10,338,589 60,741 1,652,751
1990 406,318 10,409,027 64,056 1,598,821
1991 320,422 13,171,892 48,721 1,969,876
1992 357,779 14,092,236 52,965 2,052,162
1993 374,395 15,729,365 54,005 2,234,153
1994 407,211 15,753,834 57,286 2,180,610
1995 450,124 20,578,696 61,704 2,779,658
1996 480,065 24,560,540 64,313 3,247,852
1997 510,312 31,881,108/b/ 67,021 4,142,648/c/
</TABLE>
/a/ Results reflect payment of a sales charge of 5.75% on the $10,000
investment. Thus, the net amount invested was $9,425. There is no sales
charge on dividends reinvested or capital gain distributions taken in shares.
Results do not take into account income and capital gain taxes.
/b/ The total "cost" of this investment ($10,000 plus $5,953,722 in reinvested
dividends) was $5,963,722. Total value includes reinvested dividends and
capital gain distributions totaling $10,208,147 taken in shares in the years
1936-1997.
/c/ Capital Value includes capital gain distributions taken in shares (total
$1,711,157) but does not include the amount of dividends received in cash
($1,064,871).
<TABLE>
INVESTMENT PORTFOLIO - December 31, 1997
- ------------------------------------------ ----------
Percent of
Largest Investment Categories Net Assets
- ------------------------------------------ ----------
Services 19.54%
Finance 18.52
Consumer Goods 17.02
<S> <C>
- ------------------------------------------ ----------
Percent of
Largest Individual Holdings Net Assets
- ------------------------------------------ ----------
Philip Morris 3.36%
Fannie Mae 3.02
Time Warner 1.93
Pfizer 1.80
AT&T 1.70
Royal Dutch Petroleum 1.69
DuPont 1.37
BankAmerica 1.36
Freddie Mac 1.33
Warner-Lambert 1.32
- ------------------------------------------ ----------
Percent of
Largest Industry Holdings Net Assets
- ------------------------------------------ ----------
Banking 9.56%
Health & Personal Care 7.35
Energy Sources 7.24
Telecommunications 6.94
Financial Services 5.47
</TABLE>
<TABLE>
THE INVESTMENT COMPANY OF AMERICA
INVESTMENT PORTFOLIO, December 31, 1997
- ------------------------------------------
Equity Securities Market Percent
- ------------------------------------------ Number of Value of Net
Energy Shares (millions) Assets
- ------------------------------------------ ---------------------- -----------
<S> <C> <C> <C>
Energy Sources-7.24%
Amoco Corp. 2,300,000 $ 195.788 .49
Atlantic Richfield Co. 2,350,000 188.294 .47
British Petroleum Co. PLC (American Depositary
Receipts) 1,052,714 83.888 .21
Broken Hill Proprietary Co. Ltd. 3,857,507 35.796 .09
Chevron Corp. 3,450,000 265.650 .67
Elf Aquitaine (American Depositary Receipts) 3,000,000 175.875 .44
Exxon Corp. 800,000 48.950 .12
Kerr-McGee Corp. 860,800 54.487 .14
Mobil Corp. 1,500,000 108.281 .27
Murphy Oil Corp. 2,175,000 117.858 .30
Pennzoil Co. 500,000 33.406 .08
Phillips Petroleum Co. 3,800,000 184.775 .47
Royal Dutch Petroleum Co.
