N-CSR 1 ica_ncsr.htm N-CSR

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM N-CSR

Certified Shareholder Report of

Registered Management Investment Companies

 

Investment Company Act File Number: 811-00116

 

 

 

The Investment Company of America

(Exact Name of Registrant as Specified in Charter)

 

333 South Hope Street

Los Angeles, California 90071

(Address of Principal Executive Offices)

 

 

 

 

Registrant's telephone number, including area code: (213) 486-9200

 

Date of fiscal year end: December 31

 

Date of reporting period: December 31, 2015

 

 

 

 

 

Michael W. Stockton

The Investment Company of America

333 South Hope Street

Los Angeles, California 90071

(Name and Address of Agent for Service)

 

 

 

 
 

ITEM 1 – Reports to Stockholders

 

We carefully
construct our
portfolios for
the long term.

 

Special feature page 8

 

ICA The Investment
Company of America®

Annual report
for the year ended
December 31, 2015


 

 

ICA seeks to achieve long-term growth of capital and income.

 

The Investment Company of America is one of more than 40 funds offered by one of the nation’s largest mutual fund families, American Funds, from Capital Group. For more than 80 years, Capital has invested with a long-term focus based on thorough research and attention to risk.

 

Fund results shown in this report, unless otherwise indicated, are for Class A shares at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. For current information and month-end results, visit americanfunds.com.

 

See page 5 for Class A share results with relevant sales charges deducted. For other share class results, visit americanfunds.com and americanfundsretirement.com.

 

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. When applicable, investment results reflect fee waivers, without which results would have been lower. Visit americanfunds.com for more information.

 

The fund’s 30-day yield for Class A shares as of January 31, 2016, reflecting the 5.75% maximum sales charge and calculated in accordance with the U.S. Securities and Exchange Commission formula, was 2.07%.

 

Investing outside the United States may be subject to risks, such as currency fluctuations, political instability, differing securities regulations and periods of illiquidity. Global diversification can help reduce these risks. Refer to the fund prospectus and the Risk Factors section of this report for more information on these and other risks associated with investing in the fund.

 

 

 

Special feature
 
8 The journey to 140: Constructing ICA’s portfolio
   
Contents
 
1 Letter to investors
4 The value of a long-term perspective
14 Summary investment portfolio
17 Financial statements
34 Board of trustees and other officers

 

Fellow investors:

 

The U.S. economy saw incremental improvement with mixed indicators, and equity markets were reintroduced to volatility, in this case related to the economic slowdown in China and the collapse of commodities. With this backdrop, The Investment Company of America (ICA) dipped 1.44% for the 12-month period ended December 31, 2015, with distributions reinvested. In comparison, the unmanaged Standard & Poor’s 500 Composite Index, a market capitalization-weighted index based on the results of 500 widely held common stocks, returned 1.38% during the same time period.

 

For the 20 years ended December 31, 2015, ICA posted an average annual total return of 8.63% with distributions reinvested, compared with 8.19% by the S&P 500. Over its 82-year history, ICA had an average annual total return of 12.07% with distributions reinvested, compared with 10.78% by the S&P 500.

 

The global economy is a blurred picture

The underlying U.S. economy is slowly improving, although less robustly than investors might have hoped for in a normal post-recession recovery. While the unemployment rate has been cut in recent years, wages have remained stagnant. Gross domestic product increased, however, not as much as hoped.

 

Central bank stimulus measures continued to support markets in the U.S., Europe and Japan. The U.S. Federal Reserve raised interest rates — by 25 basis points — for the first time in seven years, setting the stage for a more normalized environment and potentially tighter monetary policy in the years ahead. The U.S. dollar rose against the euro and most other currencies.

 

The euro zone was challenged by high debt levels and weak growth. China’s economic slowdown rattled global stock markets in August and again in early 2016. Emerging markets stocks generally lagged their developed-market counterparts by a wide margin. Mergers-and-acquisitions activity was robust, spurred on by inexpensive financing.

 

The fund in review

Among sectors, strong stock selection led consumer staples, as the fund’s seventh-largest holding, Altria, rose 18.15%. Within information technology, the fund’s third-largest holding, Alphabet (formerly known as Google), increased 45.05%, helped by a value-creating split into a core search business and a research project business. The fund’s fifth-largest holding, Oracle, lost 18.77%, and 10th-largest holding, Accenture, gained 17.01%.

 

It was a good year for Internet retailers in general and Amazon in particular as it rose 117.78% and was among the fund’s strongest contributors. Health care stocks also benefited the fund, led by Gilead Sciences (7.35%). The fund’s largest holding, Amgen, gained 1.91%, but the ninth-largest holding, AbbVie, lost 9.47%.

 

The fund’s four weakest sectors were energy, industrials, utilities and materials consistent with the fall in oil and other commodities. The crude oil price fell towards $30/barrel on declining demand and an overabundance of supply. While the fund only held 6.68% of assets in this sector, stock selection was weak among energy stocks.

 

The fund paid investors a total of $0.62 a share in income dividends and $2.51 in long-term capital gains for the period.

 

The Investment Company of America 1
 

2015 results at a glance

 

Year ended December 31, 2015 (with all distributions reinvested)

 

    ICA   Standard & Poor’s 500
    (Class A shares)   Composite Index*
Income return     1.69 %     2.13 %
Capital return     –3.13       –0.75  
Total return     –1.44 %     1.38 %

 

* The S&P 500 is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

 

Dividends and capital gain distributions paid in 2015

 

    Per Class A
share		   Payment date
Income dividends     $ 0.145     March 13
        0.145     June 19
        0.145     September 18
        0.185     December 18
      $ 0.620      
               
Capital gain distributions     $ 0.262     March 13
        2.250     December 18
      $ 2.512      

 

Expense ratios and portfolio turnover rates1

 

Year ended December 31, 2015

 

    Expense ratio   Portfolio
turnover rate
ICA     0.58 %     30 %
Industry average2      1.10 %     47 %

 

1 The expense ratio is the annual percentage of net assets used to pay fund expenses. The ratio shown is for Class A shares as of the prospectus dated March 1, 2016 (unaudited). The portfolio turnover rate is a measure of how often securities are bought and sold by a fund.
2 Lipper Growth & Income Funds Average (industry average expense ratio based on statistics for front-end load funds, excluding funds of funds, for the most recent fiscal year-ends available as of 12/31/15).

 

Looking over the horizon

Some portfolio managers in the fund remain optimistic about the U.S. economy, yet others note that risk is more prevalent than in the past year or two. For instance, the prices of commodities have fallen, and activity in the transportation and industrial sectors has declined. This could be a seasonal disappointment or something more significant.

 

Overall sluggishness in the U.S. economy can be due in part to weakness in other countries. If China’s economy stalls, that generally has global ramifications. While China’s economy does not drive the global economy, it certainly has a strong influence.

 

The Federal Reserve’s interest rate hike is a move to try and normalize monetary policy after nearly seven years of exceptional conditions following the Great Recession. Whether the Fed can continue on this course will depend on how the economy develops over the next year or so, including the potential impact of unforeseen international events.

 

It is still a generally constructive environment for the stock market for 2016. At this time next year we’ll have a new president and hopefully there will be more overall optimism in the economy.

 

Our long-term approach will not waver

We remain optimistic about continuing to identify solid companies at good valuations that we believe will prosper in the long run. We thank you for your confidence in our time-tested approach to investing and look forward to reporting to you again in six months.

 

2 The Investment Company of America
 

We invite you to read the feature, which starts on page 8 and further explains how The Investment Company of America’s portfolio is constructed, and why our approach has been consistent over time.

 

Cordially,

 

 

James B. Lovelace
Vice Chairman

 

 

Donald D. O’Neal
President

 

February 8, 2016

 

For current information about the fund, visit americanfunds.com.

 

The New Geography of Investing®

 

Where a company does business can be more important than where it’s located. Here’s a look at The Investment Company of America’s portfolio in terms of where its equity holdings earn their revenue. The charts below show the countries and regions in which the fund’s equity investments are located, and where the revenue comes from.

 

Equity portion breakdown by domicile (%)

 

 

 

  Region   Fund   Index
n United States     91 %     100 %
n Canada     1       —  
n Europe     6       —  
n Japan     1       —  
n Asia-Pacific ex. Japan     —       —  
n Emerging markets     1       —  
  Total     100 %     100 %

 

Equity portion breakdown by revenue (%)

 

 

 

  Region   Fund   Index
n United States     58 %     62 %
n Canada     3       2  
n Europe     13       13  
n Japan     3       3  
n Asia-Pacific ex. Japan     2       1  
n Emerging markets     21       19  
  Total     100 %     100 %

 

Compared with the S&P 500 as a percent of net assets. All figures include convertible securities.

 

Source: Capital Group (as of December 31, 2015).

 

The Investment Company of America 3
 

The value of a long-term perspective (1934–2015)

 

Fund results shown are for Class A shares and reflect deduction of the maximum sales charge of 5.75% on the $10,000 investment.1 Thus, the net amount invested was $9,425.2 Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com.

 

The results shown are before taxes on fund distributions and sale of fund shares.

 

The S&P 500 is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

 

1 As outlined in the prospectus, the sales charge is reduced for accounts (and aggregated investments) of $25,000 or more and is eliminated for purchases of $1 million or more. There is no sales charge on dividends or capital gain distributions that are reinvested in additional shares.
2 The maximum initial sales charge was 8.5% prior to July 1, 1988.
3 Includes dividends of $27,595,819 and capital gain distributions of $55,802,079 reinvested in the years 1936 to 2015.
4 Includes reinvested capital gain distributions of $6,525,803, but does not reflect income dividends of $3,369,476 taken in cash.
5 Fund expense percentages do not reflect a fee waiver and are provided as additional information. They should not be subtracted from any other figure on the table because all fund results already reflect their effect.

 

 

4 The Investment Company of America
 

 

5 The Investment Company of America
 

 

 

The Investment Company of America 6
 

 

 

The Investment Company of America 7
 

“Each portfolio manager must understand the prospects for
individual companies, the industry dynamics, the product lineup,
and the management philosophy.”

 

 

8 The Investment Company of America
 

The journey to 140:
Constructing ICA’s portfolio

 

At year-end, The Investment Company of America held 140 distinct stocks1 in its portfolio, representing all 10 sectors of the economy and a multitude of industries. About 91% of the holdings were U.S.-based companies, with the remaining stocks representing 13 other countries. How did the investment professionals of ICA build from a blank slate to the ultimate total of 140 stocks1?

 

The managers of the fund

While the building blocks of ICA are companies’ stocks, the architects are its portfolio managers and investment research analysts. The seven portfolio managers on ICA have a median 29 years2 of investment experience and bring a wide variety of backgrounds and interests. In the multiple manager method known as The Capital System,SM each portfolio manager can select his or her highest conviction investment ideas to create an individual portfolio of stocks. Investment analysts also can incorporate their best ideas by investing in stocks in the research portfolio (RP), which comprised approximately 24% of ICA’s assets at year-end. Those eight individual portfolios are then combined to create the overall portfolio for ICA. This results in a fund focused only on high convictions, and that also has broad diversification and a history of low volatility.

 

Fund President Don O’Neal and Principal Investment Officer Jim Lovelace, each with 24 years on the fund — work together on ICA’s mix of portfolio managers. “We put a lot of thought into the lineup for ICA,” says Don. “We ensure there are diverse points of view and investment styles, and a mix of veteran and up-and-coming portfolio managers, to provide a very consistent approach over the long run for our investors.”

 

Each portfolio manager must understand the prospects for individual companies, the industry dynamics, the product lineup, and the management philosophy. All of ICA’s portfolio managers honed those skills through years of prior experience as an investment analyst, conducting industry and company research at a fundamental level. Their area of research focus can inform the types of investments they prefer, however, portfolio managers are free to pursue the most promising opportunities, regardless of industry, while keeping within the fund’s objectives.

 

At the beginning of his career, Jim was a consumer products analyst, and consumer products stocks have been the foundation of his portfolios throughout his career. Don covered chemicals, environmental service and aerospace & defense. While he brings a deep understanding of what drives those businesses, Don often focuses on other areas and relies on our own analysts to bring forward the latest, most fresh research.

 

 

Chris Buchbinder

 

• 20 years of investment experience, all with Capital Group
   
• 9 years on ICA
   
• Based in San Francisco
   
• 34 holdings

 

 

 

Barry Crosthwaite

 

• 20 years of investment experience, all with Capital Group
   
• 3 years on ICA
   
• Based in San Francisco
   
• 42 holdings

 

The Investment Company of America 9
 

 

 

Joyce Gordon

 

• 36 years of investment experience, all with Capital Group

 

• 15 years on ICA

 

• Based in Los Angeles

 

• 36 holdings

 

 

 

Jim Lovelace

 

• 34 years of investment experience, all with Capital Group

 

• 24 years on ICA

 

• Based in Los Angeles

 

• 36 holdings

 

 

 

The importance of fundamental research

Fundamental, company-by-company research is at the core of the fund’s success, and many ideas start with the analysts who cover various industries to find what they believe are the best companies in which to invest. “For me, the research always starts with our own investment analysts,” says Don. “I consider them to be both expert analysts and good investors.”

