THE INVESTMENT COMPANY OF AMERICA
Part B
Statement of Additional Information
MARCH 1, 1999
as amended August 1, 1999
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, 1999. 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 OF CONTENTS
ITEM PAGE NO.
Certain Investment Limitations and Guidelines 2
Description of Certain Securities 2
Fundamental Policies and Investment Restrictions 5
Fund Organization 7
Fund Directors and Officers 8
Advisory Board 13
Management 15
Dividends, Distributions and Federal Taxes 17
Purchase of Shares 20
Selling Shares 26
Shareholder Account Services and Privileges 28
Execution of Portfolio Transactions 30
General Information 31
Investment Results and Related Statistics 33
Financial Statements Attached
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
GENERAL GUIDELINE
- The fund may only invest in securities included on its eligible list (does
not apply to securities issued or guaranteed by the U.S. Government).
DEBT SECURITIES
- The fund's investments in straight debt securities must be rated A or above
by Moody's Investors Service, Inc. or Standard & Poor's Corporation or unrated
but determined to be of equivalent quality.
SECURITIES OUTSIDE THE U.S.
- The fund may invest up to 10% of its securities in issuers domiciled outside
the U.S. and not included in the Standard & Poor's 500 Composite Index.
DESCRIPTION OF CERTAIN SECURITIES
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.
The descriptions below are intended to supplement the material in the
prospectus under "Investment Objectives, Strategies and Risks."
EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. The prices of equity securities fluctuate based on changes in the
financial condition of their issuers and on market and economic conditions. The
fund's results will be related to the overall market for these securities.
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and generally must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values. The prices of debt securities fluctuate depending on such factors as
interest rates, credit quality and maturity. In general their prices decline
when interest rates rise and vice versa.
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 Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("Standard &
Poor'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 Moody's or Standard & Poor'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 entities in categories
ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC"
may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within the major rating categories. 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."
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.
U.S. GOVERNMENT SECURITIES -- The fund may invest in U.S. government
securities. Securities guaranteed by the U.S. government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and
(2) federal agency obligations guaranteed as to principal and interest by the
U.S. Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, such securities generally involve federal sponsorship in one
way or another; some are backed by specific types of collateral; some are
supported by the issuer's right to borrow from the Treasury; some are supported
by the discretionary authority of the Treasury to purchase certain obligations
of the Issuer; and others are supported only by the credit of the issuing
government agency or instrumentality.
INVESTING IN VARIOUS COUNTRIES -- The fund may invest up to 10% of its assets
in securities of issuers that are domiciled outside the U.S. and not included
in the Standard & Poor's 500 Composite Index (a broad measure of the U.S. stock
market). Investing outside the U.S. involves special risks, caused by, among
other things, fluctuating currency values; different accounting, auditing, and
financial reporting regulations and practices in some countries; changing local
and regional economic, political and social conditions; expropriation or
confiscatory taxation; greater market volatility; differing securities market
structures; and various administrative difficulties such as delays in clearing
and settling portfolio transactions or in receiving payment of dividends.
However, in the opinion of the Investment Adviser, investing outside the U.S.
also can reduce certain portfolio risks due to greater diversification
opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The fund can purchase and sell currencies to
facilitate transactions in securities denominated in currencies other than the
U.S. dollar. Brokerage commissions may be higher outside the U.S., and the
fund will bear certain expenses in connection with its currency transactions.
Furthermore, increased custodian costs may be associated with the maintenance
of assets in certain jurisdictions.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities whose principal trading market
is in the U.S. will be considered illiquid unless they have been specifically
determined to be liquid under procedures which may be adopted by the fund's
board of directors, taking into account factors such as the frequency and
volume of trading, the commitment of dealers to make markets and the
availability of qualified investors, all of which can change from time to time.
The fund may incur certain additional costs in disposing of illiquid
securities.
CASH EQUIVALENTS -- The fund invests in various high-quality money market
instruments that mature, or may be redeemed or resold, generally in 13 months
or less (25 months in the case of U.S. government securities). These include:
(1) commercial paper (notes issued by corporations or governmental bodies); (2)
certificates of deposit and bankers' acceptances (time drafts on a commercial
bank where the bank accepts an irrevocable obligation to pay at maturity); (3)
savings association and bank obligations; (4) securities of the U.S.
Government, its agencies or instrumentalities; and (5) corporate bonds and
notes.
CURRENCY TRANSACTIONS -- The fund can purchase and sell currencies to
facilitate securities transactions and enter into forward currency contracts to
hedge against changes in currency exchange rates. A forward currency contract
is an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. Forward currency
contracts entered into by the fund will involve the purchase or sale of a
currency against the U.S. dollar. While entering into forward currency
transactions could minimize the risk of loss due to a decline in the value of
the hedged currency, it could also limit any potential gain which might result
from an increase in the value of the currency. The fund will not generally
attempt to protect against all potential changes in exchange rates. The fund
will segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
FUNDAMENTAL POLICIES AND 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 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 ORGANIZATION
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation on August 28, 1933.
All fund operations are supervised by the fund's Board of Directors. The Board
meets periodically and performs duties required by applicable state and federal
laws. Members of the Board who are not employed by the Investment Adviser or
its affiliates are paid certain fees for services rendered to the fund as
described in "Fund Directors and Officers - Directors and Director
Compensation" below. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund.
FUND DIRECTORS AND OFFICERS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING (INCLUDING (INCLUDING OF FUND
PAST 5 YEARS VOLUNTARILY VOLUNTARILY BOARDS
DEFERRED DEFERRED ON WHICH
COMPENSATION/1/) COMPENSATION/1/) DIRECTOR
FROM THE FUND FROM ALL FUNDS SERVES
DURING FISCAL MANAGED /2/
YEAR ENDED BY CAPITAL
12/31/98 RESEARCH AND
MANAGEMENT
COMPANY OR ITS
AFFILIATES/2/ FOR
THE YEAR ENDED
12/31/98
<S> <C> <C> <C> <C> <C>
Charles H. Director Private $64,700 $114,900 2
Black investor and
525 Alma Real consultant;
Drive former
Pacific Executive
Palisades, CA Vice
90272 President and
Age: 72 Director,
KaiserSteel
Corporation
Ann S. Bowers Director Senior $65,300 $65,300 1
The Noyce Trustee, The
Foundation Noyce
450 Sheridan Foundation;
Avenue Human
Palo Alto, CA resources
94306 consultant,
Age: 61 Enterprise
2000
Louise H. Director Director and $0/5/ $0/5/ 1
Bryson former
KCET Public Chairman of
Television the Board,
4401 Sunset KCET - Los
Boulevard Angeles
Los Angeles, Public
CA 90027 Television
Age: 54 Station;
former Senior
Vice
President, fx
Networks,
Inc: Fox Inc.