(New York Registered Shares) 12,400,000 671.925 1.69
Texaco Inc. 3,600,000 195.750 .49
TOTAL, Class B 1,359,340 148.123
TOTAL, Class B (American Depositary Receipts) 2,033,520 112.860 .66
Union Pacific Resources Group, Inc. 2,100,000 50.925 .13
Unocal Corp. 2,200,000 85.387 .22
USX-Marathon Group 3,500,000 118.125 .30
Utilities: Electric & Gas-1.03%
American Electric Power Co., Inc. 1,100,000 56.788 .14
Duke Energy Corp. 1,125,000 62.297 .16
Florida Progress Corp. 400,000 15.700 .04
GPU, Inc. 1,500,000 63.188 .16
Long Island Lighting Co. 4,100,000 123.513 .31
Southern Co. 2,500,000 64.688 .16
Union Electric Co. 550,000 23.787 .06
--------- ---------
3,286.104 8.27
--------- ---------
- ------------------------------------------
Materials
- ------------------------------------------
Chemicals-2.71%
Air Products and Chemicals, Inc. 1,935,000 159.154 .40
E.I. du Pont de Nemours and Co. 9,030,000 542.364 1.37
Eastman Chemical Co. 400,000 23.825 .06
Hoechst AG 350,000 12.267 .03
Imperial Chemical Industries PLC
(American Depositary Receipts) 1,600,000 103.900 .26
Monsanto Co. 5,613,100 235.750 .59
Forest Products & Paper-2.76%
Champion International Corp. 1,950,000 88.359 .22
Fort James Corp. 4,700,000 179.775 .45
Georgia-Pacific Corp., Georgia-Pacific Group 4,400,000 267.300
Georgia-Pacific Corp., Timber Group (1) 4,400,000 99.825 .92
International Paper Co. 1,500,000 64.688 .16
Louisiana-Pacific Corp. 2,900,000 55.100 .14
Union Camp Corp. 1,530,000 82.142 .21
Weyerhaeuser Co. 5300000 260.031 .66
Metals: Nonferrous-1.02%
Aluminum Co. of America 3,000,000 211.125 .53
Freeport-McMoRan Copper & Gold Inc., Class B 1,200,000 18.900 .05
Inco Ltd. 2,300,000 39.100 .10
Phelps Dodge Corp. 1,496,300 93.145 .24
WMC Ltd. 11,500,000 40.065 .10
Metals: Steel-0.12%
USX-U.S. Steel Group 1,500,000 46.875 .12
--------- ------
2,623.690 6.61
--------- ------
- ------------------------------------------
Capital Equipment
- ------------------------------------------
Aerospace & Military Technology-1.36%
Boeing Co. 2,420,000 118.429 .30
General Motors Corp., Class H 2,953,600 109.099 .28
Raytheon Co., Class A 2,310,305 113.927
Raytheon Co., Class B 1,700,000 85.850 .50
Sundstrand Corp. 1,212,600 61.084 .15
United Technologies Corp. 720,000 52.425 .13
Data Processing & Reproduction-3.50%
Cisco Systems, Inc. (1) 1,800,000 100.350 .25
Computer Associates International, Inc. 2,295,000 121.348 .31
Digital Equipment Corp. (1) 1,500,000 55.500 .14
Fujitsu Ltd. 5,654,000 60.647 .15
Hewlett-Packard Co. 2,750,000 171.875 .43
International Business Machines Corp. 3,884,600 406.183 1.03
Oracle Corp. (1) 12,793,750 285.461 .72
3Com Corp. (1) 2,600,000 90.838 .23
Xerox Corp. 1,300,000 95.956 .24
Electrical & Electronic-0.54%
Emerson Electric Co. 1,000,000 56.438 .14
Lucent Technologies Inc. 983,000 78.517 .20
Siemens AG 1,350,000 79.986 .20
Electronic Components-1.86%
AMP Inc. 600,000 25.200 .06
Intel Corp. 3,650,000 256.413 .65
Micron Technology, Inc. (1) 7,400,000 192.400 .48
Texas Instruments Inc. 5,940,000 267.300 .67
Energy Equipment-2.07%
Dresser Industries, Inc. 1,100,000 46.131 .12
Halliburton Co. 2,000,000 103.875 .26
Schlumberger Ltd. 6,400,000 515.200 1.30
Western Atlas Inc. (1) 2,100,000 155.400 .39
Industrial Components-0.53%
Dana Corp. 1,821,500 86.521 .22
Genuine Parts Co. 750,000 25.453 .06
Goodyear Tire & Rubber Co. 650,000 41.356 .10
Rockwell International Corp. 1,100,000 57.475 .15
Machinery & Engineering-2.70%
Caterpillar Inc. 8,910,000 432.692 1.09
Cummins Engine Co., Inc. (2) 1,041,800 61.531
Cummins Engine Co., Inc. (2,3) 958,200 56.594 .30
Deere & Co. 5,550,000 323.634 .81
Ingersoll-Rand Co. 2,400,000 97.200 .24
Parker Hannifin Corp. 2,210,000 101.384 .26
--------- ------
4,989.672 12.56
--------- ------
- ------------------------------------------
Consumer Goods
- ------------------------------------------
Appliances & Household Durables-0.22%
Newell Co. 2,106,600 89.530 .22
Automobiles-2.12%
Chrysler Corp. 8,300,000 292.056 .74
Ford Motor Co., Class A 3,700,000 180.144 .45
General Motors Corp. 2,800,000 169.750 .43
Honda Motor Co., Ltd. 843,000 30.938
Honda Motor Co., Ltd.
