-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RJZE/tQUOwIbQQjr0Pp7R9vhcdKvll2MLMBHsCHgZ5uiXAktl48hkwMjBDnxdcXL YisVz4tMnGMBfc8xVhm9PA== 0000051931-97-000009.txt : 19970305 0000051931-97-000009.hdr.sgml : 19970305 ACCESSION NUMBER: 0000051931-97-000009 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970304 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTMENT CO OF AMERICA CENTRAL INDEX KEY: 0000051931 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 951426645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00116 FILM NUMBER: 97549868 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 N-30D 1 ICA THE INVESTMENT COMPANY OF AMERICA 1996 Annual Report For the year ended December 31 ICA and its shareholders: A mutual interest in investing for the long term [cover: sketch of hillside, lighthouse, seagull, tennis shoes, telescope, glasses, book, pen, and blanket] [The American Funds Group(R)] ICA (SM) The Investment Company of America(R) seeks long-term growth of capital and income, placing greater emphasis on future dividends than on current income. 1996 results at a glance Year ended December 31, 1996 (with dividends and capital gain distribution reinvested)
Standard & Poor's 500 ICA Composite Index Income Results 2.33% 2.44% Capital Results 17.02% 20.46% Total Return 19.35% 22.90%
Dividends and capital gain distribution paid in 1996
Per Share Payment Date Income Dividends $0.12 March 4 $0.12 June 10 $0.12 Sept. 9 $0.12 + $0.02 Dec. 26 $0.50 Capital Gain Distribution $1.03 Dec. 26
Fund results in this report were computed without a sales charge unless otherwise indicated. The fund's 30-day yield as of January 31, 1997, calculated in accordance with the Securities and Exchange Commission formula, was 1.78%. THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. About Our Cover: An artist's sketch of a scene on Martha's Vineyard, Massachusetts. Two long-time residents and even longer term shareholders of ICA are featured beginning on page 6. [sketch: Map of Martha's Vineyard] FELLOW SHAREHOLDERS: Buoyed by moderate economic growth and subdued inflation, the U.S. stock market continued its steep climb in 1996. For ICA, results also remained well above the fund's historic average and produced the strongest two-year rise since 1985-86. ICA's total return for the year ended December 31 was 19.35% with dividends and the $1.03 capital gain distribution reinvested. That increase comes on the heels of a 30.63% advance in 1995. Dividends once again totaled 50 cents a share, representing an income return of 2.33%. The fund has now produced positive returns for 19 consecutive years, 13 of them in double digits. During that period the broad market as measured by the unmanaged Standard & Poor's 500 Composite Index has experienced two negative years. Last year, the S&P 500 rose 22.90% with dividends reinvested. It rose 37.53% in 1995. By the end of January, the U.S. market had gone almost 76 months without as much as a 10% pullback, amassing a gain of 166% on the S&P Index. That is nearly twice the length of any such period previously. Looking, however, at periods between steeper declines (of 18% or more), the current rise would have to extend another nine months and 101 percentage points to match the longest period in the fund's lifetime - June 1949 to August 1956. MAINTAINING A CONSISTENT APPROACH Periods such as the current one often tend to drive out investor caution, pushing up prices generally. At ICA, we work to maintain a consistent approach. It is based on painstaking research to find companies that offer true value and then staying with them as long as the value remains. In keeping with the objectives of the fund, that includes paying attention to potential dividend growth as well as capital appreciation. While that approach has sometimes held ICA's results below those of the overall market during periods of rapid rise, we believe that the consistency it has provided is an important reason why you are an ICA investor. In the feature that begins on page 6, we examine the attributes of the fund and its shareholders with some interesting statistics and through the eyes of two very long-term investors in the fund. Consistency has had its rewards. While ICA's results have not quite kept pace with the S&P 500 over the past ten years, the fund has done notably better over more extended periods. As you can see from the fold-out chart following this letter that traces ICA's lifetime under the management of Capital Research and Management Company (CRMC), a $10,000 investment in the fund 63 years ago would have been worth $24.6 million at the end of last year, more than twice the value of a similar investment in the S&P 500. THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM We attribute a good measure of ICA's long-term success to the unique portfolio management method employed by CRMC since 1958. It is a "multiple portfolio counselor system" in which the fund's assets are allocated among a number of individuals (currently nine principal ones). While they consult with each other and must remain within the objectives set by the fund and CRMC's investment committee, they make their investment decisions separately. Thus, they each can act on their strongest convictions, yet the system ensures diversity as well as continuity of management. As a means of benefiting from the direct participation of Capital Research's financial analysts, another portion of the fund is managed by a group of these research analysts. We believe that high-conviction investing based on a careful search for long-term values is an important reason why ICA's portfolio turnover rate (the pace at which the portfolio is changed) is well below industry averages. The fund's turnover rate contributes to its modest expense level, which is also far below average. A LOOK AT 1996 ACTIVITY Largely out of concern for the level of the stock market and the duration of its current strength, ICA in recent years has had an equity position at the lower end of its historic average. That position, however, has risen from 77% of assets at the end of 1994 to 89% at the end of last year. More than half of that rise simply reflects the substantial appreciation in the equity portfolio. The remainder resulted mostly from certain of the counselors switching from intermediate-term bonds to equities with values they found appealing. The leader for all of our holdings was Intel, our eighth largest, which was up 130.7% for the year on top of a 78.4% gain the previous year. We reduced our holdings several years ago when we believed the stock had reached a rather full valuation. Then, after the price fell, we added significantly to our holding. As in 1995, Banking was our largest industry position (10.0% compared with 8.8% a year ago). Banking stocks have outpaced the growth of the overall market by 20 percentage points in each of the past two years. BankAmerica, our tenth-largest holding, rose 54.1% in 1996 on top of a 63.9% rise in 1995. THE VALUE OF ACTIVE MANAGEMENT ICA's success over the long term is a measure of the value of active research and portfolio management through all kinds of markets. ICA became one of the dozen largest equity funds in 1969 and is the only one of that 1969 list to remain in the top twelve every year since. Much of the credit for that consistency goes to you, our shareholders; so many of you have shown by the length of your ownership your adherence to the same basic principles of long-term investing we find so compelling. Sincerely, /s/Jon B. Lovelace, Jr. Jon B. Lovelace, Jr. Chairman of the Board /s/William C. Newton William C. Newton President February 14, 1997 [Pull Quote] The fund has now produced positive returns for 19 consecutive years, 13 of them in double digits. [End Pull Quote] [Pull Quote] ICA's success over the long term is a measure of the value of active research and portfolio management through all kinds of markets. [End Pull Quote] FOLLOWING THE COURSE OF AN INVESTMENT IN ICA (1934-1996) This chart illustrates a hypothetical $10,000 investment in The Investment Company of America over the past 63 years, from January 1, 1934 through December 31, 1996, showing the high, low and closing values for each year. The figures in the table below the chart include the fund's total return for each of those years. As you look through the table, you will see that the fund's total return can fluctuate greatly from year to year. In some years it was well into double digits. In other years the fund had a negative return. During the entire period, a $10,000 investment in the fund, with all dividends reinvested, would have grown to $24,560,540 compared with $11,225,575 in the S&P 500 Index. Over the same period, $10,000 in a savings account would have grown to $146,898 with all interest compounded.