Malcolm R. Director Chairman $49,600/3/ $49,600 1
Currie Emeritus,
28780 Wagon Hughes
Road Aircraft
Agoura, CA Company
91301
Age: 71
+William R. Senior Senior Vice None/4/ None/4/ 4
Grimsley Vice President and
P.O. Box 7650 President Director,
San and Capital
Francisco, CA Director Research and
94120 Management
Age: 60 Company
+Jon B. Chairman Chairman None/4/ None/4/ 4
Lovelace, Jr. of Emeritus,
333 South the Board Capital
Hope Street Research and
Los Angeles, Management
CA 90071 Company
Age: 72
John G. Director The IBJ $67,900/3/ $190,867 8
McDonald Professor of
Graduate Finance,
School of Graduate
Business School of
Stanford Business,
University Stanford
Stanford, CA University
94305
Age: 61
Bailey Director Vice $51,200 $51,200 1
Morris-Eck President,
Brookings Brookings
Institution Institution;
1775 Senior
Massachusetts Advisor,
Ave., NW Inter-American
Washington, Affairs,
D.C. 20036 Clinton
Age: 54 Administration; Senior
Fellow,
Institute for
International
Economics;
Consultant,
THE
INDEPENDENT
OF LONDON
Richard G. Director Chairman, $51,200/3/ $108,600 13
Newman President and
3250 Wilshire CEO, AECOM
Blvd. Technology
Los Angeles, Corporation
CA 90010 (architectural
Age: 64 engineering)
+William C. Director Senior None/4/ None/4/ 1
Newton Partner, The
333 South Capital Group
Hope Street Partners,
Los Angeles, L.P.
CA 90071
Age: 68
+James W. Vice Senior None/4/ None/4/ 7
Ratzlaff Chairman Partner, The
P.O. Box 7650 of the Capital Group
San Board and Partners L.P.
Francisco, CA Director
94120
Age: 62
Olin C. Director President of $55,400/3/ $92,600 4
Robison the Salzburg
The Marble Seminar;
Works President
2 Maple Emeritus,
Street Middlebury
Middlebury, College
VT 05753
Age: 62
+R. Michael President Chairman of None/4/ None/4/ 2
Shanahan and the Board and
333 South Hope Street Director Principal
Los Angeles, Executive
CA 90071 Officer,
Age: 60 Capital
Research and
Management
Company
William J. Director Chairman and $57,450/3/ $57,450 1
Spencer Chief
2706 Executive
Montopolis Officer,
Drive SEMATECH
Austin, TX (research and
78741 development
Age: 68 consortium)
</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 29 funds: AMCAP Fund, Inc., 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., New World 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 Endowments, Inc. whose shareholders
are limited to (i) any entity exempt from taxation under Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii)
any trust, the present or future beneficiary of which is a 501(c)(3)
organization; and (iii) any other entity formed for the primary purpose of
benefiting a 501(c)(3) organization. An affiliate of Capital Research and
Management Company, Capital International, Inc., manages Emerging Markets
Growth Fund, Inc.
/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, 1998 for participating Directors is as follows:
Malcolm R. Currie ($193,379), John G. McDonald ($366,724), Richard G. Newman
($174,083), Olin C. Robison ($10,738) and William J. Spencer ($136,866).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the fund until paid to the Directors.
/4/ 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.
/5/ Louise H. Bryson was elected a Director effective Janauary 1, 1999 and,
therefore, received no compensation from the fund in fiscal 1998.
OTHER OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL
WITH OCCUPATION(S)
REGISTRANT DURING PAST 5 YEARS
<S> <C> <C> <C>
Gregg E. Ireland 49 Senior Vice Senior Vice President,
3000 K Street, N.W. President Capital Research and
Washington, DC Management Company
20007
James B. Lovelace 42 Senior Vice Senior Vice President,
333 South Hope President Capital Research and
Street Management Company
Los Angeles, CA
90071
Donald D. O'Neal 38 Senior Vice Vice President,
P.O. Box 7650 President Capital Research and
San Francisco, CA Management Company;
94120 Vice President and
Director, Capital
Research Company
Joyce E. Gordon 42 Vice Senior Vice President
333 South Hope President and Director,
Street Capital Research
Los Angeles, CA Company; Senior Vice
90071 President and
Director, Capital
Research Company
Anne M. Llewellyn 51 Vice Associate, Capital
333 South Hope President Research and
Street Management Company
Los Angeles, CA
90071
Patricia L. Pinney 42 Vice Vice President,
333 South Hope President Capital Research
Street Company
Los Angeles, CA
90071
Vincent P. Corti 42 Secretary Vice President - Fund
333 South Hope Business Management
Street Group, Capital
Los Angeles, CA Research and
90071 Management Company
Thomas M. Rowland 57 Treasurer Senior Vice President
135 South State - Fund Business
College Blvd. Management Group,
Brea, CA 92821 Capital Research and
Management Company
R. Marcia Gould 44 Assistant Vice President - Fund
135 South State Treasurer Business Management
College Blvd. Group, Capital
Brea, CA 92821 Research and
Management Company
Anthony W. Hynes, 35 Assistant Vice President - Fund
Jr. Treasurer Business Management
135 South State Group, Capital
College Blvd. Research and
Brea, CA 92821 Management Company
</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 $40,000 per
annum, plus $2,000 for each Board of Directors meeting attended, plus $1,000
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 retainer fee of
$12,500. 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, 1999 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
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING OF FUND
YEARS VOLUNTARILY VOLUNTARILY BOARDS
DEFERRED DEFERRED ON WHICH
COMPENSATION/1/) COMPENSATION/1/) ADVISORY
FROM THE FUND FROM ALL FUNDS BOARD
DURING FISCAL MANAGED MEMBER
YEAR ENDED BY CAPITAL SERVES
12/31/98 RESEARCH AND /2/
MANAGEMENT
COMPANY OR ITS
AFFILIATES/2/
FOR THE YEAR
ENDED 12/31/98
<S> <C> <C> <C> <C> <C>
Thomas M. Advisory Partner, $7,500 $7,500 1
Crosby, Jr. Board Faegre &
2200 Norwest Member Benson (law
Center firm)
90 South
Seventh
Street
Minneapolis,
MN 55402
Age: 60
Ellen H. Advisory President, $6,500 $6,500 1
Goldberg Board Santa Fe
1399 Hyde Member Institute;
Park Road Research
Santa Fe, NM Professor,
87501 University of
Age: 53 New Mexico
Allan E. Advisory Former $6,500 $6,500 1
Gotlieb Board Canadian
P.O. Box 85 Member Ambassador to
Toronto, the United
Ontario M5L States
1B9
Canada
Age: 71
William H. Advisory President, $6,500/3/ $6,500 5
Kling Board Minnesota
45 East Member Public Radio;
Seventh President,
Street Greenspring
St. Paul, MN Co.; former
55101 President,
Age: 56 American
Public Radio
(now Public
Radio
International)
Robert J. Advisory Chichele $7,500 $7,500 3
O'Neill Board Professor of
Witney, OXON Member the History
United of War and
Kingdom Fellow of All
Age: 62 Souls College
Norman R. Advisory Managing $7,500 $38,850 3
Weldon Board Director,
15600 N.W. Member Partisan
67th Avenue Management
Miami Lakes, Group;
FL 33014 Chairman of
Age: 64 the Board,
Novoste
Corporation
</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 29 funds: AMCAP Fund, Inc., 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., New World 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 Endowments, Inc. whose shareholders
are limited to (i) any entity exempt from taxation under Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii)
any trust, the present or future beneficiary of which is a 501(c)(3)
organization; and (iii) any other entity formed for the primary purpose of
benefiting a 501(c)(3) organization. An affiliate of Capital Research and
Management Company, Capital International, Inc., manages Emerging Markets
Growth Fund, Inc.
/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, 1998 for participating Advisory Board members is
as follows: William H. Kling ($37,062). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the Advisory Board member.