 

Portfolio manager Eric Richter was also an analyst earlier in his career — covering industrials — and he finds tremendous value in the analysts’ work. “Analysts will attend our investment calls and discuss their areas of coverage,” says Eric. “I collaborate a lot with the analysts, and a large majority of individual companies I invest in are ones they recommend.”

 

“The role of analyst research in building a manager’s portfolio is absolutely crucial,” continues Jim. “It’s a bedrock principle of Capital’s investment approach that we dig deeply into every single company. We don’t just invest in themes or stories; we take companies apart to make sure we understand how they’re making money.” This due diligence process really has made a difference over time as evidenced by ICA’s results over more than eight decades (please see page 4).

 

Portfolio managers’ research efforts don’t stop when their tenure as an investment analyst ends. “I’m doing management meetings pretty continuously,” says Eric. “I spend about 50% of my work days out of the office, and a clear majority of those are on company visits with analysts.” Eric will attend both individual company site visits and conferences with several companies in attendance.

 

“The analysts must be well versed in every company and in what the portfolio manager is seeking for their portfolio,” says Jim. “There’s a dialogue that goes on between them that’s an important part of the process.” Not everything a portfolio manager holds, however, is an analyst recommendation. Some are held by portfolio managers alone after extensive research by the manager has revealed what they believe to be promising growth prospects.

 

The varying investment styles

A lot of attention is paid to having portfolio managers with different investment approaches. Some portfolio managers will tend to be more defensive in their investments, while others may hold more cyclical stocks, which are stocks that often move in tandem with the strength or weakness of the economy.

 

“We all have a visceral approach when it comes to identifying those things in an investment that appeal to us,” says Jim. He describes his own preference for “companies with great franchises that I can hold through many economic cycles,” sometimes for at least five years. “I stay with companies until I feel they’re overvalued or when managements lose their way. Otherwise, they might stay in my portfolio for a long time.” For instance, some of Jim’s 36 stocks3 have been held his entire 24 years2 on the fund.

 

Don concentrates on a company’s competitive position and the likely direction of returns and margins. He likes to get to know a company’s management, and prefers those that are good allocators of capital. He believes this generally indicates that the company is focused on returns and the interests of shareholders, not just growth.

 

10 The Investment Company of America
 

“It’s a bedrock principle of Capital’s investment approach that we dig deeply into every single company. We don’t just invest in themes or stories; we take companies apart to make sure we understand how they’re making money.”

 

Eric’s current 36 holdings have little exposure to consumer staples or retail but a lot to energy, health care and financials. This breakdown may, of course, change over time. As a global manager with responsibilities in two global American Funds as well, Eric also tends to have more non-U.S. stocks than other portfolio managers.

 

Portfolio manager Chris Buchbinder likes investments in which our research reveals there are underlying strengths that are underappreciated. These tend to be companies with low valuations, but with great potential for improved results in the future. Brad Vogt is the newest portfolio manager on the fund, but comes from a long career investing in our growth-and-income funds. He looks to invest in fundamentally strong companies with sustainable market positions and pays a lot of attention to subscription businesses with high levels of recurring revenue.

 

Barry Crosthwaite has 42 current holdings — more than any other portfolio manager — and likes to invest in industries that have good structures and seeks companies with underappreciated growth prospects, based partly on their track records. Portfolio manager Joyce Gordon, a dividend-focused investor with 36 years2 of investing experience, places a strong emphasis on companies that she believes can grow their dividends over time based on a variety of factors.

 

The research portfolio

One of the keys of ICA’s success over the years has been the research portfolio where analysts can invest in their strongest convictions. In ICA, 22 analysts across all industry sectors had 100 holdings at year-end that comprise nearly one-quarter of ICA’s total fund assets. Similar to the portfolio managers, the analysts who contribute to the research portfolio hold only their best investment ideas for the fund.

 

“The RP involves a dynamic process,” says Jim. “It’s tricky, because you want it to reflect convictions, but you also have to balance the views of almost two dozen people.” Balancing those analyst sentiments is investment analyst Kaitlyn Murphy who coordinates the research portfolio in addition to covering chemicals and automobile & components manufacturers. With 11 years of investing experience, Kaitlyn closely follows what analysts are doing and tests their conviction along the way.

 

“My overarching role is to make sure the analysts’ convictions are fully reflected in the research portfolio,” says Kaitlyn. Depending on how their holdings do and the strength of the analysts’ investment views, she may ask some of them to add or trim certain positions to ensure the RP remains an accurate representation of their best ideas.

 

In many instances, Kaitlyn will have to facilitate transactions by making cash available from the sale of one holding to buy another. “We want to make sure that analysts who have high convictions in stocks are able to add that stock,” says Kaitlyn. “And we’ll push back on an analyst when belief in a stock has waned, or when stocks have done so well that they’ve become outsized in the RP.” This is done to return some cash to the research portfolio in order to fund analysts’ other high-confidence stocks.

 

 

 

Kaitlyn Murphy

 

• Research portfolio coordinator and equity investment analyst
   
• 11 years of investment experience, all with Capital Group*
   
• Research responsibility:
   
  U.S. chemicals and automobile & components manufacturers
   
• Based in Los Angeles
   
• 100 holdings in the research portfolio representing 22 investment analysts

 

* Years of experience as of January 8, 2016.

 

 

 

Don O’Neal

 

• 31 years of investment experience, all with Capital Group
   
• 24 years on ICA
   
• Based in San Francisco
   
• 37 holdings

 

The Investment Company of America 11
 

 

12 The Investment Company of America
 

The attitude among the analysts is cooperative when it comes to doing what is best for the research portfolio, leading to a team-oriented approach within the group.

 

The attitude among the analysts is cooperative when it comes to doing what is best for the research portfolio, leading to a team-oriented approach within the group. “Kaitlyn will do a little coaching, but ultimately, it’s each individual making the decisions for their own portfolio, such as how much to own,” explains Jim.

 

An analyst’s best communication tool is the portfolio of stocks the analyst holds. It’s what they feel most strongly about. “I’m just ensuring that their actions are aligned with what they’re saying, and their portfolio reflects what they think is appropriate for the fund,” says Kaitlyn.

 

The overall combination

“Create the portfolio that reflects your convictions. That’s the overriding goal of this system,” says Jim. The portfolio managers and investment analysts bring their talents, strengths and best ideas to the work of building the portfolio. While diversification occurs naturally among the multiple managers of The Capital System, every portfolio manager creates an appropriate level of diversification in his or her own portfolio. “You’re looking for convictions, but you’re also trying to be eclectic so that you have pretty decent diversification to handle different environments,” explains Jim.

 

“The conception of the RP is completely stock-by-stock,” says Kaitlyn. “But we’re always making sure we understand where we have a larger weighting and where we might have less exposure,” says Kaitlyn.

 

With 37 holdings, Don’s portfolio is reasonably well concentrated, but at the same time he also looks at it from the top down and asks whether the overall positions make sense to him. Over the long run, Don surmises he’s been a better investor by keeping some diversification in his portfolio.

 

“The reason why is, this is a tough business,” he says. “When you think you really ought to own all of this and none of that, you may be right for a little while, but situations change, and it’s helpful to have a range of intelligent investment opinions going on rather than be singularly focused on a narrow idea.”

 

And as you review the portfolio’s past year for The Investment Company of America, you will see this range of opinions in action. The stocks that comprise the portfolio are not thrown together ad hoc solely because of statistics or because they are in an index. The ICA portfolio is a combination of many diverse styles and ideas — carried out through fundamental hands-on research and evaluation — and carefully constructed to give you what we believe is the best potential for strong results over the long haul. n

 

 

1 The number of holdings represent distinct stocks and do not include overlap, which are stocks held by more than one portfolio manager and/or the research portfolio.
2 Portfolio manager years of experience as of March 1, 2016.
3 As of December 31, 2015. The portfolio manager’s number of holdings may have changed since then.

 

 

 

Eric Richter

 

• 24 years of investment experience and has been with Capital Group for 16 years
   
• 8 years on ICA
   
• Based in Washington D.C.
   
• 36 holdings

 

 

 

Brad Vogt

 

• 29 years of investment experience, all with Capital Group
   
• 1 year on ICA
   
• Based in Washington, D.C.
   
• 35 holdings

 

The Investment Company of America 13
 
Summary investment portfolio December 31, 2015  

 

Industry sector diversification Percent of net assets

 

 

 

Common stocks 95.09%     Shares       Value
(000)
Energy 6.68%                
ConocoPhillips     19,732,699     $ 921,320  
Halliburton Co.     14,168,576       482,298  
Kinder Morgan, Inc.     28,621,000       427,025  
Other securities             2,971,072  
              4,801,715  
                 
Materials 3.95%                
Dow Chemical Co.     10,975,000       564,993  
Monsanto Co.     8,937,000       880,473  
Other securities             1,392,472  
              2,837,938  
                 
Industrials 11.60%                
CSX Corp.     24,015,771       623,209  
General Dynamics Corp.     9,669,200       1,328,161  
General Electric Co.     29,165,000       908,490  
Illinois Tool Works Inc.     6,550,000       607,054  
Norfolk Southern Corp.     10,806,318       914,106  
Union Pacific Corp.     14,909,444       1,165,919  
Other securities             2,790,770  
              8,337,709  
                 
Consumer discretionary 9.18%                
Amazon.com, Inc.1     1,729,000       1,168,614  
Comcast Corp., Class A     8,996,517       507,673  
General Motors Co.     17,871,309       607,803  
Home Depot, Inc.     7,870,000       1,040,807  
Las Vegas Sands Corp.     11,000,000       482,240  
Time Warner Inc.     6,957,932       449,969  
Viacom Inc., Class B     12,390,760       510,004  
Other securities             1,834,156  
              6,601,266  
                 
Consumer staples 11.01%                
Altria Group, Inc.     22,945,000       1,335,628  
Coca-Cola Co.     15,744,600       676,388  
ConAgra Foods, Inc.     10,910,100       459,970  
Kraft Heinz Co.     6,124,722       445,635  
Mead Johnson Nutrition Co.     6,498,579       513,063  
Mondelez International, Inc.     9,875,000       442,795  
PepsiCo, Inc.     4,420,000       441,646  
Philip Morris International Inc.     19,930,019       1,752,048  
Other securities             1,853,329  
              7,920,502  

 

14 The Investment Company of America
 
          Value  
      Shares       (000)
Health care 15.92%                
AbbVie Inc.     22,274,421     $ 1,319,537  
Alexion Pharmaceuticals, Inc.1     3,207,000       611,735  
Amgen Inc.     22,603,272       3,669,189  
Gilead Sciences, Inc.     11,830,391       1,197,117  
Medtronic PLC     10,025,000       771,123  
Stryker Corp.     5,727,725       532,335  
UnitedHealth Group Inc.     6,294,832       740,524  
Other securities             2,604,761  
              11,446,321  
                 
Financials 6.34%                
American International Group, Inc.     15,234,000       944,051  
Berkshire Hathaway Inc., Class B1     5,984,300       790,167  
Other securities             2,822,257  
              4,556,475  
                 
Information technology 17.44%                
Accenture PLC, Class A     11,746,460       1,227,505  
Alphabet Inc., Class A1     1,161,880       903,954  
Alphabet Inc., Class C1     1,721,609       1,306,495  
Avago Technologies Ltd.     7,061,000       1,024,904  
Intel Corp.     29,526,000       1,017,171  
Microsoft Corp.     17,084,100       947,826  
Oracle Corp.     41,932,300       1,531,787  
Texas Instruments Inc.     26,962,173       1,477,797  
Western Union Co.2     35,700,000       639,387  
Other securities             2,461,710  
              12,538,536  
                 
Telecommunication services 5.51%                
AT&T Inc.     25,435,334       875,230  
CenturyLink, Inc.     18,267,000       459,598  
Verizon Communications Inc.     53,186,795       2,458,294  
Other securities             169,395  
              3,962,517  
                 
Utilities 2.65%                
Dominion Resources, Inc.     12,183,324       824,080  
Exelon Corp.     30,030,000       833,933  
Other securities             245,569  
              1,903,582  
                 
Miscellaneous 4.81%                
Other common stocks in initial period of acquisition             3,456,576  
                 
Total common stocks (cost: $50,263,576,000)             68,363,137  
                 
Convertible stocks 0.07%                
                 
Miscellaneous 0.07%                
Other convertible stocks in initial period of acquisition             47,481  
                 
Total convertible stocks (cost: $46,806,000)             47,481  

 

The Investment Company of America 15
 
Short-term securities 4.87%   Principal amount
(000)		   Value
(000)
Federal Home Loan Bank 0.10%–0.58% due 1/8/2016–7/18/2016   $ 1,682,106     $ 1,681,365  
Intel Corp. 0.40% due 2/25/2016     59,700       59,665  
Other securities             1,757,378  
                 
Total short-term securities (cost: $3,498,408,000)             3,498,408  
                 
Total investment securities 100.03% (cost: $53,808,790,000)             71,909,026  
Other assets less liabilities (0.03)%             (19,736 )
                 
Net assets 100.00%           $ 71,889,290  

 

This summary investment portfolio is designed to streamline the report and help investors better focus on the fund’s principal holdings. See inside back cover for details on how to obtain a complete schedule of portfolio holdings.