(American Depositary Receipts) 2,270,000 167.696 .50
Beverages & Tobacco-5.04%
Anheuser-Busch Companies, Inc. 1,563,000 68.772 .17
PepsiCo, Inc. 3,700,000 134.819 .34
Philip Morris Companies Inc. 29,400,000 1,332.188 3.36
RJR Nabisco Holdings Corp. 9,100,000 341.250 .86
Seagram Co. Ltd. 3,800,000 122.787 .31
Food & Household Products-2.05%
Archer Daniels Midland Co. 3,150,000 68.316 .17
Bestfoods (formerly CPC International Inc.) 1,441,100 155.278 .39
General Mills, Inc. 2,350,000 168.319 .43
Kellogg Co. 2,066,600 102.555 .26
Nestle SA 90,000 134.763 .34
Procter & Gamble Co. 900,000 71.831 .18
Unilever NV (New York Registered Shares) 1,800,000 112.387 .28
Health & Personal Care-7.35%
Abbott Laboratories 1,500,000 98.344 .25
Avon Products, Inc. 1,740,000 106.792 .27
Bristol-Myers Squibb Co. 1,600,000 151.400 .38
Gillette Co. 600,000 60.262 .15
Johnson & Johnson 900,000 59.288 .15
Eli Lilly and Co. 5,152,600 358.750 .91
Merck & Co., Inc. 3,000,000 318.750 .80
Pharmacia & Upjohn, Inc. 3,247,500 118.940 .30
Pfizer Inc 9,600,000 715.800 1.80
Schering-Plough Corp. 3,767,600 234.062 .59
SmithKline Beecham PLC
(American Depositary Receipts) 1,000,000 51.438 .13
Warner-Lambert Co. 4,223,500 523.714 1.32
Zeneca Group PLC 3,280,400 116.889
Zeneca Group PLC (American Depositary Receipts) 33,000 3.564 .30
Recreation & Other Consumer Products-0.24%
Eastman Kodak Co. 1,100,000 66.894 .17
Mattel, Inc. 800,000 29.800 .07
--------- ------
6,758.066 17.02
--------- ------
- ------------------------------------------
Services
- ------------------------------------------
Broadcasting & Publishing-5.01%
Dow Jones & Co., Inc. 1,469,800 78.910 .20
Houston Industries Inc., 7.00% ACES convertible prefe 500,000 28.531 .07
New York Times Co., Class A 2,200,000 145.475 .36
Tele-Communications, Inc., Series A,
Liberty Media Group (1) 8,278,125 300.082 .76
Tele-Communications, Inc., Series A,
TCI Group (1) 9,300,000 259.819 .65
Time Warner Inc. 12,350,000 765.700 1.93
Tribune Co. 140,000 8.715 .02
Viacom Inc., Class B (1) 9,750,000 404.015 1.02
Business & Public Services-2.37%
Browning-Ferris Industries, Inc. 700,000 25.900 .06
Cendant Corp. (1) 3,096,766 106.451 .27
Columbia/HCA Healthcare Corp. 7,100,000 210.338 .53
Electronic Data Systems Corp. 1,915,000 84.140 .21
Federal Express Corp. (1) 1,435,000 87.625 .22
Humana Inc. (1) 1,900,000 39.425 .10
Interpublic Group of Companies, Inc. 2,619,750 130.496 .33
United HealthCare Corp. 1,000,000 49.688 .13
Waste Management, Inc. 7,554,233 207.741 .52
Leisure & Tourism-1.34%
Walt Disney Co. 4,300,000 425.969 1.07
McDonald's Corp. 2,200,000 105.050 .27
Merchandising-2.97%
AutoZone, Inc. (1) 2,640,000 76.560 .19
Dillard's Inc. 1,900,000 66.975 .17
Limited Inc. 8,881,500 226.478 .57
Lowe's Companies, Inc. 3,500,000 166.906 .42
May Department Stores Co. 1,800,000 94.838 .24
J.C. Penney Co., Inc. 1,900,000 114.594 .29
Wal-Mart Stores, Inc. 8,400,000 331.275 .83
Woolworth Corp. (1) 5,000,000 101.875 .26
Telecommunications-6.94%
AirTouch Communications (1) 5,560,600 231.112 .58
Ameritech Corp. 4,647,300 374.108 .94
AT&T Corp. 11,035,000 675.894 1.70
MCI Communications Corp. 5,975,000 255.805 .65
SBC Communications Inc. 1,000,000 73.250 .18
Sprint Corp. 4,537,800 266.029 .67
Tele-Communications, Inc., Series A,
TCI Ventures Group (1) 5,931,600 167.938 .42
Telefonica de Espana, SA
(American Depositary Receipts) 1,900,000 173.019 .44