* You can use this table to estimate how the value of your own holdings has grown. Let's say, for example, that you have been reinvesting all of your dividends and want to know how your investment has done since the end of 1986. At that time, the table shows the value of the investment illustrated here was $6,685,657. Since then, it has almost quadrupled to $24,560,540. Thus, in the same period, the value of your 1986 investment - regardless of size - has also almost quadrupled. For additional calculations, see table on page 11. *Based on figures from U.S. League of Savings Institutions and the Federal Reserve Board, reflecting all kinds of savings deposits (maximum allowable interest rates imposed by law until 1983). Savings accounts are guaranteed; the fund is not. Average Annual Compound Returns# For periods ended December 31, 1996 Ten Years +13.23% Five Years +11.93% One Year +12.48% #Based on the maximum sales charge of 5.75%. Sales charges are lower for investments of $50,000 or more. [chart]
Year ended December 31 1934 1935 1936 1937 1938 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested - - $398 1,006 181 Value at Year-End/1/ $11,822 21,643 31,560 19,424 24,776 Dividends in Cash - - $398 976 170 Value at Year-End/1/ $11,822 21,643 31,042 18,339 23,174 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 0.0% 0.0 1.8 3.2 0.9 Capital Results 18.2% 83.1 44.0 (41.7) 26.7 ICA TOTAL RETURN 18.2% 83.1 45.8 (38.5) 27.6 Fund Expenses/4/ 0.94% 1.13 1.19 1.53 1.89 Year ended December 31 1939 1940 1941 1942 1943 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 536 891 1,262 1,186 1,101 Value at Year-End/1/ 24,986 24,384 22,590 26,376 35,019 Dividends in Cash 498 806 1,089 969 861 Value at Year-End/1/ 22,860 21,460 18,816 20,893 26,861 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 2.2 3.6 5.2 5.3 4.2 Capital Results (1.4) (6.0) (12.6) 11.5 28.6 ICA TOTAL RETURN 0.8 (2.4) (7.4) 16.8 32.8 Fund Expenses/4/ 2.02 1.88 1.95 2.13 1.72 Year ended December 31 1944 1945 1946 1947 1948 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 1,242 1,191 1,775 2,409 2,685 Value at Year-End/1/ 43,193 59,091 57,692 58,217 58,430 Dividends in Cash 942 878 1,277 1,672 1,785 Value at Year-End/1/ 32,130 42,948 40,686 39,332 37,714 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 3.5 2.8 3.0 4.2 4.6 Capital Results 19.8 34.0 (5.4) (3.3) (4.2) ICA TOTAL RETURN 23.3 36.8 (2.4) 0.9 0.4 Fund Expenses/4/ 1.45 1.06 0.98 1.10 1.08
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Year ended December 31 1949 1950 1951 1952 1953 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 2,661 3,152 3,391 3,535 3,927 Value at Year-End/1/ 63,941 76,618 90,274 101,293 101,747 Dividends in Cash 1,689 1,911 1,970 1,974 2,113 Value at Year-End/1/ 39,436 45,185 51,159 55,305 53,362 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 4.6 4.9 4.4 3.9 3.9 Capital Results 4.8 14.9 13.4 8.3 (3.5) ICA TOTAL RETURN 9.4 19.8 17.8 12.2 0.4 Fund Expenses/4/ 0.96 1.01 0.93 0.81 0.85 Year ended December 31 1954 1955 1956 1957 1958 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 4,104 5,124 5,608 6,228 6,546 Value at Year-End/1/ 158,859 199,215 220,648 194,432 281,479 Dividends in Cash 2,127 2,579 2,748 2,969 3,028 Value at Year-End/1/ 80,780 98,530 106,303 90,911 128,040 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 4.0 3.2 2.8 2.8 3.4 Capital Results 52.1 22.2 8.0 (14.7) 41.4 ICA TOTAL RETURN 56.1 25.4 10.8 (11.9) 44.8 Fund Expenses/4/ 0.88 0.86 0.80 0.76 0.68 Year ended December 31 1959 1960 1961 1962 1963 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 7,013 8,139 8,383 9,122 9,620 Value at Year-End/1/ 321,419 335,998 413,552 358,800 440,900 Dividends in Cash 3,161 3,582 3,603 3,831 3,936 Value at Year-End/1/ 142,882 145,597 175,370 148,178 177,833 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 2.5 2.5 2.5 2.2 2.7 Capital Results 11.7 2.0 20.6 (15.4) 20.2 ICA TOTAL RETURN 14.2 4.5 23.1 (13.2) 22.9 Fund Expenses/4/ 0.64 0.62 0.59 0.61 0.59
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Year ended December 31 1964 1965 1966 1967 1968 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 10,708 12,112 15,516 18,359 22,628 Value at Year-End/1/ 512,591 650,689 657,093 846,941 990,640 Dividends in Cash 4,285 4,742 5,946 6,869 8,270 Value at Year-End/1/ 202,346 251,553 248,034 312,473 356,572 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 2.4 2.4 2.4 2.8 2.7 Capital Results 13.9 24.5 (1.4) 26.1 14.3 ICA TOTAL RETURN 16.3 26.9 1.0 28.9 17.0 Fund Expenses/4/ 0.58 0.57 0.52 0.50 0.49 Year ended December 31 1969 1970 1971 1972 1973 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 25,318 27,305 28,565 29,917 33,353 Value at Year-End/1/ 884,824 908,018 1,062,651 1,231,087 1,024,067 Dividends in