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 managing more than $200 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
is dated May 1, 1996. The Agreement will continue in effect until April 30,
2000, 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 of the fund, or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the fund, and (ii) the vote of a majority of directors who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Agreement provides that the Investment Adviser has no liability
to the fund for its acts or omissions in 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 based on prior month-end net assets, 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. For the fiscal years ended December 31,
1998, 1997, and 1996, Investment Adviser's total fees amounted to $108,430,000,
$90,386,000 and $72,350,000, 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, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 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 for the fiscal year ended
December 31, 1998 amounted to $18,078,000 after allowance of $93,515,000 to
dealers. During the fiscal years ended December 31, 1997 and 1996 the
Principal Underwriter retained $16,839,000 and $16,461,000, after an allowance
of $88,584,000 and $88,318,000, respectively.
As required by rule 12b-1 and the 1940 Act, 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 include 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 are 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 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, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees or a community foundation).
Commissions 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 Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fiscal year ended December 31, 1998, the fund paid or accrued $96,401,000
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
Internal Revenue Code of 1986, as amended, (the Code). Under Subchapter M, if
the fund distributes within specified times at least 90% of the sum of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses) and its tax-exempt
interest, if any, it generally will be taxed only on that portion of such
investment company taxable income that 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 value of the fund's total assets
is represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer), and (ii) not more than 25% of
the value of its total 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
for the year. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
Distributions of investment company taxable income, including short-term
capital gains, generally are taxable to the shareholder as ordinary income,
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the fund. A capital gain distribution, whether paid in
cash or reinvested 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.
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. 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 to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
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 thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of 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 in The American Funds Group, 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, foreign
trust or estate, non-U.S. corporation or non-U.S. partnership (a "non-U.S.
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 non-U.S. 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. However,
if the distribution is effectively connected with the conduct of the non-U.S.
shareholder's trade or business within the U.S., the distribution would be
included in the net income of the shareholder and subject to U.S. income tax at
the applicable marginal rate. Distributions of net long- term capital gains
are not subject to tax withholding, but in the case of a non-U.S. 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 one year is 20%; 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 liability 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 fund or disposition of fund 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 an Individual Retirement Account ("IRA")
each year (prior to the tax return filing deadline for that year) whereby
earnings on investments are tax-deferred. The maximum amount that an
individual may contribute to all IRA's (deductible, nondeductible and Roth
IRA's) per year is the lesser of $2,000 or the individual's compensation for
the year. 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 capital gain distributions may also be subject to
state or local taxes. Shareholders should consult their own tax advisers for
additional details as to their particular own tax status.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment $50 minimum (except where a
Minimums and Fund lower minimum is noted under
Numbers" for initial "Investment Minimums and
investment minimums. Fund Numbers").
By Visit any investment Mail directly to your
contacting dealer who is investment dealer's address
your registered in the printed on your account
investment state where the statement.
dealer purchase is made and
who has a sales
agreement with
American Funds
Distributors.
By mail Make your check Fill out the account
payable to the fund additions form at the bottom
and mail to the of a recent account
address indicated on statement, make your check
the account payable to the fund, write
application. Please your account number on your
indicate an check, and mail the check
investment dealer on and form in the envelope
the account provided with your account
application. statement.
By Please contact your Complete the "Investments by
telephone investment dealer to Phone" section on the
open account, then account application or
follow the procedures American FundsLink
for additional Authorization Form. Once
investments. you establish the privilege,
you, your financial advisor
or any person with your
account information can call
American FundsLine(r) and
make investments by
telephone (subject to
conditions noted in
"Shareholder Account
Services and Privileges -
Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By Please contact your Complete the American
computer investment dealer to FundsLink Authorization
open account, then Form. Once you establish
follow the procedures the privilege, you, your
for additional financial advisor or any
investments. person with your account
information may access
American FundsLine OnLine(r)
the Internet and make
investments by computer
(subject to conditions noted
in "Shareholder Account
Services and Privileges -
Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to Your bank should wire your
obtain your account additional investments in
number(s), if the same manner as described
necessary. Please under "Initial Investment."
indicate an
investment dealer on
the account.
Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street,
Sixth Floor
San Francisco, CA
94106
(ABA #121000248)
For credit to the
account of:
American Funds
Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE 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
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) $1,000 02
American Balanced Fund(r) 500 11
American Mutual Fund(r) 250 03
Capital Income Builder(r) 1,000 12
Capital World Growth and Income 1,000 33
Fund(sm)
EuroPacific Growth Fund(r) 250 16
Fundamental Investors(sm) 250 10
The Growth Fund of America(r) 1,000 05
The Income Fund of America(r) 1,000 06
The Investment Company of America(r) 250 04
The New Economy Fund(r) 1,000 14
New Perspective Fund(r) 250 07
New World Fund (SM) 1,000+ 36
SMALLCAP World Fund(r) 1,000 35
Washington Mutual Investors Fund(sm) 250 01
BOND FUNDS
American High-Income Municipal Bond 1,000 40
Fund(r)
American High-Income Trust(sm) 1,000 21
The Bond Fund of America(sm) 1,000 08
Capital World Bond Fund(r) 1,000 31
Intermediate Bond Fund of 1,000 23
America(sm)
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(sm)
The Tax-Exempt Bond Fund of 1,000 19
America(r)
The Tax-Exempt Fund of 1,000 20
California(r)*
The Tax-Exempt Fund of Maryland(r)* 1,000 24
The Tax-Exempt Fund of Virginia(r)* 1,000 25
U.S. Government Securities Fund(sm) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of 2,500 09
America(r)
The Tax-Exempt Money Fund of 2,500 39
America(sm)
The U.S. Treasury Money Fund of 2,500 49
America(sm)
___________
*Available only in certain states.
+Effective September 15, 1999.
</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).
SALES CHARGES -- 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>
<S> <C> <C> <C>
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
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES -- Investment of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchases. Investments by retirement plans,
foundations or endowments with $50 million or more in assets, and
employer-sponsored defined contribution-type plans with 100 or more eligible
employees made with no sales charge are not subject to a contingent deferred
sales charge.
In addition, 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 Capital Research and Management Company,
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
American Funds Distributors (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 of organizations with retirement plan 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.
DEALER COMMISSIONS -- 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 Internal Revue 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 $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS -- American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based principally 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.
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.
REDUCING YOUR SALES CHARGE -- You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION -- You may enter into a non-binding dommitment to
purchase shares of a fund(s) over a over a 13-month period and receive the same
sales charge as if all shares had been purchased at once. This includes
purchases made during the previous 90 days, but does not include appreciation
of your investment or reinvested distributions. 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 the following 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 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 by the
close of the period, the appropriate number of shares held in escrow will be
redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the Principal Underwriter for the
balance still outstanding. The Statement may be revised upward at any time
during the 13-month period, and such a revision will be treated as a new
Statement, except that the 13-month period during which the purchase must be
made will remain unchanged and there will be no retroactive reduction of the
sales charges paid on prior purchases. Existing holdings eligible for rights
of accumulation (see the account application) and any individual investments in
American Legacy products (American Legacy, American Legacy II and American
Legacy III variable annuities, American Legacy Life, American Legacy Variable
Life, and American Legacy Estate Builder) may be credited toward satisfying
the Statement. During the Statement period reinvested dividends and capital
gain distributions, investments in money market funds, and investments made
under a right of reinstatement will not be credited toward satisfying the
Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month period
will be handled as follows: The 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)
any rollovers or transfers reasonably anticipated to be invested in non-money
market American Funds during the 13-month period, and any individual
investments in American Legacy products 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, 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. 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 Investment Company Act of 1940, 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.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When determining
your sales charge, you may also take into account the value of your individual
holdings, as of the end of the week prior to your investment, in various
American Legacy products (American Legacy, American Legacy II and American
Legacy III variable annuities, American Legacy Life, American Legacy Variable
Life, and American Legacy Estate Builder). Direct purchases of the money market
funds are excluded.