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) 3,057,400 171.405 .43
U S WEST Communications Group 5,200,000 234.650 .59
Vodafone Group PLC (American Depositary Receipts) 1,848,000 133.980 .34
Transportation: Airlines-0.55%
AMR Corp. (1) 1,250,000 160.625 .41
Delta Air Lines, Inc. 471,050 56.055 .14
Transportation: Rail & Road-0.36%
Union Pacific Corp. 2,275,000 142.045 .36
--------- ------
7,759.486 19.54
--------- ------
- ------------------------------------------
Finance
- ------------------------------------------
Banking-9.56%
H.F. Ahmanson & Co. 2,400,000 160.650 .40
Banc One Corp. 3,200,000 173.800 .44
Bank of New York Co., Inc. 2,800,000 161.875 .41
BankAmerica Corp. 7,400,000 540.200 1.36
Bankers Trust New York Corp. 1,077,400 121.140 .31
Chase Manhattan Corp. 3,500,000 383.250 .96
Citicorp 500,000 63.219 .16
Comerica Inc. 1,450,000 130.863 .33
CoreStates Financial Corp 2,750,000 220.172 .55
First Chicago NBD Corp. 1,850,000 154.475 .39
First Union Corp. 700,000 35.875 .09
Fleet Financial Group, Inc. 1,073,900 80.475 .20
KeyCorp 2,750,000 194.734 .49
J.P. Morgan & Co. Inc. 2,400,000 270.900 .68
National City Corp. 1,500,000 98.625 .25
Norwest Corp. 3,860,900 149.127 .38
PNC Bank Corp. 1,950,000 111.272 .28
Toronto-Dominion Bank 4,780,000 179.772 .45
U.S. Bancorp 943,750 105.641 .27
Wachovia Corp. 900,000 73.013 .18
Washington Mutual, Inc. 6,097,900 389.122 .98
Financial Services-5.47%
Fannie Mae (formerly Federal National Mortgage Assn.)21,000,000 1,198.312 3.02
Freddie Mac (formerly Federal Home Loan Mortgage Corp12,621,600 529.318 1.33
Household International, Inc. 1,200,000 153.075 .38
SLM Holding Corp. (formerly Student Loan Marketing
Assn.) 2,102,000 292.441 .74
Insurance-3.49%
Aetna Inc. 2,100,000 148.181 .37
Allstate Corp. 2,313,000 210.194 .53
American General Corp. 1,710,000 92.447 .23
American International Group, Inc. 2,733,750 297.295 .75
CIGNA Corp. 200,000 34.613 .09
General Re Corp. 1,217,800 258.174 .65
Lincoln National Corp. 1,050,000 82.031 .21
SAFECO Corp. 1,600,000 78.000 .20
St. Paul Companies, Inc. 2,240,000 183.820 .46
--------- ------
7,356.101 18.52
--------- ------
- ------------------------------------------
Other
- ------------------------------------------
Multi-Industry-0.89%
AlliedSignal Inc. 2,600,000 101.237 .26
Canadian Pacific Ltd. 2,100,000 57.225 .14
Minnesota Mining and Manufacturing Co. 120,000 9.847 .02
Tenneco Inc. 2,032,900 80.300 .20
Textron Inc. 1,700,000 106.250 .27
Gold Mines -0.52%
Barrick Gold Corp. 3,300,000 61.463 .16
Newmont Mining Corp. 2,750,000 80.781 .20
Placer Dome Inc. 5,000,000 63.437 .16
Miscellaneous-1.45%
Equity securities in initial period of 0
acquisition 575.710 1.45
--------- ------
1,136.250 2.86
--------- ------
Total Equity Securities (cost: $18,583.229
million) 33,909.369 85.38
--------- ------
Principal
- ------------------------------------------ Amount
Bonds & Notes (millions)
- ------------------------------------------ ---------
U.S. Treasuries-2.55%
5.875% July 1999 $250.000 250.703 .63
6.00% August 1999 250.000 251.210 .63
5.625% October 1999 250.000 249.765 .63
5.875% November 1999 250.000 250.897 .63
11.625% November 2004 10.000 13.273 .03
--------- ------
Total Bonds & Notes (cost: $1,009.132 million) 1,015.848 2.55
--------- ------
Total Investment Securities (cost: $19,592.361
million) 34,925.217 87.93
--------- ------
- ------------------------------------------
Short-Term Securities
- ------------------------------------------