Cash 9,024 9,438 9,569 9,750 10,569 Value at Year-End/1/ 309,611 307,421 349,727 394,701 317,911 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 2.6 3.1 3.1 2.8 2.7 Capital Results (13.3) (0.5) 13.9 13.1 (19.5) ICA TOTAL RETURN (10.7) 2.6 17.0 15.9 (16.8) Fund Expenses/4/ 0.48 0.55 0.51 0.49 0.47 Year ended December 31 1974 1975 1976 1977 1978 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 52,187 49,800 46,441 49,838 55,969 Value at Year-End/1/ 840,310 1,137,660 1,474,369 1,436,402 1,647,483 Dividends in Cash 15,908 14,318 12,804 13,279 14,386 Value at Year-End/1/ 245,526 317,655 398,099 374,307 414,421 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 5.1 5.9 4.1 3.4 3.9 Capital Results (23.0) 29.5 25.5 (6.0) 10.8 ICA TOTAL RETURN (17.9) 35.4 29.6 (2.6) 14.7 Fund Expenses/4/ 0.49 0.48 0.46 0.49 0.49
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Year ended December 31 1979 1980 1981 1982 1983 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 69,960 91,302 115,901 146,105 147,156 Value at Year-End/1/ 1,963,310 2,380,187 2,401,091 3,211,997 3,859,712 Dividends in Cash 17,347 21,746 26,420 31,589 30,264 Value at Year-End/1/ 475,669 552,242 530,864 670,590 774,518 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 4.2 4.7 4.9 6.1 4.6 Capital Results 15.0 16.5 (4.0) 27.7 15.6 ICA TOTAL RETURN 19.2 21.2 0.9 33.8 20.2 Fund Expenses/4/ 0.47 0.46 0.45 0.46 0.44 Year ended December 31 1984 1985 1986 1987 1988 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 160,449 174,890 203,830 267,489 318,747 Value at Year-End/1/ 4,117,187 5,491,890 6,685,657 7,049,178 7,989,285 Dividends in Cash 31,680 33,152 37,328 47,452 54,382 Value at Year-End/1/ 791,971 1,017,904 1,200,518 1,220,928 1,327,375 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 4.2 4.2 3.7 4.0 4.5 Capital Results 2.5 29.2 18.0 1.4 8.8 ICA TOTAL RETURN 6.7 33.4 21.7 5.4 13.3 Fund Expenses/4/ 0.47 0.43 0.41 0.42 0.48 Year ended December 31 1989 1990 1991 1992 1993 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 370,835 406,318 320,422 357,779 374,395 Value at Year-End/1/ 10,338,589 10,409,027 13,171,892 14,092,236 15,729,365 Dividends in Cash 60,741 64,056 48,721 52,965 54,005 Value at Year-End/1/ 1,652,751 1,598,821 1,969,876 2,052,162 2,234,153 ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 4.6 3.9 3.1 2.7 2.7 Capital Results 24.8 (3.2) 23.4 4.3 8.9 ICA TOTAL RETURN 29.4 0.7 26.5 7.0 11.6 Fund Expenses/4/ 0.52 0.55 0.59 0.58 0.59 Year ended December 31 1994 1995 1996 YEAR-BY-YEAR SUMMARY OF RESULTS Dividends Reinvested 407,211 450,124 480,065 Value at Year-End/1/ 15,753,834 20,578,696 24,560,540/2/ Dividends in Cash 57,286 61,704 64,313 Value at Year-End/1/ 2,180,610 2,779,658 3,247,852/3/ ANNUAL PERCENTAGE RETURNS ASSUMING DIVIDENDS REINVESTED Income Return 2.6 2.9 2.3 Capital Results (2.4) 27.7 17.0 ICA TOTAL RETURN 0.2 30.6 19.3 Fund Expenses/4/ 0.60 0.60 0.59
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S&P 500 with dividends reinvested 1934 1935 1936 1937 1938 1939 1940 1941 9.8 14.6 19.5 12.7 16.6 16.5 15.0 13.2 1942 1943 1944 1945 1946 1947 1948 1949 15.9 20.0 24.0 32.7 30.0 31.8 33.5 39.8 1950 1951 1952 1953 1954 1955 1956 1957 52.4 64.9 76.9 76.1 116.1 152.7 162.7 145.1 1958 1959 1960 1961 1962 1963 1964 1965 208.1 232.9 233.9 296.8 270.8 332.5 387.3 435.5 1966 1967 1968 1969 1970 1971 1972 1973 391.7 485.7 539.4 493.8 513.1 586.6 697.8 595.7 1974 1975 1976 1977 1978 1979 1980 1981 437.9 600.7 744.8 691.5 736.8 873.9 1,156.2 1,098.8 1982 1983 1984 1985 1986 1987 1988 1989 1,334.8 1,635.8 1,738.5 2,289.0 2,714.0 2,857.4 3,330.8 4,384.0 1990 1991 1992 1993 1994 1995 1996 4,246.7 5,637.2 5,957.6 6,556.4 6,641.2 9,133.9 11,225.6
[end chart] $24,560,540 /1/ /2/ ICA with dividends reinvested ----- Value added by $3,247,852 /1/ /3/ ICA with reinvestment of dividends taken in cash ----- dividends $11,225,575 S&P 500 with dividends reinvested Past results are not predictive of future results. The S&P 500 Index is unmanaged and does not reflect sales charges, commissions or expenses. Average annual compound return for 63 years 3.34% 9.85% ______ 13.19%/1/ /1/ These figures, unlike those shown earlier in this report, reflect payment of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net amount invested was $9,425. As outlined in the prospectus, the sales charge is reduced for larger investments. There is no sales charge on dividends or capital gain distributions that are reinvested in additional shares. The maximum initial sales charge was 8.5% prior to