 

As permitted by U.S. Securities and Exchange Commission regulations, “Miscellaneous” securities include holdings in their first year of acquisition that have not previously been publicly disclosed.

 

“Other securities” includes all issues that are not disclosed separately in the summary investment portfolio. “Miscellaneous” and “Other securities” include securities which were valued under fair value procedures adopted by authority of the board of trustees. The total value of securities which were valued under fair value procedures was $4,929,979,000, which represented 6.86% of the net assets of the fund. This entire amount relates to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading. Some securities within “Other securities” (with an aggregate value of $863,909,000, which represented 1.20% of the net assets of the fund) were acquired in transactions exempt from registration under section 4(2) of the Securities Act of 1933 and may be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers.

 

Investments in affiliates

A company is an affiliate of the fund under the Investment Company Act of 1940 if the fund’s holdings in that company represent 5% or more of the outstanding voting shares. The value of the fund’s affiliated-company holdings is either shown in the summary investment portfolio or included in the value of “Other securities” under the respective industry sectors. Further details on such holdings and related transactions during the year ended December 31, 2015, appear below.

 

    Beginning
shares		     Additions     Reductions     Ending
shares		     Dividend
income
(000)		     Value of
affiliates at
12/31/2015
(000)		  
Western Union Co.     35,700,000       —       —       35,700,000     $ 22,134     $ 639,387  
Avon Products, Inc.     —       23,520,341       —       23,520,341       1,920       95,257  
Chesapeake Energy Corp.3     13,100,000       24,400,000       5,500,000       32,000,000       3,577       —  
Hasbro, Inc.3     6,405,000       —       1,498,641       4,906,359       9,827       —  
                                    $ 37,458     $ 734,644  

 

The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.

 

1 Security did not produce income during the last 12 months.
2 Represents an affiliated company as defined under the Investment Company Act of 1940.
3 Unaffiliated issuer at 12/31/2015.

 

See Notes to Financial Statements

 

16 The Investment Company of America
 

Financial statements

 

Statement of assets and liabilities            
at December 31, 2015   (dollars in thousands)  
       
Assets:                
Investment securities, at value:                
Unaffiliated issuers (cost: $53,102,695)   $ 71,174,382          
Affiliated issuers (cost: $706,095)     734,644     $ 71,909,026  
Cash denominated in currencies other than U.S. dollars (cost: $5,131)             5,131  
Cash             9,044  
Receivables for:                
Sales of investments     115,700          
Sales of fund’s shares     57,696          
Dividends     106,687          
Other     2,476       282,559  
              72,205,760  
Liabilities:                
Payables for:                
Purchases of investments     99,963          
Repurchases of fund’s shares     175,554          
Investment advisory services     14,709          
Services provided by related parties     17,017          
Trustees’ deferred compensation     7,086          
Other     2,141       316,470  
Net assets at December 31, 2015           $ 71,889,290  
                 
Net assets consist of:                
Capital paid in on shares of beneficial interest           $ 53,053,482  
Undistributed net investment income             377,600  
Undistributed net realized gain             358,256  
Net unrealized appreciation             18,099,952  
Net assets at December 31, 2015           $ 71,889,290  

 

(dollars and shares in thousands, except per-share amounts)

 

Shares of beneficial interest issued and outstanding (no stated par value) —

unlimited shares authorized (2,155,462 total shares outstanding)      

 

          Shares     Net asset value  
    Net assets     outstanding     per share  
Class A   $ 54,725,058       1,639,939     $ 33.37  
Class B     155,930       4,683       33.29  
Class C     1,635,215       49,440       33.08  
Class F-1     2,458,720       73,835       33.30  
Class F-2     1,949,795       58,449       33.36  
Class 529-A     2,132,554       64,036       33.30  
Class 529-B     24,557       737       33.32  
Class 529-C     474,998       14,308       33.20  
Class 529-E     78,023       2,349       33.21  
Class 529-F-1     60,720       1,825       33.27  
Class R-1     82,589       2,492       33.15  
Class R-2     636,776       19,189       33.18  
Class R-2E     673       20       33.33  
Class R-3     860,576       25,869       33.27  
Class R-4     983,205       29,531       33.29  
Class R-5E     9       — *     33.36  
Class R-5     754,668       22,624       33.36  
Class R-6     4,875,224       146,136       33.36  

 

*Amount less than one thousand.

 

See Notes to Financial Statements

 

The Investment Company of America 17
 
Statement of operations            
for the year ended December 31, 2015   (dollars in thousands)  
       
Investment income:                
Income:                
Dividends (net of non-U.S. taxes of $10,020; also includes $37,458 from affiliates)   $ 1,771,579          
Interest     7,718     $ 1,779,297  
Fees and expenses*:                
Investment advisory services     178,638          
Distribution services     182,646          
Transfer agent services     66,438          
Administrative services     14,372          
Reports to shareholders     2,650          
Registration statement and prospectus     1,857          
Trustees’ compensation     447          
Auditing and legal     1,579          
Custodian     1,816          
Other     2,764       453,207  
Net investment income             1,326,090  
                 
Net realized gain and unrealized depreciation:                
Net realized gain (loss) on:                
Investments (includes $20,843 net loss from affiliates)     5,040,451          
Currency transactions     (4,968 )     5,035,483  
Net unrealized (depreciation) appreciation on:                
Investments     (7,421,726 )        
Currency translations     180       (7,421,546 )
Net realized gain and unrealized depreciation             (2,386,063 )
                 
Net decrease in net assets resulting from operations           $ (1,059,973 )

 

* Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.

 

Statements of changes in net assets

    Year ended December 31  
    2015     2014  
Operations:                
Net investment income   $ 1,326,090     $ 1,581,896  
Net realized gain     5,035,483       7,246,568  
Net unrealized depreciation     (7,421,546 )     (548,284 )
Net (decrease) increase in net assets resulting from operations     (1,059,973 )     8,280,180  
                 
Dividends and distributions paid to shareholders:                
Dividends from net investment income     (1,243,682 )     (1,336,966 )
Distributions from net realized gain on investments     (5,083,682 )     (6,231,464 )
Total dividends and distributions paid to shareholders     (6,327,364 )     (7,568,430 )
                 
Net capital share transactions     3,820,897       4,823,324  
                 
Total (decrease) increase in net assets     (3,566,440 )     5,535,074  
                 
Net assets:                
Beginning of year     75,455,730       69,920,656  
End of year (including undistributed net investment income: $377,600 and $298,582, respectively)   $ 71,889,290     $ 75,455,730  

 

See Notes to Financial Statements

 

18 The Investment Company of America
 

Notes to financial statements

 

1. 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.

 

The fund has 18 share classes consisting of five retail share classes (Classes A, B and C, as well as two F share classes, F-1 and F-2), five 529 college savings plan share classes (Classes 529-A, 529-B, 529-C, 529-E and 529-F-1) and eight retirement plan share classes (Classes R-1, R-2, R-2E, R-3, R-4, R-5E, R-5 and R-6). The 529 college savings plan share classes can be used to save for college education. The retirement plan share classes are generally offered only through eligible employer-sponsored retirement plans. The fund’s share classes are described further in the following table:

 

Share class   Initial sales charge   Contingent deferred sales charge upon
redemption		   Conversion feature
Classes A and 529-A   Up to 5.75%   None (except 1% for certain redemptions within one year of purchase without an initial sales charge)   None
Classes B and 529-B*   None   Declines from 5% to 0% for redemptions within six years of purchase   Classes B and 529-B convert to Classes A and 529-A, respectively, after eight years
Class C   None   1% for redemptions within one year of purchase   Class C converts to Class F-1 after 10 years
Class 529-C   None   1% for redemptions within one year of purchase   None
Class 529-E   None   None   None
Classes F-1, F-2 and 529-F-1   None   None   None
Classes R-1, R-2, R-2E, R-3, R-4, R-5E, R-5 and R-6   None   None   None

*Class B and 529-B shares of the fund are not available for purchase.

 

On November 20, 2015, the fund made an additional retirement plan share class (Class R-5E) available for sale pursuant to an amendment to its registration statement filed with the U.S. Securities and Exchange Commission. Refer to the fund’s prospectus for more details.

 

Holders of all share classes have equal pro rata rights to the assets, dividends and liquidation proceeds of the fund. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses (“class-specific fees and expenses”), primarily due to different arrangements for distribution, transfer agent and administrative services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each share class.

 

2. Significant accounting policies

 

The fund is an investment company that applies the accounting and reporting guidance issued in Topic 946 by the U.S. Financial Accounting Standards Board. The fund’s financial statements have been prepared to comply with U.S. generally accepted accounting principles (“U.S. GAAP“). These principles require the fund’s investment adviser to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. Subsequent events, if any, have been evaluated through the date of issuance in the preparation of the financial statements. The fund follows the significant accounting policies described in this section, as well as the valuation policies described in the next section on valuation.

 

Security transactions and related investment income — Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.

 

The Investment Company of America 19
 

Class allocations — Income, fees and expenses (other than class-specific fees and expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, transfer agent and administrative services, are charged directly to the respective share class.

 

Dividends and distributions to shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.

 

Currency translation — Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates supplied by one or more pricing vendors on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. The effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments in the fund’s statement of operations. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.

 

3. Valuation

 

Capital Research and Management Company (“CRMC”), the fund’s investment adviser, values the fund’s investments at fair value as defined by U.S. GAAP. The net asset value of each share class of the fund is generally determined as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.

 

Methods and inputs — The fund’s investment adviser uses the following methods and inputs to establish the fair value of the fund’s assets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market and economic conditions evolve.

 

Equity securities are generally valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market on which the security trades.

 

Fixed-income securities, including short-term securities, are generally valued at prices obtained from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described in the following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-income securities in which the fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be used to value any other class of fixed-income security.

 

Fixed-income class Examples of standard inputs
All Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data (collectively referred to as “standard inputs”)
Corporate bonds & notes; convertible securities Standard inputs and underlying equity of the issuer
Bonds & notes of governments & government agencies Standard inputs and interest rate volatilities
Mortgage-backed; asset-backed obligations Standard inputs and cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information

 

When the fund’s investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or deemed to be not representative), fixed-income securities will be valued in good faith at the mean quoted bid and ask prices that are reasonably and timely available (or bid prices, if ask prices are not available) or at prices for securities of comparable maturity, quality and type.

 

Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are generally valued in the manner described for either equity or fixed-income securities, depending on which method is deemed most appropriate by the fund’s investment adviser.

 

Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the fund’s investment adviser are fair valued as determined in good faith under fair valuation guidelines adopted by authority of the fund’s board of trustees as further described. The investment adviser follows fair valuation guidelines, consistent with U.S. Securities and Exchange Commission rules and guidance, to consider relevant principles and factors when making fair value determinations. The investment

 

20 The Investment Company of America
 

adviser considers relevant indications of value that are reasonably and timely available to it in determining the fair value to be assigned to a particular security, such as the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions. In addition, the closing prices of equity securities that trade in markets outside U.S. time zones may be adjusted to reflect significant events that occur after the close of local trading but before the net asset value of each share class of the fund is determined. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially from valuations that would have been used had greater market activity occurred.

 

Processes and structure — The fund’s board of trustees has delegated authority to the fund’s investment adviser to make fair value determinations, subject to board oversight. The investment adviser has established a Joint Fair Valuation Committee (the “Fair Valuation Committee”) to administer, implement and oversee the fair valuation process, and to make fair value decisions. The Fair Valuation Committee regularly reviews its own fair value decisions, as well as decisions made under its standing instructions to the investment adviser’s valuation teams. The Fair Valuation Committee reviews changes in fair value measurements from period to period and may, as deemed appropriate, update the fair valuation guidelines to better reflect the results of back testing and address new or evolving issues. The Fair Valuation Committee reports any changes to the fair valuation guidelines to the board of trustees with supplemental information to support the changes. The fund’s board and audit committee also regularly review reports that describe fair value determinations and methods.

 

The fund’s investment adviser has also established a Fixed-Income Pricing Review Group to administer and oversee the fixed-income valuation process, including the use of fixed-income pricing vendors. This group regularly reviews pricing vendor information and market data. Pricing decisions, processes and controls over security valuation are also subject to additional internal reviews, including an annual control self-evaluation program facilitated by the investment adviser’s compliance group.

 

Classifications — The fund’s investment adviser classifies the fund’s assets and liabilities into three levels based on the inputs used to value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Certain securities trading outside the U.S. may transfer between Level 1 and Level 2 due to valuation adjustments resulting from significant market movements following the close of local trading. Level 3 values are based on significant unobservable inputs that reflect the investment adviser’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following table presents the fund’s valuation levels as of December 31, 2015 (dollars in thousands):

 

    Investment securities
    Level 1     Level 2*     Level 3     Total  
Assets:                                
Common stocks:                                
Energy   $ 4,194,841     $ 606,874     $ —     $ 4,801,715  
Materials     2,693,478       144,460       —       2,837,938  
Industrials     8,337,709       —       —       8,337,709  
Consumer discretionary     6,313,817       287,449       —       6,601,266  
Consumer staples     7,606,827       313,675       —       7,920,502  
Health care     10,762,267       684,054       —       11,446,321  
Financials     3,773,878       782,597       —       4,556,475  
Information technology     11,836,637       701,899       —       12,538,536  
Telecommunication services     3,793,122       169,395       —       3,962,517  
Utilities     1,903,582       —       —       1,903,582  
Miscellaneous     2,217,000       1,239,576       —       3,456,576  
Convertible stocks     47,481       —       —       47,481  
Short-term securities     —       3,498,408       —       3,498,408  
Total   $ 63,480,639     $ 8,428,387     $ —     $ 71,909,026  

 

* Securities with a value of $4,929,979,000, which represented 6.86% of the net assets of the fund, were classified as Level 2 due to significant market movements following the close of local trading.