U.S. Treasuries and Other Federal Agencies-6.62%
Treasury Notes 4.75%-8.875% due 8/31-12/31/98 875.000 873.021 2.20
Treasury Bills 5.105%-5.25% due 1/22-4/16/98 533.800 529.643 1.33
Fannie Mae 5.39%-5.63% due 1/13-3/27/98 443.925 440.105 1.11
Federal Home Loan Banks 5.40%-5.65%
due 1/7-3/25/98 374.060 371.357 .94
Freddie Mac 5.44%-5.66% due 2/10-3/6/98 261.092 258.874 .65
International Bank for Reconconstruction and Development
5.62%-5.70% due 1/15-2/26/98 155.700 154.610 .39
Corporate Short-Term Notes-5.11%
American Express Credit Corp. 5.82%-5.85%
due 1/2-1/6/98 50.000 49.971 .13
Ameritech Corp. 5.57%-5.83%
due 1/27-2/4/98 67.200 66.892 .17
Amoco Co. 5.51%-5.52%
due 2/19-2/23/98 75.000 74.387 .19
AT&T Corp. 5.52%-5.64%
due 2/2-2/17/98 80.100 79.582 .20
Bell Atlantic Financial Services, Inc. 5.75%-6.05%
due 1/8-1/26/98 121.000 120.693 .30
Campbell Soup Co. 5.50%-5.52%
due 1/20-1/28/98 75.000 74.706 .19
Coca-Cola Co. 5.49%-5.68%
due 1/12-3/24/98 109.200 108.553 .27
Walt Disney Co. 5.48%-5.50%
due 1/6-2/9/98 83.600 83.264 .21
E.I. du Pont De Nemours and Co. 5.51%-5.67%
due 2/10-3/5/98 92.400 91.629 .23
Duke Energy Corp. 5.68%-5.71%
due 1/15-2/6/98 73.095 72.781 .18
Ford Motor Credit Co. 5.51%-5.71% due 1/9-3/23/98 136.900 135.671 .34
Gannett Co., Inc. 5.55% due 1/9-1/20/98 (3) 102.300 102.096 .26
General Electric Capital Corp. 5.55%-5.62%
due 1/15-2/18/98 156.100 155.425 .39
H.J. Heinz Co. 5.58%-5.78%
due 1/9-2/26/98 111.400 110.886 .28
IBM Credit Corp. 5.48%-5.69% due 1/7-2/2/98 111.250 110.996 .28
Lucent Technologies Inc. 5.71%-6.15%
due 1/5-2/6/98 68.300 67.990 .17
Minnesota Mining and Manufacturing Co. 5.52%-5.67%
due 1/20-3/19/98 72.000 71.559 .18
Monsanto Co. 5.52%-5.68%
due 1/6-2/27/98 (3) 93.400 93.136 .23
J.C. Penney Funding Corp. 5.55%-5.72%
due 1/16-3/17/98 (3) 116.000 115.191 .29
Procter & Gamble Co. 5.47%-5.75%
due 1/14-3/2/98 130.700 129.942 .33
SBC Communications Inc. 5.54%-5.74%
due 1/5-2/19/98 (3) 115.000 114.498 .29
Total Short-Term Securities
(cost: $4,659.585 million) 4,657.458 11.73
Excess of cash and receivables over payables 134.998 .34
--------- ------
Total Short-Term Securities, Cash and Receivables,
Net of Payables 4,792.456 12.07
----------- ---------
Net Assets $39,717.673 100.00%
============ =========
(1) Non-income-producing securities.
(2) The fund owns 5.24% of the outstanding voting
securities of Cummins Engine Co., which represents
investment in an affiliate as defined in the Investment
Company Act of 1940.
(3) Purchased in a private placement transaction;
resale to the public may require registration or
sale only to qualified institutional buyers.
COMPANIES WHOSE EQUITY SECURITIES WERE
ADDED TO OR ELIMINATED FROM THE PORTFOLIO
- ------------------------------------------
Companies appearing in the portfolio
since June 30, 1997
- ------------------------------------------
AMP
Cendant
Dillard's
Dow Jones
Emerson Electric
Fort James
Fujitsu
Genuine Parts
Kerr-McGee
Lowe's
Micron Technology
Newell
Woolworth
Zeneca Group
- ------------------------------------------
Companies eliminated from the portfolio
since June 30, 1997
- ------------------------------------------
Alcan Aluminium
American Home Products
Baker Hughes
ConAgra
El Paso Natural Gas
First Data
General Electric
Kimberly-Clark
Mannesmann
Tandem Computers
Toyota Motor
U S West Media Group
Wells Fargo
See Notes to Financial Statements
</TABLE>
<TABLE>
The Investment Company of America