July 1, 1988. No adjustment has been made for income or capital gain taxes. /2/ Includes dividends of $5,443,410 and capital gain distributions of $7,538,420 reinvested in the years 1936-1996. /3/ Includes reinvested capital gain distributions of $1,362,646, but does not reflect income dividends of $997,850 taken in cash. /4/ Fund expense percentages are provided as additional information. They should not be subtracted from any other figure on the table because all fund results already reflect their effect. ICA AND ITS SHAREHOLDERS: A MUTUAL INTEREST IN INVESTING FOR THE LONG TERM [illustration: seagulls, weather vane, lighthouse] To most of our shareholders it is an old refrain that The Investment Company of America has an uncommon commitment to taking the long view in investing your money. Although strong stock markets come and often linger, they do eventually go. On occasion, they've "gone" rather suddenly. Yet, historically, investors who've held to a long-term perspective have been rewarded. Instead of simply reprising that theme in this year's report, we thought you would find it interesting to learn a bit about your fellow ICA shareholders. We have pulled together a broad profile of the fund's 1.4 million investor accounts and we have visited with two individuals who are among those associated with the fund the longest. As it happens, they both are long-time residents of Martha's Vineyard, Massachusetts. We think you will enjoy hearing from them about their experiences and attitudes as investors. The clear picture that emerges probably says as much about what makes ICA unusual as the 63-year mountain chart on pages 3-5. Moreover, it does so in terms of real people. We begin with a couple of charts which help to sum it all up. The first one shows how long the average ICA shareholder stays with the fund compared with the universe of growth and income mutual funds around the country. Even with ICA's substantial growth in recent years, the average tenure of an ICA shareholder is about thirteen years (based on redemption rates). As you can see in the chart at right, that's far longer than the industry average of eight years. More than 17,000 of the fund's shareholders have been with us for at least a quarter century. The second chart shows that the unusual longevity of the ICA shareholder matches quite nicely the longevity of the fund's investments compared with the rest of the growth and income fund universe. ICA's portfolio turnover - that is, the annual rate at which it typically changes its securities holdings - is 19% against 67% for the universe of growth and income funds. That suggests ICA's average holding period is about five years, while other funds typically turn the equivalent of their entire portfolios once every year and a half. As one of ICA's Advisory Board members puts it, what distinguishes ICA's investment approach is the willingness to stick with strong companies over a long period, keeping turnover and expenses low. The fund's managers are growth oriented but with a healthy concern for risk as well. They recognize that growth patterns change over time and that their challenge is to spot those changes. We offer some additional facts about the fund on pages 10, 11 and 14. But first, let's meet the shareholders we visited. Together, they count more than 120 years with the fund. "THAT'S SACRED MONEY!" [Pull Quote] "Sure, you can be lucky sometimes as an investor, but on the whole you're a lot better off to have your money in the right hands." [End Pull Quote] [Photo Caption] Roger Heywood First Invested: 1941 [End Photo Caption] [illustration: boat in water] "If you don't like solitude, you don't come here," remarks Roger Heywood as he steers his jeep down a quarter mile of dirt road, past an Indian burial ground, leading to his home on Chappaquiddick. At the end is a broad vista of sloping front yard and a small stand of pine and cedar, framing the calm blue waters of Cape Pogue Bay. It is late August and a fog bank hangs in the distance over the spit of land across the bay. Roger plunked down $450 for three acres in the 1940s. He has two houses on the property, one for winter and a summer house that is actually a schoolhouse abandoned in 1916. In the photo you can see the original chalk writing on the wall. "Building materials were in short supply in '46 so we paid $50 for it and moved it here from the other side of Chappaquiddick." His father, a physician, gave him his first ICA shares about the time he married in 1941. By 1945, he had 188 