PRICE OF SHARES -- Shares are purchased at the offering price next determined
after the purchase order is received and accepted by the fund or American Funds
Service Company; 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 American Funds
Service Company, 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 the close of trading
(currently 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.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
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
Board of Directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- -Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- -Requests must be signed by the registered shareholder(s)
- -A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- -Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- -You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(SM)
- -Redemptions by telephone or fax (including American FundsLine(r) and American
FundsLine OnLine(r)) are limited to $50,000 per shareholder each day.
- -Checks must be made payable to the registered shareholder(s).
- -Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- -You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- -You may establish check writing privileges (use the money market funds
application)
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within twelve months of purchase on investments of $1 million or more
(other than redemptions by employer-sponsored retirement plans). 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 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.
REDEMPTION OF SHARES -- 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 -- An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will
begin within 30 days after your account application is received. Your bank
account will be debited on the day or a few days before your investment is
made, depending on the bank's capabilities. American Funds Service Company
will then invest your money into the fund you specified on or around the date
you specified. If your bank account cannot be debited due to insufficient
funds, a stop-payment or closing of the account, the plan may be terminated and
the related investment reversed. You may change the amount of the investment
or discontinue the plan at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares 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, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the
fund receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE -- You may 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 American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) and American FundsLine OnLine(r) (See "American FundsLine(r) and
American FundsLine OnLine(r)" 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 Purchases, 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 (a) meet the minimum initial investment requirement
for the receiving fund OR (b) 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 will be reflected on regular confirmation statements from American
Funds Service Company. Dividend and capital gain reinvestments and purchases
through automatic investment plans and certain retirement plans will be
confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(R)-- 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(r). 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(r) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges - Telephone and
Computer Purchases, Redemptions and Exchanges" below. You will need your fund
number (see the list of funds in The American Funds Group under "Purchase of
Shares--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 (including American FundsLine(r)) or computer (including American
FundsLine OnLine(r)), fax or telegraph purchase, 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.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to the Transfer Agent.
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 have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
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.
Brokerage commissions paid on portfolio transactions, excluding dealer
concessions on underwritings, for the years ended December 31, 1998, 1997, and
1996 amounted to $18,546,000, $16,553,000 and $11,978,000, respectively.
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, Bankers Trust
Corporation and Lincoln National Life Insurance Company were among the top 10
dealers that received the largest amount of brokerage commissions and that
acted as principals in portfolio transactions. The fund held equity securities
of Bankers Trust Corporation in the amount of $121,953,000 and equity
securities of Lincoln National Life Insurance Company in the amount of
$85,903,000 as of the close of its December 31, 1998 fiscal year.
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 foreign
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 $22,846,000 for the fiscal year ended December 31, 1998.
INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers LLP, 400 South Hope Street,
Los Angeles, CA 90071, has served as the fund's independent accountants since
the fund's 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 from the Annual Report have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent accountants,
PricewaterhouseCoopers LLP, whose selection is determined annually by the Board
of 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.
YEAR 2000 -- The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings
of individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
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.
WARRANTS OF THE FUND -- On December 31, 1998, there were option warrants
outstanding which may be exercised at any time for the purchase of 835,212
shares of the fund at approximately $5.242 per share (by reason of adjustments
for stock dividends and stock splits). 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. If all warrants had been exercised
on December 31, 1998, the net assets of the fund would have been
$48,501,961,000 and the shares outstanding would have been 1,561,929,000.
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.
OTHER INFORMATION -- 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:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- DECEMBER 31, 1998
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $31.07
Maximum offering price per share
(100/94.25 of net asset value per share, which $32.97
takes into account the fund's current maximum
sales charge)
</TABLE>
SHAREHOLDER VOTING RIGHTS -- Shareholders have one vote per share owned. At
any meeting of shareholders, duly called and at which a quorum is present, the
shareholders holding a majority of the votes entitled to be cast, may 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 agreed, 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.
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 1.50% based on a 30-day (or one month) period ended
December 31, 1998, 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, 1998 were 15.8%, 18.62% and 16.55%,
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.
For educational purposes, fund literature may contain discussions and/or
illustrations of volatility, risk tolerance, asset allocation and investment
strategies.
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.
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.
EXPERIENCE OF 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, 1969 (138 in all) those funds
have had better total returns than their comparable Lipper indexes in 128 of
138 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than 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.
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>
1989 - 1998 +362% +460% +477% + 60%
1988 - 1997 +326 +452 +424 + 63
1987 - 1996 +246 +366 +314 + 65
1986 - 1995 +253 +360 +299 + 70
1985 - 1994 + 261 + 349 + 282 + 76
1984 - 1993 + 284 + 333 + 301 + 87
1983 - 1992 + 314 + 367 + 346 + 98
1982 - 1991 + 417 + 452 + 404 + 111
1981 - 1990 + 312 + 328 + 267 + 121
1980 - 1989 + 396 + 426 + 402 + 124
1979 - 1988 + 357 + 340 + 352 + 124
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
(1/1/89 - (1/1/79 - (1/1/69 - (1/1/59 -
12/31/98) 12/31/98) 12/31/98) 2/31/98)
$4,623 $22,428 $37,289 $131,191
</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
(1/1/89 - (1/1/79 - (1/1/69 - (1/1/59 -
12/31/98) 12/31/98) 12/31/98) 12/31/98)
$15,472 $84,230 $265,758 $743,691
</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
(1/1/94 - (1/1/89 - (1/1/79 - (1/1/69 -
12/31/98) 12/31/98) 12/31/98) 12/31/98)
$18,302 $52,641 $292,893 $991,351
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM...
<TABLE>
<CAPTION>
If you had invested ... and taken all
$10,000 in ICA distributions in
shares,
this many years ago... your investment would
have been worth this
much at December 31,
1998
<S> <C> <C>
Number Periods
of Years 1/1-12/31 Value
1 1998 $11,588
2 1997 - 1998 15,039
3 1996 - 1998 17,949
4 1995 - 1998 23,446
5 1994 - 1998 23,487
6 1993 - 1998 26,215
7 1992 - 1998 28,039
8 1991 - 1998 35,479
9 1990 - 1998 35,729
10 1989 - 1998 46,235
11 1988 - 1998 52,400
12 1987 - 1998 55,271
13 1986 - 1998 67,282
14 1985 - 1998 89,730
15 1984 - 1998 95,682
16 1983 - 1998 115,023
17 1982 - 1998 153,797
18 1981 - 1998 155,177
19 1980 - 1998 188,121
20 1979 - 1998 224,275
21 1978 - 1998 257,088
22 1977 - 1998 250,487
23 1976 - 1998 324,612
24 1975 - 1998 439,818
25 1974 - 1998 360,760
26 1973 - 1998 300,134
27 1972 - 1998 347,703
28 1971 - 1998 406,953
29 1970 - 1998 417,361
30 1969 - 1998 372,891
</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, 1998)
<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
</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>
1972 29,917 1,231,087 9,750 394,701
1973 33,353 1,024,067 10,569 317,911
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 67,021 4,142,648
1998 584,125 39,193,457/b/ 75,420 5,008,219/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 $6,537,847 in reinvested
dividends) was $6,547,847. Total value includes reinvested dividends and
capital gain distributions totaling $13,594,989 taken in shares in the years
1936-1998.