- ------------------------------------------------------------------
Statement of Assets and Liabilities (dollars in
at December 31, 1997 millions)
- ------------------------------------------------------------------
Assets:
<S> <C> <C>
Investment securities at market
(cost: $19,592.361) $34,925.217
Short-term securities at market
(cost: $4,659.585) 4,657.458
Cash 9.098
Receivables for-
Sales of investments $78.655
Sales of fund's shares 41.047
Dividends and accrued interest 82.064 201.766
--------------------------
39,793.539
Liabilities:
Payables for-
Purchases of investments 37.248
Repurchases of fund's shares 23.477
Management services 8.230
Accrued expenses 6.911 75.866
--------------------------
Net Assets at December 31, 1997-
Equivalent to $28.25 per share on
1,405,903,965 shares of $1 par value
capital stock outstanding (authorized
capital stock--2,000,000,000 shares) $39,717.673
=============
Statement of Operations (dollars in
for the year ended December 31, 1997 millions)
- ------------------------------------------------------------------
Investment Income:
Income:
Dividends $600.461
Interest 279.098 $ 879.559
-------------
Expenses:
Management services fee 90.386
Distribution expenses 79.761
Transfer agent fee 20.141
Reports to shareholders 2.443
Registration statement and
prospectus 1.027
Postage, stationery and supplies 5.590
Directors' fees .494
Auditing and legal fees .103
Custodian fee .792
Taxes other than federal income tax .367
Other expenses .295 201.399
--------------------------
Net investment income 678.160
-------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 3,800.223
Net increase in unrealized
appreciation on investments 4,685.662
-------------
Net realized gain and increase in
unrealized appreciation on investments 8,485.885
-------------
Net Increase in Net Assets Resulting
from Operations $ 9,164.045
=============
- ------------------------------------------------------------------
(dollars in
millions)
Year ended Year ended
Statement of Changes in Net Assets 1997 1996
- ------------------------------------------------------------------
Operations:
Net investment income $ 678.160 $ 611.069
Net realized gain on investments 3,800.223 1,256.875
Net increase in unrealized
appreciation on investments 4,685.662 3,151.153
--------------------------
Net increase in net assets
resulting from operations 9,164.045 5,019.097
--------------------------
Dividends and Distributions Paid
to Shareholders:
Dividends from net investment income (639.699) (606.665)
Distributions from net realized
gain on investments (3,345.342) (1,256.817)
--------------------------
Total dividends and distributions (3,985.041) (1,863.482)
--------------------------
Capital Share Transactions:
Proceeds from shares sold: 142,732,538
and 154,894,329 shares, respectively 3,966.602 3,568.101
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 132,253,234 and 70,957,086
shares, respectively 3,660.294 1,707.735
Cost of shares repurchased: 143,511,101
and 139,431,152 shares, respectively (3,963.699) (3,234.297)
--------------------------
Net increase in net assets resulting from
capital share transactions 3,663.197 2,041.539
--------------------------
Total Increase in Net Assets 8,842.201 5,197.154
Net Assets:
Beginning of year 30,875.472 25,678.318
--------------------------
End of year (including undistributed
net investment income: $320.290