 

The Investment Company of America 21
 

4. Risk factors

 

Investing in the fund may involve certain risks including, but not limited to, those described below.

 

Market conditions — The prices of, and the income generated by, the common stocks and other securities held by the fund may decline —sometimes rapidly or unpredictably — due to various factors, including events or conditions affecting the general economy or particular industries; overall market changes; local, regional or global political, social or economic instability; governmental or governmental agency responses to economic conditions; and currency exchange rate, interest rate and commodity price fluctuations.

 

Issuer risks — The prices of, and the income generated by, securities held by the fund may decline in response to various factors directly related to the issuers of such securities, including reduced demand for an issuer’s goods or services, poor management performance and strategic initiatives such as mergers, acquisitions or dispositions and the market response to any such initiatives.

 

Investing in income-oriented stocks — Income provided by the fund may be reduced by changes in the dividend policies of, and the capital resources available for dividend payments at, the companies in which the fund invests.

 

Investing in growth-oriented stocks — Growth-oriented common stocks and other equity-type securities (such as preferred stocks, convertible preferred stocks and convertible bonds) may involve larger price swings and greater potential for loss than other types of investments.

 

Investing outside the U.S. — Securities of issuers domiciled outside the U.S., or with significant operations or revenues outside the U.S., may lose value because of adverse political, social, economic or market developments (including social instability, regional conflicts, terrorism and war) in the countries or regions in which the issuers operate or generate revenue. These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Issuers of these securities may be more susceptible to actions of foreign governments, such as the imposition of price controls or punitive taxes, that could adversely impact revenues. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different accounting practices and different regulatory, legal and reporting standards and practices, and may be more difficult to value, than those in the U.S. In addition, the value of investments outside the U.S. may be reduced by foreign taxes, including foreign withholding taxes on interest and dividends. Further, there may be increased risks of delayed settlement of securities purchased or sold by the fund. The risks of investing outside the U.S. may be heightened in connection with investments in emerging markets.

 

Management — The investment adviser to the fund actively manages the fund’s investments. Consequently, the fund is subject to the risk that the methods and analyses employed by the investment adviser in this process may not produce the desired results. This could cause the fund to lose value or its investment results to lag relevant benchmarks or other funds with similar objectives.

 

5. Taxation and distributions

 

Federal income taxation — The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. Therefore, no federal income tax provision is required.

 

As of and during the period ended December 31, 2015, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.

 

The fund is not subject to examination by U.S. federal tax authorities for tax years before 2012 and by state tax authorities for tax years before 2011.

 

Non-U.S. taxation — Dividend and interest income are recorded net of non-U.S. taxes paid. The fund may file withholding tax reclaims in certain jurisdictions to recover a portion of amounts previously withheld. As a result of rulings from European courts, the fund filed for additional reclaims related to prior years. These reclaims are recorded when the amount is known and there are no significant uncertainties on collectability.

 

Distributions — Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to different treatment for items such as currency gains and losses; short-term capital gains and losses; unrealized appreciation of certain

 

22 The Investment Company of America
 

investments in securities outside the U.S.; deferred expenses; and income on certain investments. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes. The fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.

 

During the year ended December 31, 2015, the fund reclassified $3,200,000 and $190,000 from undistributed net investment income to undistributed net realized gain and capital paid in on shares of beneficial interest, respectively, and $128,817,000 from undistributed net realized gain to capital paid in on shares of beneficial interest to align financial reporting with tax reporting.

 

As of December 31, 2015, the tax-basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows (dollars in thousands):

 

Undistributed ordinary income   $ 399,127  
Gross unrealized appreciation on investment securities     22,337,651  
Gross unrealized depreciation on investment securities     (3,893,602 )
Net unrealized appreciation on investment securities     18,444,049  
Cost of investment securities     53,464,977  

 

The tax character of distributions paid to shareholders was as follows (dollars in thousands):

 

    Year ended December 31, 2015     Year ended December 31, 2014  
                Total                 Total  
                dividends and                 dividends and  
    Ordinary     Long-term     distributions     Ordinary     Long-term     distributions  
Share class   income     capital gains     paid     income     capital gains     paid  
Class A   $ 964,849     $ 3,872,351     $ 4,837,200     $ 1,058,744     $ 4,835,143     $ 5,893,887  
Class B     1,713       11,723       13,436       3,566       25,504       29,070  
Class C     15,215       116,413       131,628       18,486       147,247       165,733  
Class F-1     40,913       174,320       215,233       43,711       208,522       252,233  
Class F-2     35,900       137,282       173,182       31,823       148,398       180,221  
Class 529-A     34,966       150,267       185,233       37,776       183,803       221,579  
Class 529-B     227       1,850       2,077       482       3,990       4,472  
Class 529-C     4,033       33,720       37,753       4,892       41,998       46,890  
Class 529-E     1,090       5,525       6,615       1,213       6,800       8,013  
Class 529-F-1     1,135       4,356       5,491       1,099       4,941       6,040  
Class R-1     775       5,916       6,691       968       7,735       8,703  
Class R-2     6,268       45,710       51,978       7,656       59,808       67,464  
Class R-2E1     2       27       29       — 2     2       2  
Class R-3     11,961       61,045       73,006       13,698       77,606       91,304  
Class R-4     16,551       69,289       85,840       17,366       82,279       99,645  
Class R-5E3     — 2     1       1                          
Class R-5     15,178       53,155       68,333       16,450       67,108       83,558  
Class R-6     92,906       340,732       433,638       79,036       330,580       409,616  
Total   $ 1,243,682     $ 5,083,682     $ 6,327,364     $ 1,336,966     $ 6,231,464     $ 7,568,430  

 

1 Class R-2E shares were offered beginning August 29, 2014.
2 Amount less than one thousand.
3 Class R-5E shares were offered beginning November 20, 2015.

 

6. Fees and transactions with related parties

 

CRMC, the fund’s investment adviser, is the parent company of American Funds Distributors,® Inc. (“AFD”), the principal underwriter of the fund’s shares, and American Funds Service Company® (“AFS”), the fund’s transfer agent. CRMC, AFD and AFS are considered related parties to the fund.

 

Investment advisory services — The fund has an investment advisory and service agreement with CRMC that provides for monthly fees accrued daily. These fees are based on a series of decreasing annual rates beginning with 0.390% on the first $1 billion of daily net assets and decreasing to 0.219% on such assets in excess of $89 billion. For the year ended December 31, 2015, the investment advisory services fee was $178,638,000, which was equivalent to an annualized rate of 0.238% of average daily net assets.

 

The Investment Company of America 23
 

Class-specific fees and expenses — Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are further described below:

 

Distribution services — The fund has plans of distribution for all share classes, except Class F-2, R-5E, R-5 and R-6 shares. Under the plans, the board of trustees approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted in this section. In some cases, the board of trustees has limited the amounts that may be paid to less than the maximum allowed by the plans. All share classes with a plan may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.

 

For Class A and 529-A shares, distribution-related expenses include the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These share classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of December 31, 2015, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A shares.

 

  Share class   Currently approved limits   Plan limits
  Class A     0.25 %     0.25 %
  Class 529-A     0.25       0.50  
  Classes B and 529-B     1.00       1.00  
  Classes C, 529-C and R-1     1.00       1.00  
  Class R-2     0.75       1.00  
  Class R-2E     0.60       0.85  
  Classes 529-E and R-3     0.50       0.75  
  Classes F-1, 529-F-1 and R-4     0.25       0.50  

 

Transfer agent services — The fund has a shareholder services agreement with AFS under which the fund compensates AFS for providing transfer agent services to each of the fund’s share classes. These services include recordkeeping, shareholder communications and transaction processing. In addition, the fund reimburses AFS for amounts paid to third parties for performing transfer agent services on behalf of fund shareholders.

 

Administrative services — The fund has an administrative services agreement with CRMC under which the fund compensates CRMC for providing administrative services to Class A, C, F, 529 and R shares. These services include, but are not limited to, coordinating, monitoring, assisting and overseeing third parties that provide services to fund shareholders. Under the agreement, Class A shares pay an annual fee of 0.01% and Class C, F, 529 and R shares pay an annual fee of 0.05% of their respective average daily net assets.

 

529 plan services — Each 529 share class is subject to service fees to compensate the Virginia College Savings Plan (“Virginia529“) for its oversight and administration of the 529 college savings plan. The quarterly fee is based on a series of decreasing annual rates beginning with 0.10% on the first $30 billion of the net assets invested in Class 529 shares of the American Funds and decreasing to 0.05% on such assets in excess of $70 billion. The fee for any given calendar quarter is accrued and calculated on the basis of the average net assets of Class 529 shares of the American Funds for the last month of the prior calendar quarter. The fee is included in other expenses in the fund’s statement of operations. Virginia 529 is not considered a related party to the fund.

 

24 The Investment Company of America
 

For the year ended December 31, 2015, class-specific expenses under the agreements were as follows (dollars in thousands):

 

      Distribution   Transfer agent   Administrative   529 plan
  Share class   services   services   services   services
  Class A   $132,899   $52,296   $ 5,762   Not applicable
  Class B   2,222   209   Not applicable   Not applicable
  Class C   17,242   1,574   866   Not applicable
  Class F-1   6,369   3,018   1,276   Not applicable
  Class F-2   Not applicable   2,053   948   Not applicable
  Class 529-A   4,978   1,720   1,111   $1,969
  Class 529-B   355   33   18   32
  Class 529-C   4,959   413   251   444
  Class 529-E   407   36   41   72
  Class 529-F-1   —   48   31   55
  Class R-1   911   91   46   Not applicable
  Class R-2   5,190   2,162   348   Not applicable
  Class R-2E   — * — * — * Not applicable
  Class R-3   4,578   1,439   459   Not applicable
  Class R-4   2,536   962   508   Not applicable
  Class R-5E†   Not applicable   — * — * Not applicable
  Class R-5   Not applicable   374   398   Not applicable
  Class R-6   Not applicable   10   2,309   Not applicable
  Total class-specific expenses   $182,646   $66,438   $14,372   $2,572

 

* Amount less than one thousand.
† Class R-5E shares were offered beginning November 20, 2015.

 

Trustees’ deferred compensation — Trustees who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Trustees’ compensation of $447,000 in the fund’s statement of operations includes $386,000 in current fees (either paid in cash or deferred) and a net increase of $61,000 in the value of the deferred amounts.

 

Affiliated officers and trustees — Officers and certain trustees of the fund are or may be considered to be affiliated with CRMC, AFD and AFS. No affiliated officers or trustees received any compensation directly from the fund.

 

7. Warrants

 

As of December 31, 2015, the fund had warrants outstanding which may be exercised at any time for the purchase of 818,231 Class A shares at approximately $5.24 per share. If these warrants had been exercised as of December 31, 2015, the net asset value of each share class would have been reduced by less than $0.02 per share. No warrants were exercised during the year ended December 31, 2015, or the prior fiscal year ended December 31, 2014.