/c/ Capital Value includes capital gain distributions taken in shares (total
$2,146,514) but does not include the amount of dividends received in cash
($1,140,291).
<TABLE>
INVESTMENT PORTFOLIO - December 31, 1998
- ------------------------------------------ ----------
<S> <C>
Percent of
Largest Individual Holdings Net Assets
- ------------------------------------------ ----------
Philip Morris 3.68%
Fannie Mae 2.96
Time Warner 2.93
Viacom 2.08
Intenational Business Machines 1.82
Pfizer 1.71
AT&T 1.71
BankAmerica 1.52
Cendant 1.51
Sprint FON Group 1.42
- ------------------------------------------ ----------
Percent of
Largest Industry Holdings Net Assets
- ------------------------------------------ ----------
Telecommunications 8.70%
Banking 7.96
Health & Personal Care 7.19
Broadcasting & Publishing 6.82
Data Processing & Reproduction 6.46
- ------------------------------------------ ----------
Percent of
Largest Investment Categories Net Assets
- ------------------------------------------ ----------
Services 24.06%
Finance 16.06
Consumer Goods 15.47
- ------------------------------------------ ----------
NAV
- ------------------------------------------ ----------
Beginning
Ending
- ------------------------------------------ ----------
- ------------------------------------------ ----------
Companies appearing in the portfolio listing
since June 30, 1998
- ------------------------------------------
American Stores
Aon
Baxter International
Bayer
Cardinal Health
Compaq Computer
Corning
Deutsche Telekom
Illinois Tool Works
International Flavors & Fragrances
Jefferson-Pilot
Kimberly-Clark
Motorola
Northern Telecom
Northrop Grumman
Perkin-Elmer
Sara Lee
SunTrust Banks
Texas Utilities
Thermo Electron
- ------------------------------------------
Companies eliminated from the portfolio listing
since June 30, 1998
- ------------------------------------------
Amgen
Bay Networks
Boston Scientific
CIGNA
Citicorp
Emerson Electric
First Chicago NBD
Fleet Financial Group
General Motors (Hughes)
General Re
Halliburton
H.F Ahmanson
Inco
PNC Bank
Rockwell International
Solutia
Toronto-Dominion Bank
Union Pacific
UNOVA
Western Atlas
</TABLE>
<TABLE>
THE INVESTMENT COMPANY OF AMERICA
INVESTMENT PORTFOLIO, December 31, 1998
- ------------------------------------------
<S> <C> <C> <C>
Equity Securities Market Percent
- ------------------------------------------ Number of Value of Net
Energy Shares (millions) Assets
- ------------------------------------------ ----------- ------- -------
Energy Sources-4.71%
Amoco Corp. 4,665,000 281.649 .58
Atlantic Richfield Co. 2,350,000 153.337 .32
British Petroleum Co. PLC (ADR) 900,000 80.662 .17
Broken Hill Proprietary Co. Ltd. 3,931,689 28.920 .06
Chevron Corp. 1,950,000 161.728 .33
Elf Aquitaine (ADR) 1,500,000 84.937 .18
Exxon Corp. 800,000 58.500 .12
Kerr-McGee Corp. 860,600 32.918 .07
Mobil Corp. 1,700,000 148.113 .30
Murphy Oil Corp. 2,175,000 89.719 .18
Phillips Petroleum Co. 5,100,000 217.388 .45
Royal Dutch Petroleum Co. (New York Registered Shares) 9,200,000 440.450 .91
Texaco Inc. 2,600,000 137.475 .28
TOTAL, Class B 1,273,469 128.838
TOTAL, Class B (ADR) 2,200,000 109.450 .49
Unocal Corp. 2,500,000 72.969 .15
USX-Marathon Group 2,000,000 60.250 .12
Utilities: Electric & Gas-0.98%
Ameren Corp. 600,000 25.612 .05
American Electric Power Co., Inc. 1,686,600 79.376 .16
Duke Energy Corp. 529,200 33.902 .07
Florida Progress Corp. 400,000 17.925 .04
GPU, Inc. 2,000,000 88.375 .18
KeySpan Energy Corp. (formerly MarketSpan Corp.) 2,816,000 87.296 .18
Southern Co. 2,372,500 68.951 .14
Texas Utilities Co. 1,500,000 70.031 .16
------- -------
2,758.771 5.69
------- -------
- ------------------------------------------
Materials
- ------------------------------------------
Chemicals-3.09%
Air Products and Chemicals, Inc. 3,870,000 154.800 .32
Bayer AG 2,050,000 85.478 .18
E.I. du Pont de Nemours and Co. 5,350,000 283.884 .59
Imperial Chemical Industries PLC (ADR) 4,100,000 143.244 .30
International Flavors & Fragrances Inc. 2,007,000 88.684 .18
Monsanto Co. 13,265,800 630.126 1.30
Praxair, Inc. 3,144,700 110.851 .22
Forest Products & Paper-2.66%
Champion International Corp. 1,950,000 78.975 .16
Fort James Corp. 9,000,000 360.000 .74
Georgia-Pacific Corp., Georgia-Pacific Group 4,575,000 267.924 .55
Georgia-Pacific Corp., Timber Group 3,250,000 77.391 .16
International Paper Co. 1,500,000 67.219 .14
Louisiana-Pacific Corp. 2,900,000 53.106 .11
Union Camp Corp. 1,530,000 103.275 .21
Weyerhaeuser Co. 5,550,000 282.009 .59
Metals: Nonferrous-0.70%
Aluminum Co. of America 2,500,000 186.406 .38
Freeport-McMoRan Copper & Gold Inc., Class B 2,200,000 22.963 .05
Phelps Dodge Corp. 1,696,300 86.299 .18
Rio Tinto PLC 1,652,835 19.055 .04
WMC Ltd. 9,000,000 27.099 .05
Metals: Steel-0.01%
USX-U.S. Steel Group 200,000 4.600 .01
------- -------
3,133.388 6.46
------- -------
- ------------------------------------------
Capital Equipment
- ------------------------------------------
Aerospace & Military Technology-1.10%
Boeing Co. 3,720,000 121.365 .25
Northrop Grumman Corp. 700,000 51.187 .11
Raytheon Co., Class A 2,310,305 119.414
Raytheon Co., Class B 1,700,000 90.525 .43
Sundstrand Corp. 1,412,600 73.279 .15
United Technologies Corp. 720,000 78.300 .16
Data Processing & Reproduction-6.46%
Ascend Communications, Inc. (1) 2,366,200 155.578 .32
Cisco Systems, Inc. (1) 2,800,000 259.875 .54
Compaq Computer Corp. 2,800,000 117.425 .24
Computer Associates International, Inc. 2,795,000 119.137 .25