shares, which later split three times. The investment was worth about $6,100 at that time. Early in their marriage Roger's wife, Carroll, who died in 1982, jokingly referred to him as a "black collar worker" because of working conditions at the fastener plant where he was a metalworker. The couple chose to take their ICA dividends in cash over the years to supplement their income. In hindsight, Roger wishes they hadn't. Still, even when the family budget was pinched, he never touched the principal. "That's sacred money," he exclaims. Sacred, indeed. Even without the dividends, his shares today (now totaling about 5,000) are worth more than $100,000 and added about $5,000 to his retirement income last year. Though he says he didn't take much to education, Roger displays a kind of native wisdom when it comes to matters financial. "Sure you can be lucky sometimes as an investor, but on the whole you're a lot better off to have your money in the right hands," he says. "I've seen some people with big inheritances who've lost it all." The trust company that handles some of his money told him ICA has done well in down markets. That's a definite plus, he adds, and better for his taste than investments seeking quick outsize returns. He's also a big proponent of starting to save early in life. "When you're young, you should have a plan, put some away." There was a time when you could count on an employer to take care of you, he continues. That was before he saw his employer taken over by a bigger company and lose out to cheaper imported fasteners. It also was before he saw his daughter (one of three children and four grandchildren) lose a job in a bank merger. "I'm not sure I can even count on Social Security for the rest of my life." It may be, as Roger says, "scary out there," but on Chappaquiddick his main concern as he turned 80 last fall was keeping up his fishing and golf game and keeping track of the island's resident-owned power line, which he oversees. For the occasional hurricane (Edouard was a near-miss just after our visit) he keeps an old refrigerator that, unlike the self-defrosters, will keep food cold for three days without power. For anything longer, he can count on his own generator. In the quiet waters he looks out on are some of the best scallops in the world. And so far Chappaquiddick shows few of the scars of growth, which occasions Roger to remark a bit sardonically, "If you find a nice spot, keep it quiet." [photo: tennis shoes] "INVESTING SHOULD FIT YOUR TEMPERAMENT." [Pull Quote] "Some people have fun making decisions all the time, whether right or wrong, but I don't. I never felt I had enough information to make reasoned decisions about the market." [End Pull Quote] [Photo Caption] Nikki and Jacob Weissman First Invested: 1929 [End Photo Caption] [illustration: newspaper and coffee cup] So you think 55 years in the fund is a long time? Let us introduce you to Jacob Weissman and his wife, Nikki. For some of you, it's a second introduction because we visited them a few years ago. Jacob's ownership goes back 67 years. It was 1929, just months before the crash. Jacob was 15 and, using summer-job earnings, he put $400 into The Investment Company of America, then a highly leveraged investment trust. By the time Capital Research and Management Company became manager of ICA late in 1933, restructuring it into its present mutual fund form, Jacob's investment had shrunk to $84 in value. Jacob held on, not even cashing in when he needed $350 to book an around-the-world steamer passage in the mid-1930s. He became a lawyer, went on to get his doctorate in economics, and taught at the business schools at Columbia University, the University of Chicago and Hofstra University. He met Nikki at Hofstra, where she was teaching psychology. They retired to the Vineyard as professors emerita and emeritus in 1984. For an economist, Jacob has a decidedly jaundiced view of the relevance of that discipline as science. "It pretends to be more than it is," he maintains. "The political parties battle over who should spend the money, the government or the private sector. I always say, $Be careful. Both are equally capable of wasting it.'" Hence, at one point he taught a Great Books course to give business students a more reliable base for understanding society. On the day we visited, classical music filled the old barn he and Nikki converted into their tastefully decorated home. A painting of Nikki in her days as a musician adorns one wall. We sat under a tree outside and, over