and $281.829, respectively) $39,717.673 $30,875.472
==========================
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. The Investment Company of America, Inc. (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
following paragraphs summarize the significant accounting policies consistently
followed by the fund in the preparation of its financial statements:
Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Dividend and
interest income is reported on the accrual basis. Discounts on securities
purchased are amortized. The fund does not amortize premiums on securities
purchased. Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of December 31, 1997, net unrealized appreciation on investments for
federal income tax purposes aggregated $15,340,051,000, of which
$15,789,687,000 related to appreciated securities and $449,636,000 related to
depreciated securities. During the year ended December 31, 1997, the fund
realized, on a tax basis, a net capital gain of $3,800,719,000 on securities
transactions. Net losses related to non-U.S. currency and other transactions of
$496,000 were treated as adjustments to ordinary income for federal income tax
purposes. The cost of portfolio securities for federal income tax purposes was
$24,242,624,000 at December 31, 1997.
3. The fee of $90,386,000 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.39% of the first $1 billion of net assets; 0.336% of
such assets in excess of $1 billion but not exceeding $2 billion; 0.30% of such
assets in excess of $2 billion but not exceeding $3 billion; 0.276% of such
assets in excess of $3 billion but not exceeding $5 billion; 0.258% of such
assets in excess of $5 billion but not exceeding $8 billion; 0.246% of such
assets in excess of $8 billion but not exceeding $13 billion; 0.24% of such
assets in excess of $13 billion but not exceeding $21 billion; 0.235% of such
assets in excess of $21 billion but not exceeding $34 billion; and 0.231% of
such assets in excess of $34 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended December 31, 1997,
distribution expenses under the Plan were $79,761,000. As of December 31, 1997,
accrued and unpaid distribution expenses were $6,236,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $20,141,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $16,839,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Directors and Advisory Board members who are unaffiliated with CRMC may elect
to defer part or all of the fees earned for services as members of the Board.
Amounts deferred are not funded and are general unsecured liabilities of the
fund. As of December 31, 1997, aggregate amounts deferred and earnings thereon
were $566,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly
owned subsidiaries of CRMC. Certain Directors and officers of the fund are or
may be considered to be affiliated with CRMC, AFS and AFD. No such persons
received any remuneration directly from the fund.
4. Option warrants are outstanding, which may be exercised at any time for the
purchase of 837,954 shares of the fund at approximately $5.242 per share. If
all warrants had been exercised on December 31, 1997, the net assets of the
fund would have been $39,722,066,000; the shares outstanding would have been
1,406,742,000; and the net asset value would have been equivalent to $28.24 per
share. During the year ended December 31, 1997, 15 warrants were exercised for
the purchase of 329 shares.