Fujitsu Ltd. 7,223,000 95.667 .20
Hewlett-Packard Co. 4,100,000 280.081 .58
International Business Machines Corp. 4,784,600 883.955 1.82
Microsoft Corp. (1) 2,000,000 277.375 .57
Oracle Corp. (1) 15,503,750 668.599 1.38
3Com Corp. (1) 2,600,000 116.512 .24
Xerox Corp. 1,350,000 159.300 .32
Electrical & Electronic-1.35%
Lucent Technologies Inc. 1,200,000 132.000 .27
Northern Telecom Ltd. 3,649,140 182.913 .38
Siemens AG 3,200,000 206.235 .43
Telefonaktiebolaget LM Ericsson, Class B (ADR) 5,500,000 131.656 .27
Electronic Components-3.42%
AMP Inc. 523,350 27.247 .06
Corning Inc. 5,216,000 234.720 .48
Intel Corp. 2,250,000 266.766 .55
Micron Technology, Inc. (1) 7,250,000 366.578 .75
Motorola, Inc. 4,277,000 261.164 .54
Texas Instruments Inc. 5,890,000 503.963 1.04
Electronic Instruments-0.31%
Perkin-Elmer Corp. 1,555,950 151.802 .31
Energy Equipment-0.72%
Schlumberger Ltd. 7,550,000 348.244 .72
Industrial Components-0.40%
Dana Corp. 1,821,500 74.454 .15
Genuine Parts Co. 750,000 25.078 .05
Goodyear Tire & Rubber Co. 650,000 32.784 .07
Illinois Tool Works Inc. 1,000,000 63.125 .13
Machinery & Engineering-1.34%
Caterpillar Inc. 3,000,000 138.000 .28
Cummins Engine Co., Inc. 2,000,000 71.000 .15
Deere & Co. 6,500,000 215.313 .44
Ingersoll-Rand Co. 2,100,000 98.569 .20
Parker Hannifin Corp. 1,710,000 56.003 .12
Thermo Electron Corp. (1) 4,000,000 67.750 .15
------- -------
7,322.938 15.10
------- -------
- ------------------------------------------
Consumer Goods
- ------------------------------------------
Appliances & Household Durables-0.18%
Newell Co. 2,106,600 86.897 .18
Automobiles-1.29%
DaimlerChrysler AG (New York Registered Shares) (1) 2,119,900 203.643 .42
Ford Motor Co. 2,600,000 152.588 .32
General Motors Corp. 3,750,000 268.359 .55
Beverages & Tobacco-5.40%
PepsiCo, Inc. 8,950,000 366.391 .76
Philip Morris Companies Inc. 33,400,000 1,786.900 3.68
RJR Nabisco Holdings Corp. 11,635,000 345.414 .71
Seagram Co. Ltd. 3,200,000 121.600 .25
Food & Household Products-1.25%
Archer Daniels Midland Co. 3,307,500 56.848 .12
Bestfoods 1,200,000 63.900 .13
General Mills, Inc. 3,484,800 270.943 .56
Nestle SA 30,000 65.308 .14
Procter & Gamble Co. 600,000 54.787 .11
Sara Lee Corp. 1,200,000 33.825 .07
Unilever NV (New York Registered Shares) 700,000 58.056 .12
Health & Personal Care-7.19%
Abbott Laboratories 3,000,000 147.000 .30
Avon Products, Inc. 3,453,000 152.795 .32
Baxter International Inc. 2,200,000 141.487 .29
Bristol-Myers Squibb Co. 1,600,000 214.100 .44
Eli Lilly and Co. 3,650,000 324.394 .67
Kimberly-Clark Corp. 1,000,000 54.500 .11
Merck & Co., Inc. 3,000,000 443.062 .91
Pfizer Inc 6,600,000 827.888 1.71
Pharmacia & Upjohn, Inc. 2,947,500 166.902 .35
Schering-Plough Corp. 5,800,000 320.450 .66
Warner-Lambert Co. 6,600,000 496.238 1.02
Zeneca Group PLC 4,450,900 193.586
Zeneca Group PLC (ADR) 99,000 4.443 .41
Recreation & Other Consumer Products-0.16%
Eastman Kodak Co. 1,100,000 79.200 .16
------- -------
7,501.504 15.47
------- -------
- ------------------------------------------
Services
- ------------------------------------------
Broadcasting & Publishing-6.82%
Comcast Corp., Class A, special stock 840,000 49.297 .10
Dow Jones & Co., Inc. 2,000,000 96.250 .20
Houston Industries Inc. 7.00% ACES convertible preferred 2000 500,000 53.188 .11
Tele-Communications, Inc., Series A, Liberty Media Group (1) 11,130,987 512.721 1.06
Tele-Communications, Inc., Series A, TCI Group (1) 3,000,000 165.938 .34
Time Warner Inc. 22,900,000 1,421.231 2.93
Viacom Inc., Class A (1) 1,196,400 88.010
Viacom Inc., Class B (1) 12,450,000 921.300 2.08
Business & Public Services-3.45%
Browning-Ferris Industries, Inc. 1,500,000 42.656 .09
Cendant Corp. (1) 38,300,000 730.094 1.51
Columbia/HCA Healthcare Corp. 5,800,000 143.550 .30
Electronic Data Systems Corp. 1,900,000 95.475 .20
FDX Corp. (1) 1,435,000 127.715 .26
Interpublic Group of Companies, Inc. 2,769,150 220.840 .46
United HealthCare Corp. 1,000,000 43.063 .09
Waste Management, Inc. 5,780,000 269.493 .54
Leisure & Tourism-0.90%
McDonald's Corp. 1,400,000 107.275 .23
Walt Disney Co. 10,900,000 327.000 .67
Merchandising-3.57%
American Stores Co. 6,800,000 251.175 .52
AutoZone, Inc. (1) 2,640,000 86.955 .18
Cardinal Health, Inc., Class A 502,650 38.139 .08
Dillard's Inc. 2,100,000 59.587 .12
J.C. Penney Co., Inc. 3,500,000 164.062 .34
Limited Inc. 7,164,700 208.672 .43
Lowe's Companies, Inc. 5,425,000 277.692 .57
May Department Stores Co. 1,812,300 109.418 .23
Venator Group, Inc. (1) 5,800,000 37.337 .08
Wal-Mart Stores, Inc. 6,100,000 496.769 1.02
Telecommunications-8.70%
AirTouch Communications (1) 6,691,700 482.639 1.00
Ameritech Corp. 7,000,000 443.625 .91
AT&T Corp. 11,000,000 827.750 1.71
Deutsche Telekom AG 11,230,400 368.960 .76
MCI WorldCom, Inc. (1) 6,053,650 434.349 .90
SBC Communications Inc. 1,800,000 96.525 .20
Sprint FON Group (formerly Sprint Corp.) 8,185,700 688.622 1.42
Tele-Communications, Inc., Series A, TCI Ventures Group (1) 9,427,100 222.126 .46
Telefonica, SA (ADR) 1,428,000 193.316 .40
Telefonos de Mexico, SA de CV, Class L (ADR) 3,057,400 148.857 .31
U S WEST, Inc. 2,100,000 135.713 .28
Vodafone Group PLC (ADR) 1,098,000 176.915 .35
Transportation: Airlines-0.62%
AMR Corp. (1) 4,350,000 258.281 .53
Delta Air Lines, Inc. 942,100 48.989 .09
------- -------
11,671.569 24.06
------- -------
- ------------------------------------------
Finance
- ------------------------------------------
Banking-7.96%