 

The Investment Company of America 25
 

8. Capital share transactions

 

Capital share transactions in the fund were as follows (dollars and shares in thousands):

 

                Reinvestments of                 Net increase  
    Sales1     dividends and distributions     Repurchases1     (decrease)  
Share class   Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares  
                                                                 
Year ended December 31, 2015                                    
Class A   $ 3,254,687       88,779     $ 4,700,777       140,518     $ (6,027,281 )     (165,181 )   $ 1,928,183       64,116  
Class B     2,578       70       13,368       400       (151,682 )     (4,122 )     (135,736 )     (3,652 )
Class C     312,217       8,583       129,974       3,940       (412,026 )     (11,321 )     30,165       1,202  
Class F-1     462,170       12,580       211,394       6,336       (478,800 )     (13,127 )     194,764       5,789  
Class F-2     617,068       16,784       146,792       4,395       (372,889 )     (10,255 )     390,971       10,924  
Class 529-A     194,197       5,307       185,157       5,549       (262,431 )     (7,182 )     116,923       3,674  
Class 529-B     755       21       2,077       62       (23,954 )     (652 )     (21,122 )     (569 )
Class 529-C     44,579       1,223       37,744       1,140       (66,679 )     (1,831 )     15,644       532  
Class 529-E     6,841       187       6,614       199       (9,919 )     (272 )     3,536       114  
Class 529-F-1     12,826       351       5,491       164       (12,674 )     (350 )     5,643       165  
Class R-1     14,057       385       6,682       202       (23,185 )     (636 )     (2,446 )     (49 )
Class R-2     140,340       3,851       51,935       1,568       (210,894 )     (5,805 )     (18,619 )     (386 )
Class R-2E     657       18       28       1       (10 )     — 2     675       19  
Class R-3     186,975       5,123       72,898       2,189       (246,074 )     (6,752 )     13,799       560  
Class R-4     214,087       5,876       85,822       2,572       (215,586 )     (5,887 )     84,323       2,561  
Class R-5E3     10       — 2     —       —       —       —       10       — 2
Class R-5     110,628       3,022       68,311       2,039       (167,879 )     (4,561 )     11,060       500  
Class R-6     1,247,966       34,173       433,638       12,978       (478,480 )     (13,237 )     1,203,124       33,914  
Total net increase  (decrease)   $ 6,822,638       186,333     $ 6,158,702       184,252     $ (9,160,443 )     (251,171 )   $ 3,820,897       119,414  
                                                                 
Year ended December 31, 2014                            
Class A   $ 3,263,761       84,516     $ 5,720,607       152,396     $ (6,185,028 )     (160,753 )   $ 2,799,340       76,159  
Class B     5,051       131       28,895       773       (197,048 )     (5,174 )     (163,102 )     (4,270 )
Class C     287,635       7,503       163,114       4,388       (486,900 )     (12,816 )     (36,151 )     (925 )
Class F-1     619,565       16,154       247,499       6,608       (747,253 )     (19,313 )     119,811       3,449  
Class F-2     771,196       19,780       143,257       3,816       (240,922 )     (6,232 )     673,531       17,364  
Class 529-A     201,751       5,250       221,486       5,913       (240,042 )     (6,221 )     183,195       4,942  
Class 529-B     1,075       28       4,472       119       (28,794 )     (753 )     (23,247 )     (606 )
Class 529-C     48,579       1,264       46,873       1,257       (62,850 )     (1,636 )     32,602       885  
Class 529-E     7,048       183       8,010       215       (10,696 )     (278 )     4,362       120  
Class 529-F-1     13,709       352       6,038       161       (9,096 )     (236 )     10,651       277  
Class R-1     16,242       422       8,691       233       (18,965 )     (492 )     5,968       163  
Class R-2     135,815       3,544       67,402       1,808       (187,138 )     (4,894 )     16,079       458  
Class R-2E4     26       1       1       — 2     —       —       27       1  
Class R-3     184,997       4,812       91,232       2,439       (261,582 )     (6,844 )     14,647       407  
Class R-4     210,201       5,462       99,605       2,660       (231,203 )     (5,980 )     78,603       2,142  
Class R-5     155,679       3,975       83,478       2,224       (280,612 )     (7,349 )     (41,455 )     (1,150 )
Class R-6     1,106,012       28,925       409,615       10,909       (367,164 )     (9,521 )     1,148,463       30,313  
Total net increase (decrease)   $ 7,028,342       182,302     $ 7,350,275       195,919     $ (9,555,293 )     (248,492 )   $ 4,823,324       129,729  

 

1 Includes exchanges between share classes of the fund.
2 Amount less than one thousand.
3 Class R-5E shares were offered beginning November 20, 2015.
4 Class R-2E shares were offered beginning August 29, 2014.

 

9. Investment transactions

 

The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $22,432,466,000 and $21,416,737,000, respectively, during the year ended December 31, 2015.

 

26 The Investment Company of America
 

Financial highlights

 

          (Loss) income from
investment operations1		     Dividends and distributions                                
    Net asset
value,
beginning
of period		     Net
investment
income2		     Net (losses)
gains on
securities (both
realized and
unrealized)		     Total from
investment
operations		     Dividends
(from net
investment
income)		     Distributions
(from capital
gains)		     Total
dividends
and
distributions		     Net asset
value,
end
of period		     Total
return3		     Net assets,
end of period
(in millions)		     Ratio of
expenses to
average
net assets		     Ratio of
net income
to average
net assets2		  
                                                                                                 
Class A:                                                                                                
Year ended 12/31/2015   $ 37.08     $ .66     $ (1.24 )   $ (.58 )   $ (.62 )   $ (2.51 )   $ (3.13 )   $ 33.37       (1.44 )%   $ 54,725       .58 %     1.79 %
Year ended 12/31/2014     36.70       .85       3.60       4.45       (.73 )     (3.34 )     (4.07 )     37.08       12.09       58,430       .59       2.21  
Year ended 12/31/2013     30.16       .61       9.07       9.68       (.63 )     (2.51 )     (3.14 )     36.70       32.42       55,032       .61       1.76  
Year ended 12/31/2012     27.09       .60       3.61       4.21       (.72 )     (.42 )     (1.14 )     30.16       15.60       44,501       .62       2.02  
Year ended 12/31/2011     28.16       .57       (1.06 )     (.49 )     (.58 )     —       (.58 )     27.09       (1.76 )     42,643       .61       2.05  
Class B:                                                                                                
Year ended 12/31/2015     36.97       .37       (1.23 )     (.86 )     (.31 )     (2.51 )     (2.82 )     33.29       (2.20 )     156       1.34       1.00  
Year ended 12/31/2014     36.58       .58       3.56       4.14       (.41 )     (3.34 )     (3.75 )     36.97       11.26       308       1.34       1.52  
Year ended 12/31/2013     30.06       .34       9.04       9.38       (.35 )     (2.51 )     (2.86 )     36.58       31.42       461       1.37       1.00  
Year ended 12/31/2012     26.99       .37       3.60       3.97       (.48 )     (.42 )     (.90 )     30.06       14.74       552       1.38       1.25  
Year ended 12/31/2011     28.05       .35       (1.06 )     (.71 )     (.35 )     —       (.35 )     26.99       (2.53 )     838       1.38       1.27  
Class C:                                                                                                
Year ended 12/31/2015     36.77       .36       (1.22 )     (.86 )     (.32 )     (2.51 )     (2.83 )     33.08       (2.24 )     1,635       1.39       .98  
Year ended 12/31/2014     36.42       .54       3.56       4.10       (.41 )     (3.34 )     (3.75 )     36.77       11.20       1,774       1.39       1.41  
Year ended 12/31/2013     29.95       .33       9.00       9.33       (.35 )     (2.51 )     (2.86 )     36.42       31.36       1,791       1.41       .95  
Year ended 12/31/2012     26.90       .36       3.59       3.95       (.48 )     (.42 )     (.90 )     29.95       14.70       1,620       1.43       1.21  
Year ended 12/31/2011     27.97       .34       (1.06 )     (.72 )     (.35 )     —       (.35 )     26.90       (2.58 )     1,767       1.42       1.24  
Class F-1:                                                                                                
Year ended 12/31/2015     37.01       .62       (1.23 )     (.61 )     (.59 )     (2.51 )     (3.10 )     33.30       (1.53 )     2,459       .67       1.70  
Year ended 12/31/2014     36.63       .82       3.59       4.41       (.69 )     (3.34 )     (4.03 )     37.01       12.02       2,518       .67       2.13  
Year ended 12/31/2013     30.11       .58       9.06       9.64       (.61 )     (2.51 )     (3.12 )     36.63       32.32       2,366       .68       1.68  
Year ended 12/31/2012     27.04       .58       3.62       4.20       (.71 )     (.42 )     (1.13 )     30.11       15.58       1,842       .67       1.98  
Year ended 12/31/2011     28.12       .56       (1.07 )     (.51 )     (.57 )     —       (.57 )     27.04       (1.84 )     1,744       .66       2.01  
Class F-2:                                                                                                
Year ended 12/31/2015     37.07       .72       (1.23 )     (.51 )     (.69 )     (2.51 )     (3.20 )     33.36       (1.26 )     1,950       .41       1.97  
Year ended 12/31/2014     36.69       .90       3.62       4.52       (.80 )     (3.34 )     (4.14 )     37.07       12.31       1,762       .39       2.32  
Year ended 12/31/2013     30.15       .68       9.07       9.75       (.70 )     (2.51 )     (3.21 )     36.69       32.69       1,107       .41       1.96  
Year ended 12/31/2012     27.08       .67       3.61       4.28       (.79 )     (.42 )     (1.21 )     30.15       15.86       770       .40       2.25  
Year ended 12/31/2011     28.15       .63       (1.06 )     (.43 )     (.64 )     —       (.64 )     27.08       (1.54 )     604       .40       2.27  
Class 529-A:                                                                                                
Year ended 12/31/2015     37.01       .62       (1.24 )     (.62 )     (.58 )     (2.51 )     (3.09 )     33.30       (1.55 )     2,132       .69       1.68  
Year ended 12/31/2014     36.64       .81       3.58       4.39       (.68 )     (3.34 )     (4.02 )     37.01       11.97       2,234       .69       2.10  
Year ended 12/31/2013     30.11       .57       9.07       9.64       (.60 )     (2.51 )     (3.11 )     36.64       32.32       2,030       .71       1.66  
Year ended 12/31/2012     27.05       .57       3.60       4.17       (.69 )     (.42 )     (1.11 )     30.11       15.47       1,562       .72       1.93  
Year ended 12/31/2011     28.12       .55       (1.06 )     (.51 )     (.56 )     —       (.56 )     27.05       (1.84 )     1,362       .70       1.97  
Class 529-B:                                                                                                
Year ended 12/31/2015     36.99       .32       (1.22 )     (.90 )     (.26 )     (2.51 )     (2.77 )     33.32       (2.32 )     24       1.47       .87  
Year ended 12/31/2014     36.60       .53       3.56       4.09       (.36 )     (3.34 )     (3.70 )     36.99       11.10       48       1.47       1.38  
Year ended 12/31/2013     30.07       .30       9.04       9.34       (.30 )     (2.51 )     (2.81 )     36.60       31.27       70       1.50       .87  
Year ended 12/31/2012     27.00       .33       3.60       3.93       (.44 )     (.42 )     (.86 )     30.07       14.58       81       1.52       1.12  
Year ended 12/31/2011     28.06       .32       (1.05 )     (.73 )     (.33 )     —       (.33 )     27.00       (2.63 )     111       1.50       1.16  

 

See page 29 for footnotes.

 

The Investment Company of America 27
 

Financial highlights (continued)

 

          (Loss) income from
investment operations1		     Dividends and distributions                                
    Net asset
value,
beginning
of period		     Net
investment
income2		     Net (losses)
gains on
securities (both
realized and
unrealized)		     Total from
investment
operations		     Dividends
(from net
investment
income)		     Distributions
(from capital
gains)		     Total
dividends
and
distributions		     Net asset
value,
end
of period		     Total
return3		     Net assets,
end of period
(in millions)		     Ratio of
expenses to
average
net assets		     Ratio of
net income
to average
net assets2		  
                                                                                                 
Class 529-C:                                                                                                
Year ended 12/31/2015   $ 36.90     $ .33     $ (1.22 )   $ (.89 )   $ (.30 )   $ (2.51 )   $ (2.81 )   $ 33.20       (2.31 )%   $ 475       1.46 %     .91 %
Year ended 12/31/2014     36.54       .51       3.58       4.09       (.39 )     (3.34 )     (3.73 )     36.90       11.13       509       1.46       1.33  
Year ended 12/31/2013     30.04       .30       9.04       9.34       (.33 )     (2.51 )     (2.84 )     36.54       31.29       471       1.49       .88  
Year ended 12/31/2012     26.99       .34       3.59       3.93       (.46 )     (.42 )     (.88 )     30.04       14.59       372       1.50       1.14  
Year ended 12/31/2011     28.06       .33       (1.06 )     (.73 )     (.34 )     —       (.34 )     26.99       (2.62 )     336       1.49       1.18  
Class 529-E:                                                                                                
Year ended 12/31/2015     36.91       .53       (1.23 )     (.70 )     (.49 )     (2.51 )     (3.00 )     33.21       (1.77 )     78       .93       1.44  
Year ended 12/31/2014     36.55       .71       3.58       4.29       (.59 )     (3.34 )     (3.93 )     36.91       11.70       82       .93       1.86  
Year ended 12/31/2013     30.05       .49       9.03       9.52       (.51 )     (2.51 )     (3.02 )     36.55       31.96       77       .95       1.41  
Year ended 12/31/2012     26.99       .49       3.61       4.10       (.62 )     (.42 )     (1.04 )     30.05       15.23       61       .97       1.68  
Year ended 12/31/2011     28.07       .47       (1.07 )     (.60 )     (.48 )     —       (.48 )     26.99       (2.15 )     55       .97       1.70  
Class 529-F-1:                                                                                                
Year ended 12/31/2015     36.98       .70       (1.24 )     (.54 )     (.66 )     (2.51 )     (3.17 )     33.27       (1.32 )     61       .47       1.91  
Year ended 12/31/2014     36.61       .89       3.59       4.48       (.77 )     (3.34 )     (4.11 )     36.98       12.23       61       .46       2.32  
Year ended 12/31/2013     30.09       .65       9.05       9.70       (.67 )     (2.51 )     (3.18 )     36.61       32.59       51       .49       1.88  
Year ended 12/31/2012     27.03       .63       3.61       4.24       (.76 )     (.42 )     (1.18 )     30.09       15.74       37       .50       2.15  
Year ended 12/31/2011     28.10       .61       (1.06 )     (.45 )     (.62 )     —       (.62 )     27.03       (1.62 )     31       .49       2.19  
Class R-1:                                                                                                
Year ended 12/31/2015     36.84       .35       (1.21 )     (.86 )     (.32 )     (2.51 )     (2.83 )     33.15       (2.22 )     83       1.40       .97  
Year ended 12/31/2014     36.49       .54       3.56       4.10       (.41 )     (3.34 )     (3.75 )     36.84       11.19       94       1.40       1.40  
Year ended 12/31/2013     30.01       .33       9.01       9.34       (.35 )     (2.51 )     (2.86 )     36.49       31.36       87       1.40       .96  
Year ended 12/31/2012     26.95       .36       3.60       3.96       (.48 )     (.42 )     (.90 )     30.01       14.74       73       1.41       1.23  
Year ended 12/31/2011     28.02       .35       (1.06 )     (.71 )     (.36 )     —       (.36 )     26.95       (2.55 )     74       1.41       1.25  
Class R-2:                                                                                                
Year ended 12/31/2015     36.88       .37       (1.23 )     (.86 )     (.33 )     (2.51 )     (2.84 )     33.18       (2.21 )     637       1.36       1.01  
Year ended 12/31/2014     36.53       .55       3.56       4.11       (.42 )     (3.34 )     (3.76 )     36.88       11.20       722       1.37       1.43  
Year ended 12/31/2013     30.03       .34       9.04       9.38       (.37 )     (2.51 )     (2.88 )     36.53       31.45       698       1.36       1.00  
Year ended 12/31/2012     26.98       .37       3.59       3.96       (.49 )     (.42 )     (.91 )     30.03       14.70       584       1.40       1.25  
Year ended 12/31/2011     28.05       .35       (1.06 )     (.71 )     (.36 )     —       (.36 )     26.98       (2.55 )     577       1.41       1.25  
Class R-2E:                                                                                                
Year ended 12/31/2015     37.06       .51       (1.23 )     (.72 )     (.50 )     (2.51 )     (3.01 )     33.33       (1.83 )     1       1.04       1.48  
Period from 8/29/2014 to 12/31/20144,5     40.36       .25       .25       .50       (.46 )     (3.34 )     (3.80 )     37.06       1.08 6,7     — 8     .23 6,7     .62 6,7
Class R-3:                                                                                                
Year ended 12/31/2015     36.97       .52       (1.23 )     (.71 )     (.48 )     (2.51 )     (2.99 )     33.27       (1.79 )     860       .95       1.41  
Year ended 12/31/2014     36.60       .71       3.58       4.29       (.58 )     (3.34 )     (3.92 )     36.97       11.68       936       .96       1.83  
Year ended 12/31/2013     30.09       .48       9.05       9.53       (.51 )     (2.51 )     (3.02 )     36.60       31.94       912       .96       1.40  
Year ended 12/31/2012     27.03       .49       3.60       4.09       (.61 )     (.42 )     (1.03 )     30.09       15.19       743       .98       1.67  
Year ended 12/31/2011     28.10       .47       (1.06 )     (.59 )     (.48 )     —       (.48 )     27.03       (2.11 )     737       .97       1.70  