5. As of December 31, 1997, accumulated undistributed net realized gain on
investments and currency transactions was $455,005,000 and additional paid-in
capital was $22,205,782,000. To conform to its tax reporting, the fund
reclassified $96,000 to undistributed net realized gains from additional
paid-in capital for the year ended December 31, 1997.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $8,417,084,000 and $10,245,056,000, respectively,
during the year ended December 31, 1997.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $792,000 includes $97,000 that was paid by these credits
rather than in cash.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended December 31, 1997, such non-U.S. taxes were $9,556,000. Net realized
currency losses on dividends and withholding taxes reclaimable were $400,000
for the year ended December 31, 1997.
<TABLE>
Year
Per-Share Data and Ratios ended
December
31
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Net Asset Value, Beginning of
Year $24.23 $21.61 $17.67 $18.72 $17.89
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income from Investment
Operations:
Net investment income .51 .49 .52 .51 .54
Net realized and unrealized
gain (loss) on investments 6.61 3.66 4.83 (.48) 1.51
------- ------- ------- ------- -------
Total income from
investment operations 7.12 4.15 5.35 .03 2.05
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.50) (.50) (.50) (.48) (.47)
Distributions from net
realized gains (2.60) (1.03) (.91) (.60) (.75)
------- ------- ------- ------- -------
Total distributions (3.10) (1.53) (1.41) (1.08) (1.22)
------- ------- ------- ------- -------
Net Asset Value, End of Year $28.25 $24.23 $21.61 $17.67 $18.72
============ ======= ======= ======= =======
Total return (1) 29.81% 19.35% 30.63% .16% 11.62%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $39,718 $30,875 $25,678 $19,280 $19,005
Ratio of expenses to average
net assets .56% .59% .60% .60% .59%
Ratio of net income to average
net assets 1.90% 2.17% 2.70% 2.83% 3.03%
Average commissions paid
per share (2) 4.87 c 5.79 c 6.16 c 5.11 c 6.20 c
Portfolio turnover -
common stocks 24.08% 17.46% 20.91% 17.94% 19.57%
Portfolio turnover -
investment securities 26.02% 19.56% 20.37% 31.08% 17.57%
(1) Excludes maximum sales charge of 5.75%.
(2) Brokerage commissions paid on portfolio
transactions increase the cost of
securities purchased or reduce the
proceeds of securities sold, and are
not separately reflected in the fund's statement
of operations. Shares traded on a
principal basis (without commissions), such as most
over-the-counter and fixed-income
transactions, are excluded.
Generally, non-U.S. commissions
are lower than U.S. commissions when
expressed as cents per share but
higher when expressed as a percentage
of transactions because of the lower
per-share prices of many non-U.S. securities.
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Investment Company of
America, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the per-share data and ratios present fairly, in all
material respects, the financial position of The Investment Company of America,
Inc. (the "Fund") at December 31, 1997, the results of its operations, the
changes in its net assets and the per-share data and ratios for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and per-share data and ratios (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 generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at December 31, 1997 by correspondence with the custodian and
brokers and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
Los Angeles, California
January 30, 1998
1997 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 distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
Dividends and Distributions per Share
<TABLE>
<CAPTION>
From Net From Net
Realized Realized
To From Net Short- Long-
Shareholders Investment Term Term
of Record Payment Date Income Gains Gains
<S> <C> <C> <C> <C>
March 7, 1997 March 10, 1997 $0.12 - -
June 6, 1997 June 9, 1997 0.12 - -
September 5, 1997 September 8, 1997 0.12 - -
December 19, 1997 December 22, 1997 0.14 $0.057 $2.543*
</TABLE>
*INCLUDES $0.979 LONG-TERM CAPITAL GAINS TAXED AT A MAXIMUM RATE OF 28%.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 71% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 14% of the dividends
paid by the fund from net investment income were derived from interest on
direct U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