BANK ONE CORP. 4,816,000 245.917 .51
BankAmerica Corp. (new) 12,227,100 735.154 1.52
Bankers Trust Corp. 1,427,400 121.953 .25
Chase Manhattan Corp. 4,989,000 339.564 .70
Comerica Inc. 750,000 51.141 .11
First Union Corp. 9,255,000 562.820 1.16
KeyCorp 5,500,000 176.000 .36
National City Corp. 1,000,000 72.000 .15
SunTrust Banks, Inc. 2,368,200 181.167 .37
U.S. Bancorp 2,831,250 100.509 .21
Wachovia Corp. 900,000 78.694 .16
Washington Mutual, Inc. 17,500,000 668.281 1.38
Wells Fargo & Co. (new) 13,250,000 529.172 1.08
Financial Services-5.58%
Associates First Capital Corp., Class A 2,000,000 84.750 .17
Fannie Mae 19,396,800 1,435.363 2.96
Freddie Mac 5,300,000 341.519 .70
Household International, Inc. 12,400,000 491.350 1.01
SLM Holding Corp. 7,357,000 353.136 .74
Insurance-2.52%
Aetna Inc. 1,620,000 127.372 .26
Allstate Corp. 3,700,000 142.913 .29
American General Corp. 1,810,000 141.180 .29
American International Group, Inc. 2,700,000 260.888 .54
Aon Corp. 1,600,000 88.600 .18
Jefferson-Pilot Corp. 2,000,000 150.000 .31
Lincoln National Corp. 1,050,000 85.903 .18
SAFECO Corp. 1,600,000 68.700 .14
St. Paul Companies, Inc. 4,480,000 155.680 .33
--------- ---------
7,789.726 16.06
--------- ---------
- ------------------------------------------
Other
- ------------------------------------------
Multi-Industry-0.60%
AlliedSignal Inc. 2,700,000 119.644 .25
Canadian Pacific Ltd. 2,300,000 43.412 .09
Minnesota Mining and Manufacturing Co. 120,000 8.760 .02
Textron Inc. 1,585,000 120.361 .24
Gold Mines -0.55%
Barrick Gold Corp. 4,750,000 92.625 .19
Newmont Mining Corp. 4,750,000 85.797 .18
Placer Dome Inc. 7,750,000 89.125 .18
Miscellaneous-1.18%
Equity securities in initial period of
acquisition 569.207 1.18
------- -------
1,128.931 2.33
------- -------
Total Equity Securities (cost: $22,082.637
million) 41,306.827 85.17
------- -------
Principal
- ------------------------------------------ Amount
Bonds & Notes (millions)
- ------------------------------------------ ---------
--------- ---------
Total Bonds & Notes (cost: $1,224.939 million)
--------- ---------
Total Investment Securities (cost: $23,307.576
million) 41,306.827 85.17
Principal
- ------------------------------------------ Amount
Short-Term Securities (millions)
- ------------------------------------------ ---------
U.S. Treasuries and Other Federal Agencies-9.82%
Treasury Notes 5.625%-6.00% due 7/31-11/15/99 1,000.000 1,008.163 2.08
Fannie Mae 4.72%-5.18% due 1/8-6/24/99 768.050 761.659 1.57
Federal Farm Credit Bank 4.68%-5.05% due 1/19-6/30/99 166.762 163.971 .34
Federal Farm Credit Bank Notes 4.75%-5.32% due 1/4-7/1/99 225.000 224.976 .46
Federal Home Loan Banks 4.65%-5.05% due 1/4-6/30/99 936.994 925.634 1.91
Freddie Mac 4.875%-5.18% due 1/7-4/9/99 1,460.937 1,450.499 2.99
International Bank for Reconstruction and Development 228.200 226.959 .47
4.88%-5.06% due 1/14-3/22/99
Corporate Short-Term Notes-5.11%
A.I. Credit Corp. 5.08%-5.09% due 2/22-2/23/99 67.000 66.486 .14
American Express Credit Corp. 5.13% due 1/5-1/13/99 90.000 89.889 .19
American General Finance Corp. 5.15%-5.28% due 1/21-1/29/99 60.000 59.792 .12
Ameritech Corp. 5.00%-5.08% due 1/12-2/4/99 75.000 74.793 .15
Archer Daniels Midland Co. 5.00%-5.02% due 4/1-4/6/99 80.000 78.982 .16
Associates First Capital Corp. 5.10%-5.33% due 1/13-3/1/99 98.000 97.530 .20
Atlantic Richfield Co. 4.81%-5.02% due 2/16-3/16/99 (2) 90.000 89.252 .18
Bell Atlantic Network Funding Corp. 5.23% due 1/6/99 37.100 37.068 .08
BellSouth Telecommunications, Inc. 5.08%-5.15% due 1/20-2/24/99 81.600 81.114 .17
Coca-Cola Co. 5.00%-5.27% due 1/21-3/5/99 127.400 126.629 .26
Consolidated Natural Gas Co. 5.05% due 1/21/99 40.000 39.882 .08
Deere & Co. 5.00%-6.04% due 1/7-1/15/99 49.800 49.709 .10
Walt Disney Co. 4.91%-5.25% due 1/14-2/5/99 97.000 96.707 .20
E.I.du Pont de Nemours and Co. 4.98%-5.11% due 1/6-3/9/99 98.000 97.649 .20
Eastman Kodak Co. 5.08%-5.49% due 1/15-2/11/99 67.300 66.969 .14
Emerson Electric Co. 5.07%-5.45% due 1/21-2/10/99 73.850 73.476 .15
Ford Motor Credit Co. 5.03%-5.04% due 1/6-3/25/99 108.700 108.090 .22
Gannett Co., Inc. 4.98%-5.03% due 1/11-1/15/99 (2) 57.400 57.300 .12
General Electric Capital Corp. 5.11%-5.50% due 1/4-3/19/99 134.000 133.175 .27
H.J. Heinz Co. 4.85%-5.20% due 2/11-2/26/99 86.900 86.310 .18
IBM Credit Corp. 5.25%-5.30% due 1/5-1/8/99 83.500 83.409 .17
Johnson & Johnson 5.03%-5.17% due 1/29-2/18/99 (2) 76.800 76.395 .16
Lucent Technologies Inc. 4.90%-5.25% due 1/5-1/12/99 68.500 68.401 .14
Minnesota Mining and Manufacturing Co. 4.95%-5.10% due 1/19-1/2 77.400 77.178 .16
Motorola, Inc. 5.03% due 2/25-3/23/99 75.900 75.196 .16
PepsiCo, Inc. 5.03%-5.25% due 1/13-1/26/99 83.525 83.281 .17
Pfizer Inc 5.13%-5.22% due 1/13-2/12/99 (2) 107.900 107.483 .22
Procter & Gamble Co. 4.90%-5.30% due 1/19-2/26/99 106.000 105.481 .22
Shell Oil Co. 5.03% due 1/15/99 75.300 75.140 .16
Texaco Inc. 5.00%-5.02% due 2/11-2/17/99 73.000 72.532 .15
Xerox Corp. 4.95%-4.99 due 1/11-1/22/99 41.300 41.182 .09
Total Short-Term Securities
(cost: $7,229.933 million) 7,238.341 14.93
Excess of payables over cash and receivables 47.585 .10
------- -------
Total Short-Term Securities, Cash and Receivables,
Net of Payables 7,190.756 14.83
------- -------
Net Assets 48,497.583 100.00
======= =======
(1) Non-income-producing securities.
(2) Purchased in a private placement transaction;
resale to the public may require registration or
sale only to qualified institutional buyers.