 

28 The Investment Company of America
 
          (Loss) income from
investment operations1		     Dividends and distributions                                
    Net asset
value,
beginning
of period		     Net
investment
income2		     Net (losses)
gains on
securities (both
realized and
unrealized)		     Total from
investment
operations		     Dividends
(from net
investment
income)		     Distributions
(from capital
gains)		     Total
dividends
and
distributions		     Net asset
value,
end
of period		     Total
return3		     Net assets,
end of period
(in millions)		     Ratio of
expenses to
average
net assets		     Ratio of
net income
to average
net assets2		  
                                                                                                 
Class R-4:                                                                                                
Year ended 12/31/2015   $ 37.00     $ .63     $ (1.23 )   $ (.60 )   $ (.60 )   $ (2.51 )   $ (3.11 )   $ 33.29       (1.50 )%   $ 983       .64 %     1.73 %
Year ended 12/31/2014     36.63       .83       3.58       4.41       (.70 )     (3.34 )     (4.04 )     37.00       12.02       998       .65       2.15  
Year ended 12/31/2013     30.11       .59       9.06       9.65       (.62 )     (2.51 )     (3.13 )     36.63       32.37       909       .65       1.72  
Year ended 12/31/2012     27.04       .59       3.61       4.20       (.71 )     (.42 )     (1.13 )     30.11       15.60       705       .65       2.00  
Year ended 12/31/2011     28.12       .56       (1.07 )     (.51 )     (.57 )     —       (.57 )     27.04       (1.83 )     660       .65       2.02  
Class R-5E:                                                                                                
Period from 11/20/2015 to 12/31/20154,9     36.83       .07       (1.08 )     (1.01 )     (.21 )     (2.25 )     (2.46 )     33.36       (2.64 )7     — 8     .05 7     .20 7
Class R-5:                                                                                                
Year ended 12/31/2015     37.07       .74       (1.23 )     (.49 )     (.71 )     (2.51 )     (3.22 )     33.36       (1.20 )     755       .35       2.02  
Year ended 12/31/2014     36.69       .96       3.58       4.54       (.82 )     (3.34 )     (4.16 )     37.07       12.36       820       .35       2.50  
Year ended 12/31/2013     30.15       .70       9.07       9.77       (.72 )     (2.51 )     (3.23 )     36.69       32.77       854       .35       2.02  
Year ended 12/31/2012     27.08       .68       3.61       4.29       (.80 )     (.42 )     (1.22 )     30.15       15.92       697       .35       2.28  
Year ended 12/31/2011     28.15       .65       (1.07 )     (.42 )     (.65 )     —       (.65 )     27.08       (1.50 )     761       .35       2.31  
Class R-6:                                                                                                
Year ended 12/31/2015     37.07       .76       (1.24 )     (.48 )     (.72 )     (2.51 )     (3.23 )     33.36       (1.15 )     4,875       .30       2.08  
Year ended 12/31/2014     36.69       .95       3.61       4.56       (.84 )     (3.34 )     (4.18 )     37.07       12.41       4,160       .30       2.45  
Year ended 12/31/2013     30.15       .71       9.08       9.79       (.74 )     (2.51 )     (3.25 )     36.69       32.84       3,005       .30       2.07  
Year ended 12/31/2012     27.08       .69       3.62       4.31       (.82 )     (.42 )     (1.24 )     30.15       15.98       2,995       .30       2.34  
Year ended 12/31/2011     28.15       .66       (1.06 )     (.40 )     (.67 )     —       (.67 )     27.08       (1.45 )     2,456       .30       2.37  

 

  Year ended December 31
  2015 2014 2013 2012 2011
Portfolio turnover rate for all share classes 30% 29% 24% 21% 28%

 

1 Based on average shares outstanding.
2 For the year ended December 31, 2014, this column reflects the impact of a corporate action event that resulted in a one-time increase to net investment income. If the corporate action event had not occurred, the Class A net investment income per share and ratio of net income to average net assets would have been lower by $.20 and .52 percentage points, respectively. The impact to the other share classes would have been similar.
3 Total returns exclude any applicable sales charges, including contingent deferred sales charges.
4 Based on operations for the period shown and, accordingly, is not representative of a full year.
5 Class R-2E shares were offered beginning August 29, 2014.
6 All or a significant portion of assets in this class consisted of seed capital invested by CRMC and/or its affiliates. Certain fees (including, where applicable, fees for distribution services) are not charged or accrued on these seed capital assets. If such fees were paid by the fund on seed capital assets, fund expenses would have been higher and net income and total return would have been lower.
7 Not annualized.
8 Amount less than $1 million.
9 Class R-5E shares were offered beginning November 20, 2015.

 

See Notes to Financial Statements

 

The Investment Company of America 29
 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Trustees of The Investment Company of America:

 

We have audited the accompanying statement of assets and liabilities of The Investment Company of America (the “Fund”), including the summary investment portfolio, as of December 31, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Investment Company of America as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

 

Deloitte & Touche LLP

 

Costa Mesa, California
February 8, 2016

 

30 The Investment Company of America

 

Expense example unaudited

 

As a fund shareholder, you incur two types of costs: (1) transaction costs, such as initial sales charges on purchase payments and contingent deferred sales charges on redemptions (loads), and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period (July 1, 2015, through December 31, 2015).

 

Actual expenses:

The first line of each share class in the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses paid during period” to estimate the expenses you paid on your account during this period.

 

Hypothetical example for comparison purposes:

The second line of each share class in the table on the following page provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the share class and an assumed rate of return of 5.00% per year before expenses, which is not the actual return of the share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5.00% hypothetical example with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

 

Notes:

Retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F-1, F-2 and 529-F-1 shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated above. In addition, your ending account value would be lower by the amount of these fees.

 

Note that the expenses shown in the table on the following page are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

The Investment Company of America 31

 

    Beginning   Ending        
    account value   account value   Expenses paid   Annualized
    7/1/2015   12/31/2015   during period*   expense ratio
Class A - actual return   $ 1,000.00     $ 977.61     $ 2.89       .58 %
Class A - assumed 5% return     1,000.00       1,022.28       2.96       .58  
Class B - actual return     1,000.00       973.50       6.72       1.35  
Class B - assumed 5% return     1,000.00       1,018.40       6.87       1.35  
Class C - actual return     1,000.00       973.51       6.91       1.39  
Class C - assumed 5% return     1,000.00       1,018.20       7.07       1.39  
Class F-1 - actual return     1,000.00       977.06       3.39       .68  
Class F-1 - assumed 5% return     1,000.00       1,021.78       3.47       .68  
Class F-2 - actual return     1,000.00       978.45       2.04       .41  
Class F-2 - assumed 5% return     1,000.00       1,023.14       2.09       .41  
Class 529-A - actual return     1,000.00       976.96       3.49       .70  
Class 529-A - assumed 5% return     1,000.00       1,021.68       3.57       .70  
Class 529-B - actual return     1,000.00       972.94       7.41       1.49  
Class 529-B - assumed 5% return     1,000.00       1,017.69       7.58       1.49  
Class 529-C - actual return     1,000.00       973.19       7.31       1.47  
Class 529-C - assumed 5% return     1,000.00       1,017.80       7.48       1.47  
Class 529-E - actual return     1,000.00       975.71       4.63       .93  
Class 529-E - assumed 5% return     1,000.00       1,020.52       4.74       .93  
Class 529-F-1 - actual return     1,000.00       978.10       2.34       .47  
Class 529-F-1 - assumed 5% return     1,000.00       1,022.84       2.40       .47  
Class R-1 - actual return     1,000.00       973.52       6.96       1.40  
Class R-1 - assumed 5% return     1,000.00       1,018.15       7.12       1.40  
Class R-2 - actual return     1,000.00       973.37       6.91       1.39  
Class R-2 - assumed 5% return     1,000.00       1,018.20       7.07       1.39  
Class R-2E - actual return     1,000.00       975.30       5.48       1.10  
Class R-2E - assumed 5% return     1,000.00       1,019.66       5.60       1.10  
Class R-3 - actual return     1,000.00       975.58       4.83       .97  
Class R-3 - assumed 5% return     1,000.00       1,020.32       4.94       .97  
Class R-4 - actual return     1,000.00       976.93       3.24       .65  
Class R-4 - assumed 5% return     1,000.00       1,021.93       3.31       .65  
Class R-5E - actual return†     1,000.00       973.62       .51       .46  
Class R-5E - assumed 5% return†     1,000.00       1,022.89       2.35       .46  
Class R-5 - actual return     1,000.00       978.78       1.75       .35  
Class R-5 - assumed 5% return     1,000.00       1,023.44       1.79       .35  
Class R-6 - actual return     1,000.00       978.78       1.50       .30  
Class R-6 - assumed 5% return     1,000.00       1,023.69       1.53       .30  

 

* The “expenses paid during period” are equal to the “annualized expense ratio,” multiplied by the average account value over the period, multiplied by the number of days in the period, and divided by 365 (to reflect the one-half year period).
† The period for the “annualized expense ratio” and “actual return” line is based on the number of days since the initial sale of the share class on November 20, 2015. The “assumed 5% return” line is based on 184 days.

 

32 The Investment Company of America

 

Tax information unaudited

 

We are required to advise you of the federal tax status of certain distributions received by shareholders during the fiscal year. The fund hereby designates the following amounts for the fund’s fiscal year ended December 31, 2015:

 

Long-term capital gains     $5,212,499,000  
Qualified dividend income     100 %
Corporate dividends received deduction     $1,054,472,000  
U.S. government income that may be exempt from state taxation   $1,781,000  

 

Individual shareholders should refer to their Form 1099 or other tax information, which was mailed in January 2016, to determine the calendar year amounts to be included on their 2015 tax returns. Shareholders should consult their tax advisors.