ADR = American Depositary Receipts
See Notes to Financial Statements
</TABLE>
<TABLE>
The Investment Company of America
- ----------------------------------------- ------------- -------------
Statement of Assets and Liabilities (dollars in
at December 31, 1998 millions)
- ---------------------------------------- ------------- -------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $22,082.637) $41,306.827
Short-term securities at market
(cost: $7,229.933) 7,238.341
Cash .319
Receivables for-
Sales of investments $58.535
Sales of fund's shares 61.329
Dividends and accrued interest 71.887 191.751
------------- -------------
48,737.238
Liabilities:
Payables for-
Purchases of investments 132.239
Repurchases of fund's shares 87.270
Management services 9.930
Accrued expenses 10.216 239.655
------------- -------------
Net Assets at December 31, 1998-
Equivalent to $31.07 per share on
1,561,093,865 shares of $1 par value
capital stock outstanding (authorized
capital stock--2,000,000,000 shares) $48,497.583
=============
Statement of Operations (dollars in
for the year ended December 31, 1998 millions)
- ----------------------------------------- ------------- -------------
Investment Income:
Income:
Dividends $604.737
Interest 351.079 $ 955.816
-------------
Expenses:
Management services fee 108.430
Distribution expenses 96.401
Transfer agent fee 22.846
Reports to shareholders 2.274
Registration statement and
prospectus 1.965
Postage, stationery and supplies 5.136
Directors' fees .505
Auditing and legal fees .108
Custodian fee .667
Taxes other than federal income tax .404
Other expenses .281 239.017
------------- -------------
Net investment income 716.799
-------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 4,437.555
Net increase in unrealized
appreciation on investments 3,902.006
-------------
Net realized gain and increase in
unrealized appreciation on investments 8,339.561
-------------
Net Increase in Net Assets Resulting
from Operations $ 9,056.360
=============
- ---------------------------------------- ------------- -------------
(dollars in
millions)
Year ended
36,525.000
Statement of Changes in Net Assets 1998 1997
- ----------------------------------------- ------------- -------------
Operations:
Net investment income $ 716.799 $ 678.160
Net realized gain on investments 4,437.555 3,800.223
Net increase in unrealized
appreciation on investments 3,902.006 4,685.662
------------- -------------
Net increase in net assets
resulting from operations 9,056.360 9,164.045
------------- -------------
Dividends and Distributions Paid
to Shareholders:
Dividends from net investment income (729.026) (639.699)
Distributions from net realized
gain on investments (4,219.066) (3,345.342)
------------- -------------
Total dividends and distributions (4,948.092) (3,985.041)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold: 175,861,192
and 142,732,538 shares, respectively 5,363.712 3,966.602
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 152,955,982 and 132,253,234
shares, respectively 4,569.218 3,660.294
Cost of shares repurchased: 173,627,274
and 143,511,101 shares, respectively (5,261.288) (3,963.699)
------------- -------------
Net increase in net assets resulting from
capital share transactions 4,671.642 3,663.197
------------- -------------
Total Increase in Net Assets 8,779.910 8,842.201
Net Assets:
Beginning of year 39,717.673 30,875.472
------------- -------------
End of year (including undistributed
net investment income: $307.707
and $320.290, respectively) $48,497.583 $39,717.673
============= =============
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Investment Company of America (the "fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks long-term growth of capital and income,
placing greater emphasis on future dividends than on current income.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
SECURITY VALUATION - 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. 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.
NON-U.S CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - 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 TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION
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, 1998, net unrealized appreciation on investments for
federal income tax purposes aggregated $19,241,920,000, of which
$19,965,459,000 related to appreciated securities and $723,539,000 related to
depreciated securities. During the year ended December 31,1998, the fund
realized, on a tax basis, a net capital gain of $4,437,593,000 on securities
transactions. Net losses related to non-U.S. currency transactions of $38,000
were treated as an adjustment to ordinary income for federal income tax
purposes. The cost of portfolio securities for federal income tax purposes was
$29,303,248,000 at December 31, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $108,430,000 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.
DISTRIBUTION EXPENSES - 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 31,1998,
distribution expenses under the Plan were $96,401,000. As of December 31,1998,
accrued and unpaid distribution expenses were $9,197,000. American Funds
Distributors, Inc. (AFD), the principal underwriter of the fund's shares,
received $18,078,000 (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.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $22,846,000.
DEFERRED DIRECTORS' FEES - 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, 1998, aggregate
amounts deferred and earnings thereon were $919,000.
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. WARRANTS - Option warrants are outstanding, which may be exercised at any
time for the purchase of 835,212 shares of the fund at approximately $5.242 per
share. If all warrants had been exercised on December 31, 1998, the net assets
of the fund would have been $48,501,961,000; the shares outstanding would have
been 1,561,929,000; and the net asset value would have been equivalent to
$31.05 per share. During the year ended December 31,1998, 125 warrants were
exercised for the purchase of 2,742 shares.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $9,439,861,000 and $11,098,750,000, respectively,
during the year ended December 31, 1998.
As of December 31, 1998, accumulated undistributed net realized gain on
investments was $494,439,000 and additional paid-in capital was
$26,901,645,000. The fund reclassified $356,000 and $179,411,000 from
undistributed net investment income and undistributed net realized gains,
respectively, to additional paid-in capital for the year ended December
31,1998.
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 $667,000 includes $48,000 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 31,1998, such non-U.S. taxes were $9,434,000. Net realized
currency losses on dividends, interest and withholding taxes reclaimable, on a
book basis, were $38,000 for the year ended December 31, 1998.
<TABLE>
Per-Share Data and Ratios
Year ended December 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $28.25 $24.23 $21.61 $17.67 $18.72
------------ ------------ ---------- ---------- ---------
Income From Investment Operations:
Net investment income .48 .51 .49 .52 .51
Net gains or losses on securities (both
realized and unrealized) 5.79 6.61 3.66 4.83 (.48)
------------ ------------ ---------- ---------- ---------
Total from investment operations 6.27 7.12 4.15 5.35 .03
----------- ----------- --------- ----------- ---------
Less Distributions:
Dividends (from net investment income) (.51) (.50) (.50) (.50) (.48)
Distributions (from capital gains) (2.94) (2.60) (1.03) (.91) (.60)
----------- ----------- --------- ----------- ---------
Total distributions (3.45) (3.10) (1.53) (1.41) (1.08)
----------- ----------- --------- ---------- ---------
Net Asset Value, End of Year $31.07 $28.25 $24.23 $21.61 $17.67
========== ========== ======== ======== =======
Total Return (1) 22.94% 29.81% 19.35% 30.63% .16%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $48,498 $39,718 $30,875 $25,678 $19,280
Ratio of expenses to average net assets 0.55% 0.56% 0.59% 0.60% 0.60%
Ratio of net income to average net assets 1.65% 1.90% 2.17% 2.70% 2.83%
Portfolio turnover rate - common stocks 25.43% 24.08% 17.46% 20.91% 17.94%
Portfolio turnover rate - investment securities 24.28% 26.02% 19.56% 20.37% 31.08%
(1) Excludes maximum sales charge of 5.75%.
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Investment Company of America
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and 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
(the "Fund") at December 31, 1998, the results of its operations, the changes
in its net assets and the per-share data and ratios for the years 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, 1998 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 29, 1999
1998 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:
<TABLE>
<CAPTION>
Dividends and Distributions Per Share
To Shareholders of Payment Date From Net From Net From Net
Record Investment Realized Short- Realized Long-
Income Term Gains Term Gains
<S> <C> <C> <C> <C>
March 6, 1998 March 9, 1998 $0.12 - $0.33
June 5, 1998 June 8, 1998 0.12 - -
September 4, 1998 September 8, 1998 0.12 - -
December 17, 1998 December 18, 1998 0.15 - 2.61
</TABLE>
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 74% 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, 12% 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.