 

The Investment Company of America 33

 

Board of trustees and other officers

 

Independent trustees1

 

Name and year of birth   Year first
elected
a trustee
of the fund2		   Principal occupation(s) during past five years   Number of
portfolios in fund
complex overseen
by trustee		   Other directorships3
held by trustee
Louise H. Bryson, 1944   1999   Chair Emerita of the Board of Trustees, J. Paul Getty Trust; former President, Distribution, Lifetime Entertainment Network (retired 2008); former Executive Vice President and General Manager, Lifetime Movie Network (retired 2008)   7   None
Mary Anne Dolan, 1947   2000   Founder and President, MAD Ink (communications company)   10   None
James G. Ellis, 1947   2008   Dean and Professor of Marketing, Marshall School of Business, University of Southern California   81   Mercury General Corporation
Leonard R. Fuller, 1946   2002   Private investor; former President and CEO, Fuller Consulting (financial management consulting firm)   81   None
Pablo R. González Guajardo, 1967   2015   CEO, Kimberly-Clark de México, S.A.B. de C.V.   7   Kimberly-Clark de México,
S.A.B. de C.V.;
América Móvil, S.A.B. de C.V.;
Grupo Sanborns, S.A.B. de C.V.;
Grupo Lala, S.A.B. de C.V.
William D. Jones, 1955
Chairman of the Board (Independent and Non-Executive)		   2010   Real estate developer/owner, President and CEO, CityLink Investment Corporation (acquires, develops and manages real estate ventures in urban communities) and City Scene Management Company (provides commercial asset and property management services)   8   Sempra Energy
William H. Kling, 1942   2010   President Emeritus and former CEO, American Public Media   10   None
John C. Mazziotta, MD, PhD,  1949   2011   Physician; Professor of Neurology, University of California, Los Angeles; Vice Chancellor, UCLA Health Sciences; CEO, UCLA Health System; former Dean, David Geffen School of Medicine at UCLA; former Chair, Department of Neurology, UCLA; former Associate Director, Semel Institute, UCLA;   former Director, Brain Mapping Center, UCLA   4   None
William R. McLaughlin, 1956   2015   President, The Orvis Company; former President and CEO, Select Comfort   4   None
Bailey Morris-Eck, 1944   1993   Director and Programming Chair, WYPR Baltimore/Washington (public radio station); Senior Adviser, Financial News (London)   4   None

 

L. Daniel Jorndt, a trustee of the fund since 2006, retired on December 31, 2015. The trustees thank Mr. Jorndt for his dedication and service to the fund.

 

Interested trustees4,5

 

Name, year of birth and
position with fund		   Year first
elected
a trustee
or officer
of the fund2		   Principal occupation(s) during past five years
and positions held with affiliated entities or
the principal underwriter of the fund		   Number of
portfolios in fund
complex overseen
by trustee		   Other directorships3
held by trustee
James B. Lovelace, 1956
Vice Chairman of the Board		   1994   Partner — Capital Research Global Investors,
Capital Research and Management Company;
Director, Capital Research and Management Company		   2   None
Donald D. O’Neal, 1960
President		   1994   Partner — Capital Research Global Investors,
Capital Research and Management Company;
Director, Capital Research and Management Company		   31   None

 

The fund’s statement of additional information includes further details about fund trustees and is available without charge upon request by calling American Funds Service Company at (800) 421-4225 or by visiting the American Funds website at americanfunds.com. The address for all trustees and officers of the fund is 333 South Hope Street, Los Angeles, CA 90071, Attention: Secretary.

 

34 The Investment Company of America

 

Other officers5

 

Name, year of birth and
position with fund		   Year first
elected
an officer
of the fund2		   Principal occupation(s) during past five years and positions held with affiliated entities
or the principal underwriter of the fund
Christopher D. Buchbinder, 1971
Senior Vice President		   2010   Partner — Capital Research Global Investors, Capital Research and Management Company
Joyce E. Gordon, 1956
Senior Vice President		   1998   Partner — Capital Research Global Investors, Capital Research and Management Company;
Director, Capital Research and Management Company
Paul F. Roye, 1953
Senior Vice President		   2008   Director, Capital Research and Management Company;
Senior Vice President — Fund Business Management Group, Capital Research and Management Company
Herbert Y. Poon, 1973
Vice President		   2012   Vice President and Senior Counsel — Fund Business Management Group,
Capital Research and Management Company
Jessica Chase Spaly, 1977
Vice President		   2010   Partner — Capital Research Global Investors, Capital Research and Management Company;
Director, The Capital Group Companies, Inc.6
Michael W. Stockton, 1967
Secretary		   2013   Vice President — Fund Business Management Group, Capital Research and Management Company
Brian D. Bullard, 1969
Treasurer		   2008   Senior Vice President — Investment Operations, Capital Research and Management Company
Raymond F. Sullivan, Jr., 1957
Assistant Secretary		   2008   Vice President — Fund Business Management Group, Capital Research and Management Company
Dori Laskin, 1951
Assistant Treasurer		   2011   Vice President — Investment Operations, Capital Research and Management Company

 

 

1 The term independent trustee refers to a trustee who is not an “interested person” of the fund within the meaning of the Investment Company Act of 1940.
2 Trustees and officers of the fund serve until their resignation, removal or retirement.
3 This includes all directorships/trusteeships (other than those in the American Funds or other funds managed by Capital Research and Management Company or its affiliates) that are held by each trustee as a trustee or director of a public company or a registered investment company.
4 The term interested trustee refers to a trustee who is an “interested person” within the meaning of the Investment Company Act of 1940, on the basis of their affiliation with the fund’s investment adviser, Capital Research and Management Company, or affiliated entities (including the fund’s principal underwriter).
5 All of the directors/trustees and/or officers listed are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as investment adviser.
6 Company affiliated with Capital Research and Management Company.

 

The Investment Company of America 35

 

Offices of the fund and of the investment adviser
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406

 

6455 Irvine Center Drive
Irvine, CA 92618-4518

 

Transfer agent for shareholder accounts
American Funds Service Company
(Write to the address near you.)

 

P.O. Box 6007
Indianapolis, IN 46206-6007

 

P.O. Box 2280
Norfolk, VA 23501-2280

 

Custodian of assets
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070

 

Counsel
O’Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071-2899

 

Independent registered public accounting firm
Deloitte & Touche LLP
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188

 

Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406

 

36 The Investment Company of America

 

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus and summary prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at (800) 421-4225 or visit the American Funds website at americanfunds.com.

 

“American Funds Proxy Voting Procedures and Principles” — which describes how we vote proxies relating to portfolio securities — is available on the American Funds website or upon request by calling AFS. The fund files its proxy voting record with the U.S. Securities and Exchange Commission (SEC) for the 12 months ended June 30 by August 31. The proxy voting record is available free of charge on the SEC website at sec.gov and on the American Funds website.

 

A complete December 31, 2015, portfolio of The Investment Company of America’s investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).

 

The Investment Company of America files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. Additional information regarding the operation of the Public Reference Room may be obtained by calling the SEC’s Office of Investor Education and Advocacy at (800) SEC-0330. Additionally, the list of portfolio holdings is available by calling AFS.

 

This report is for the information of shareholders of The Investment Company of America, but it also may be used as sales literature when preceded or accompanied by the current prospectus or summary prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after March 31, 2016, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.

 

The American Funds Advantage

 

Since 1931, American Funds, part of Capital Group, has helped investors pursue long-term investment success. Our consistent approach — in combination with The Capital SystemSM — has resulted in a superior long-term track record.

 

  Aligned with investor success
  We base our decisions on a long-term perspective, which we believe aligns our goals with the interests of our clients. Our portfolio managers average 27 years of investment experience, including 22 years at our company, reflecting a career commitment to our long-term approach.1
   
  The Capital SystemSM
  Our investment process, The Capital System, combines individual accountability with teamwork. Each fund is divided into portions that are managed independently by investment professionals with diverse backgrounds, ages and investment approaches. An extensive global research effort is the backbone of our system.
   
  Superior long-term track record
  Our equity funds have beaten their Lipper peer indexes in 91% of 10-year periods and 95% of 20-year periods. Our fixed-income funds have beaten their Lipper indexes in 58% of 10-year periods and 58% of 20-year periods.2 Our fund management fees have been among the lowest in the industry.3

 

  1 Portfolio manager experience as of December 31, 2015.
  2 Based on Class A share results for rolling periods through December 31, 2015. Periods covered are the shorter of the fund’s lifetime or since the comparable Lipper index inception date (except Capital Income Builder and SMALLCAP World Fund, for which the Lipper average was used).
  3 On average, our management fees were in the lowest quintile 68% of the time, based on the 20-year period ended December 31, 2015, versus comparable Lipper categories, excluding funds of funds.

 

 

 

 

 

ITEM 2 – Code of Ethics

 

The Registrant has adopted a Code of Ethics that applies to its Principal Executive Officer and Principal Financial Officer. The Registrant undertakes to provide to any person without charge, upon request, a copy of the Code of Ethics. Such request can be made to American Funds Service Company at 800/421-9225 or to the Secretary of the Registrant, 333 South Hope Street, Los Angeles, California 90071.

 

 

ITEM 3 – Audit Committee Financial Expert

 

The Registrant’s board has determined that James G. Ellis, a member of the Registrant’s audit committee, is an “audit committee financial expert” and "independent," as such terms are defined in this Item. This designation will not increase the designee’s duties, obligations or liability as compared to his or her duties, obligations and liability as a member of the audit committee and of the board, nor will it reduce the responsibility of the other audit committee members. There may be other individuals who, through education or experience, would qualify as "audit committee financial experts" if the board had designated them as such. Most importantly, the board believes each member of the audit committee contributes significantly to the effective oversight of the Registrant’s financial statements and condition.

 

 

ITEM 4 – Principal Accountant Fees and Services

 

  Registrant:
    a)  Audit Fees:
      2014 $100,000
      2015 $103,000
       
    b)  Audit-Related Fees:
      2014 $16,000
      2015 $23,000
      The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s investment adviser conducted in accordance with Statement on Standards for Attestation Engagements Number 16 issued by the American Institute of Certified Public Accountants.
       
    c)  Tax Fees:
      2014 $7,000
      2015 $8,000

      The tax fees consist of professional services relating to the preparation of the Registrant’s tax returns including returns relating to the Registrant’s investments in non-U.S. jurisdictions.
       
    d)  All Other Fees:
      2014 None
      2015 None
       
  Adviser and affiliates (includes only fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant and were subject to the pre-approval policies described below):
    a)  Audit Fees:
      Not Applicable
       
    b)  Audit-Related Fees:
      2014 $927,000
      2015 $1,183,000
      The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s transfer agent, principal underwriter and investment adviser conducted in accordance with Statement on Standards for Attestation Engagements Number 16 issued by the American Institute of Certified Public Accountants.
   

 

  
    c)  Tax Fees:
      2014 $33,000
      2015 None
      The tax fees consist of consulting services relating to the Registrant’s investments.
       
    d)  All Other Fees:
      2014 $3,000
      2015 $5,000
      The other fees consist of subscription services related to an accounting research tool.
       

 

All audit and permissible non-audit services that the Registrant’s audit committee considers compatible with maintaining the independent registered public accounting firm’s independence are required to be pre-approved by the committee. The pre-approval requirement will extend to all non-audit services provided to the Registrant, the investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant. The committee will not delegate its responsibility to pre-approve these services to the investment adviser. The committee may delegate to one or more committee members the authority to review and pre-approve audit and permissible non-audit services. Actions taken under any such delegation will be reported to the full committee at its next meeting. The pre-approval requirement is waived with respect to non-audit services if certain conditions are met. The pre-approval requirement was not waived for any of the non-audit services listed above provided to the Registrant, adviser and affiliates.

 

Aggregate non-audit fees paid to the Registrant’s auditors, including fees for all services billed to the Registrant, adviser and affiliates that provide ongoing services to the Registrant, were $1,286,000 for fiscal year 2014 and $1,489,000 for fiscal year 2015. The non-audit services represented by these amounts were brought to the attention of the committee and considered to be compatible with maintaining the auditors’ independence.

 

 

ITEM 5 – Audit Committee of Listed Registrants

 

Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.

 

 

ITEM 6 – Schedule of Investments

 

The Investment Company of America®
Investment portfolio
December 31, 2015
Common stocks 95.09%
Energy 6.68% 		Shares Value
(000)
Apache Corp. 2,200,000 $97,834
Baker Hughes Inc. 627,600 28,964
BG Group PLC1 1,660,200 24,075
BP PLC1 23,496,984 122,441
Cabot Oil & Gas Corp. 5,417,128 95,829
Canadian Natural Resources, Ltd. 15,839,284 345,930
Chesapeake Energy Corp. 32,000,000 144,000
Chevron Corp. 1,500,000 134,940
ConocoPhillips 19,732,699 921,320
Eni SpA1 13,128,061 194,481
EOG Resources, Inc. 5,547,200 392,686
Exxon Mobil Corp. 3,109,835 242,412
Halliburton Co. 14,168,576 482,298
Kinder Morgan, Inc. 28,621,000 427,025
Royal Dutch Shell PLC, Class A (ADR) 7,499,700 343,411
Royal Dutch Shell PLC, Class A (GBP denominated)1 153,254 3,443
Royal Dutch Shell PLC, Class B1 11,492,964 262,434
Schlumberger Ltd. 1,700,000 118,575
Southwestern Energy Co.2 12,150,000 86,387
Spectra Energy Corp 4,300,000 102,942
Suncor Energy Inc. 8,920,746 230,288
    4,801,715
Materials 3.95%    
Agrium Inc. 1,300,000 116,189
Barrick Gold Corp. 1,725,000 12,730
Dow Chemical Co. 10,975,000 564,993
Freeport-McMoRan Inc. 22,941,000 155,311
International Flavors & Fragrances Inc. 2,629,853 314,636
Monsanto Co. 8,937,000 880,473
Praxair, Inc. 4,000,300 409,631
Rio Tinto PLC1 4,957,000 144,460
Vale SA, Class A, preferred nominative 13,576,300 35,174
Vale SA, Class A, preferred nominative (ADR) 44,466,430 113,389
Vale SA, ordinary nominative (ADR) 27,645,000 90,952
    2,837,938
Industrials 11.60%    
Boeing Co. 500,000 72,295
Caterpillar Inc. 4,285,000 291,209
CSX Corp. 24,015,771 623,209
Cummins Inc. 4,736,642 416,872
Danaher Corp. 3,500,000 325,080
Emerson Electric Co. 1,800,000 86,094
General Dynamics Corp. 9,669,200 1,328,161
General Electric Co. 29,165,000 908,490
Illinois Tool Works Inc. 6,550,000 607,054
The Investment Company of America — Page 1 of 5
Common stocks
Industrials (continued) 		Shares Value
(000)
Lockheed Martin Corp. 1,250,000 $271,438
Nielsen Holdings PLC 6,967,000 324,662
Norfolk Southern Corp. 10,806,318 914,106
Precision Castparts Corp. 1,549,723 359,551
R.R. Donnelley & Sons Co. 7,574,058 111,490
Union Pacific Corp. 14,909,444 1,165,919
United Technologies Corp. 3,871,852 371,969
Waste Management, Inc. 3,000,000 160,110
    8,337,709
Consumer discretionary 9.18%    
Amazon.com, Inc.2 1,729,000 1,168,614
Comcast Corp., Class A 8,996,517 507,673
Ford Motor Co. 6,000,000 84,540
General Motors Co. 17,871,309 607,803
Hasbro, Inc. 4,906,359 330,492
Home Depot, Inc. 7,870,000 1,040,807
Johnson Controls, Inc. 9,727,694 384,147
Kering SA1 606,081 103,309
Las Vegas Sands Corp. 11,000,000 482,240
McDonald’s Corp. 2,300,000 271,722
NIKE, Inc., Class B 2,100,400 131,275
Priceline Group Inc.2 134,900 171,991
Time Warner Inc. 6,957,932 449,969
Toyota Motor Corp.1 3,000,000 184,140
Twenty-First Century Fox, Inc., Class A 6,352,715 172,540
Viacom Inc., Class B 12,390,760 510,004
    6,601,266
Consumer staples 11.01%    
Altria Group, Inc. 22,945,000 1,335,628
Anheuser-Busch InBev NV1 557,497 68,865
Avon Products, Inc.3 23,520,341 95,257
Coca-Cola Co. 15,744,600 676,388
ConAgra Foods, Inc. 10,910,100 459,970
General Mills, Inc. 3,920,000 226,027
J. M. Smucker Co. 600,000 74,004
Kellogg Co. 1,000,000 72,270
Kraft Heinz Co. 6,124,722 445,635
Kroger Co. 8,845,000 369,986
Mead Johnson Nutrition Co. 6,498,579 513,063
Mondelez International, Inc. 9,875,000 442,795
PepsiCo, Inc. 4,420,000 441,646
Philip Morris International Inc. 19,930,019 1,752,048
Procter & Gamble Co. 3,665,000 291,038
Reynolds American Inc. 6,366,664 293,822
SABMiller PLC1 1,730,380 103,649
Tesco PLC1,2 64,137,326 141,161
Whole Foods Market, Inc. 3,500,000 117,250
    7,920,502
Health care 15.92%    
Abbott Laboratories 6,635,000 297,978
AbbVie Inc. 22,274,421 1,319,537
Aetna Inc. 1,510,000 163,261
The Investment Company of America — Page 2 of 5
Common stocks
Health care (continued) 		Shares Value
(000)
Alexion Pharmaceuticals, Inc.2 3,207,000 $611,735
Amgen Inc. 22,603,272 3,669,189
Bayer AG1 1,100,000 138,008
Express Scripts Holding Co.2 3,886,000 339,675
Gilead Sciences, Inc. 11,830,391 1,197,117
Humana Inc. 1,563,000 279,011
Johnson & Johnson 600,000 61,632
Medtronic PLC 10,025,000 771,123
Merck & Co., Inc. 2,800,000 147,896
Novartis AG1 3,945,000 337,205
Pfizer Inc. 4,275,000 137,997
St. Jude Medical, Inc. 5,041,354 311,405
Stryker Corp. 5,727,725 532,335
Takeda Pharmaceutical Co. Ltd.1 4,195,000 208,841
Thermo Fisher Scientific Inc. 1,282,000 181,852
UnitedHealth Group Inc. 6,294,832 740,524
    11,446,321
Financials 6.34%    
American International Group, Inc. 15,234,000 944,051
Barclays PLC1 74,333,027 240,592
Berkshire Hathaway Inc., Class B2 5,984,300 790,167
Citigroup Inc. 4,950,000 256,162
CME Group Inc., Class A 1,000,000 90,600
Credit Suisse Group AG1 6,451,505 139,439
Crown Castle International Corp. 4,006,200 346,336
HSBC Holdings PLC (ADR) 1,529,416 60,366
HSBC Holdings PLC (GBP denominated)1 4,869,240 38,425
JPMorgan Chase & Co. 2,350,000 155,171
Progressive Corp. 9,800,000 311,640
Prudential PLC1 2,000,000 44,776
Société Générale1 3,100,000 142,995
State Street Corp. 4,365,600 289,701
U.S. Bancorp 8,846,400 377,476
UBS Group AG1 9,165,000 176,370
Wells Fargo & Co. 2,800,000 152,208
    4,556,475
Information technology 17.44%    
Accenture PLC, Class A 11,746,460 1,227,505
Alphabet Inc., Class A2 1,161,880 903,954
Alphabet Inc., Class C2 1,721,609 1,306,495
Amphenol Corp., Class A 1,341,500 70,067
Apple Inc. 2,875,000 302,622
ASML Holding NV1 2,718,773 242,287
Automatic Data Processing, Inc. 2,393,758 202,799
Avago Technologies Ltd. 7,061,000 1,024,904
Cisco Systems, Inc. 5,400,000 146,637
Hewlett Packard Enterprise Co. 9,340,000 141,968
Hewlett-Packard Co. 9,340,000 110,586
Intel Corp. 29,526,000 1,017,171
International Business Machines Corp. 800,000 110,096
Intuit Inc. 1,662,562 160,437
KLA-Tencor Corp. 500,000 34,675
MediaTek Inc.1 6,300,000 47,611
The Investment Company of America — Page 3 of 5
Common stocks
Information technology (continued) 		Shares Value
(000)
Microsoft Corp. 17,084,100 $947,826
Motorola Solutions, Inc. 2,042,396 139,802
Nintendo Co., Ltd.1 411,300 56,620
Oracle Corp. 41,932,300 1,531,787
Quanta Computer Inc.1 50,000,000 79,880
salesforce.com, inc.2 2,995,000 234,808
Samsung Electronics Co., Ltd.1 258,000 275,501
TE Connectivity Ltd. 1,630,000 105,314
Texas Instruments Inc. 26,962,173 1,477,797
Western Union Co.3 35,700,000 639,387
    12,538,536
Telecommunication services 5.51%    
AT&T Inc. 25,435,334 875,230
CenturyLink, Inc. 18,267,000 459,598
SoftBank Group Corp.1 3,361,400 169,395
Verizon Communications Inc. 53,186,795 2,458,294
    3,962,517
Utilities 2.65%    
Dominion Resources, Inc. 12,183,324 824,080
Exelon Corp. 30,030,000 833,933
NextEra Energy, Inc. 300,000 31,167
NRG Energy, Inc. 1,626,400 19,143
Sempra Energy 2,077,000 195,259
    1,903,582
Miscellaneous 4.81%    
Other common stocks in initial period of acquisition   3,456,576
Total common stocks (cost: $50,263,576,000)   68,363,137
Convertible stocks 0.07%
Miscellaneous 0.07% 		   
Other convertible stocks in initial period of acquisition   47,481
Total convertible stocks (cost: $46,806,000)   47,481
Short-term securities 4.87% Principal amount
(000) 		 
Abbott Laboratories 0.17%–0.20% due 1/26/2016–2/2/20164 $78,800 78,783
Apple Inc. 0.17% due 1/19/2016–2/3/20164 44,900 44,886
CAFCO, LLC 0.35% due 2/24/2016 19,400 19,392
Caterpillar Financial Services Corp. 0.18% due 1/27/2016 40,000 39,990
Chariot Funding, LLC 0.50% due 5/3/20164 70,000 69,814
Chevron Corp. 0.17%–0.24% due 1/13/2016–2/24/20164 229,700 229,622
Ciesco LLC 0.32% due 2/22/2016 25,000 24,991
Danaher Corp. 0.40% due 1/4/2016 40,000 39,999
Emerson Electric Co. 0.18%–0.24% due 1/14/2016–2/2/20164 172,300 172,262
ExxonMobil Corp. 0.17%–0.38% due 1/7/2016–2/22/2016 200,900 200,846
Fannie Mae 0.22%–0.23% due 3/1/2016–4/6/2016 136,600 136,539
Federal Farm Credit Banks 0.20%–0.28% due 1/29/2016–4/20/2016 62,300 62,257
Federal Home Loan Bank 0.10%–0.58% due 1/8/2016–7/18/2016 1,682,106 1,681,365
Freddie Mac 0.16%–0.45% due 1/4/2016–4/11/2016 254,900 254,866
The Investment Company of America — Page 4 of 5
Short-term securities Principal amount
(000) 		Value
(000)
Honeywell International Inc. 0.18% due 1/15/20164 $25,000 $24,997
Intel Corp. 0.40% due 2/25/2016 59,700 59,665
John Deere Capital Corp. 0.17% due 1/7/20164 40,000 39,998
Jupiter Securitization Co., LLC 0.50% due 2/24/20164 25,000 24,979
Paccar Financial Corp. 0.18%–0.19% due 1/6/2016–1/19/2016 64,600 64,592
Pfizer Inc 0.20%–0.21% due 2/2/2016–2/8/20164 103,500 103,472
U.S. Treasury Bills 0.14% due 1/21/2016 50,000 49,997
Walt Disney Co. 0.14%–0.19% due 1/5/2016–1/12/20164 75,100 75,096
Total short-term securities (cost: $3,498,408,000)   3,498,408
Total investment securities 100.03% (cost: $53,808,790,000)   71,909,026
Other assets less liabilities (0.03%)   (19,736)
Net assets 100.00%   $71,889,290
As permitted by U.S. Securities and Exchange Commission regulations, “Miscellaneous” securities include holdings in their first year of acquisition that have not previously been publicly disclosed.
1 Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities, including those in “Miscellaneous,“ was $4,929,979,000, which represented 6.86% of the net assets of the fund. This entire amount relates to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading.
2 Security did not produce income during the last 12 months.
3 Represents an affiliated company as defined under the Investment Company Act of 1940.
4 Acquired in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $863,909,000, which represented 1.20% of the net assets of the fund.
    
Key to abbreviations
ADR = American Depositary Receipts
GBP = British pounds
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus and summary prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at (800) 421-4225 or visit the American Funds website at americanfunds.com.
MFGEFPX-004-0216O-S49188 The Investment Company of America — Page 5 of 5

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Trustees of

The Investment Company of America:

 

We have audited the accompanying statement of assets and liabilities of The Investment Company of America (the “Fund”), including the summary schedule of investments, as of December 31, 2015, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended (collectively, the “financial statements”), the financial highlights for each of the five years in the period then ended (the financial statements and financial highlights are included in Item 1 of this Form N-CSR), and the schedule of investments in securities as of December 31, 2015 (included in Item 6 of this Form N-CSR). These financial statements, financial highlights, and schedule of investments in securities are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements, financial highlights, and schedule of investments in securities based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements, financial highlights, and schedule of investments in securities are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule of investments in securities, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements, financial highlights, and schedule of investments in securities referred to above present fairly, in all material respects, the financial position of The Investment Company of America as of December 31, 2015, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

 

DELOITTE & TOUCHE LLP

 

Costa Mesa, California

February 8, 2016

 

 

ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

 

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

 

 

ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies

 

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

 

 

ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

 

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

 

 

ITEM 10 – Submission of Matters to a Vote of Security Holders

 

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a nominating and governance committee comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. The committee periodically reviews such issues as the board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full board of trustees. While the committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the board. Such suggestions must be sent in writing to the nominating and governance committee of the Registrant, c/o the Registrant’s Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the nominating and governance committee.

 

 

ITEM 11 – Controls and Procedures

 

(a) The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule.
   
(b) There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

 

ITEM 12 – Exhibits

 

(a)(1) The Code of Ethics that is the subject of the disclosure required by Item 2 is attached as an exhibit hereto.
   
(a)(2) The certifications required by Rule 30a-2 of the Investment Company Act of 1940 and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto.

 

 
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  THE INVESTMENT COMPANY OF AMERICA
   
  By /s/ James B. Lovelace
 

James B. Lovelace, Vice Chairman and

Principal Executive Officer

   
  Date: February 29, 2016

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

By /s/ James B. Lovelace

James B. Lovelace, Vice Chairman and

Principal Executive Officer

 
Date: February 29, 2016

 

 

 

By /s/ Brian D. Bullard

Brian D. Bullard, Treasurer and

Principal Financial Officer

 
Date: February 29, 2016