donuts from the Vineyard Bake Shop, talked about Jacob's ICA investment. Jacob likes to read. In fact, he likes to read things that can take years to complete, like his 22 volumes of the 17th century diarist Samuel Pepys - twice. That kind of patience also marks his investment activities. "I've always felt that investing should fit your temperament," he says. "Some people have fun making decisions all the time, whether right or wrong, but I don't. I never felt I had enough information to make reasoned decisions about the market. And over the long term, I'm simply an optimist." So through the years, even through the bad times of the 1970s and October 1987, Jacob just held onto his investments. "If one of my stocks fell ten points, I wouldn't react." He received dividends from ICA in cash until automatic reinvestment was offered in 1950. He hasn't touched the holding since. "It was a way of saving," he says. By the end of last year, his ICA shares had grown in value from $84 in 1933 to $74,000. That's an average annual compound return of 11.4% (compared with 10.4% for the S&P 500). Jacob went back to the house and emerged with a small black ledger in which he's kept track of the fund all these years. Nikki teases him a little about such meticulous recordkeeping, and when we took the picture inset below, she said straight-faced, "Tell the little book to smile." [photo: accounting journal] STAY RATES ICA Compared With All Growth and Income Funds [bar chart] Number of years
All Growth and Income Year ICA Funds 1987 11 5 1988 11 7 1989 14 7 1990 18 7 1991 18 8 1992 17 8 1993 14 8 1994 12 7 1995 12 7 1996 13 8
[end chart] These stay rates are approximate. They are calculated based on redemption rates - - which include partial redemptions and closed accounts - rather than actual shareholders leaving the mutual funds. Figures include open-end funds within the growth and income category only. Sources: Investment Company Institute and American Funds Distributors. TURNOVER RATES [chart: visual depictions of turnover rates] ICA Portfolio Turnover: 19% All Growth and Income Funds* Portfolio Turnover: 67% *Source: Strategic Insight FUND OWNERSHIP [chart: visual depiction of fund ownership] Retirement Related: 44%
Percent of Accounts Individuals Retirement 38% All Other 36 ---- 74 Institutions Retirement 6 All Other 1 ---- 7 Brokerage Firm Accounts 19 - -------------------------- ------------- ---- Total: 100%
Source: American Funds Service Company [Sidebar] The shareholders in this report had the good fortune to make their investments at a relatively young age. Of course, not everyone has the luxury of a 50-year horizon. By the time most people have money to invest, retirement is much closer at hand. While it certainly pays to start as early as you can, shorter time periods can still offer ample opportunities. To demonstrate, here's how $10,000 invested in ICA would have done over various periods ending in 1996. [illustration: falling calendar pages] [chart] WHAT TIME COULD DO FOR YOU
If you invested ...and took your capital gain $10,000 in the distributions in shares (thus keeping fund this many your investment intact) and reinvested years ago... your income dividends, at the end of 1996 your investment would have been worth this much... Periods Annual Compound Number Jan. 1 - Total Rate of Return of Years Dec. 31 Value For That Period 1 1996 $11,248 12.48% 2 1995-1996 14,692 21.21 3 1994-1996 14,718 13.75 4 1993-1996 16,428 13.21 5 1992-1996 17,571 11.93 6 1991-1996 22,233 14.24 7 1990-1996 22,390 12.20 8 1989-1996 28,973 14.22 9 1988-1996 32,837 14.12 10 1987-1996 34,635 13.23 11 1986-1996 42,162 13.98 12 1985-1996 56,229 15.48 13 1984-1996 59,959 14.77 14 1983-1996 72,079 15.15 15 1982-1996 96,377 16.30 16 1981-1996 97,242 15.28 17 1980-1996 117,886 15.62 18 1979-1996 140,542 15.82 19 1978-1996 161,104 15.75 20 1977-1996 156,967 14.76 21 1976-1996 203,418 15.43 22 1975-1996 275,611 16.27 23 1974-1996 226,070 14.52 24 1973-1996 188,079 13.00 25 1972-1996 217,887 13.12 26 1971-1996 255,017 13.27 27 1970-1996 261,539 12.85 28 1969-1996 233,672 11.91 29 1968-1996 273,301 12.08 30 1967-1996 352,256 12.61
[end chart] The figures above represent a $10,000 investment made on January 1 of the year shown, at the maximum sales charge in effect today. [End sidebar] [Sidebar] ICA'S RECENT GROWTH IN NET ASSETS [chart]
Net Assets Year (in billions) 1969 1.1 1970 1.2 1971 1.4 1972 1.6 1973 1.3 1974 1.0 1975 1.2 1976 1.5 1977 1.3 1978 1.3 1979 1.4 1980 1.7 1981 1.6 1982 2.0 1983 2.4 1984 2.4 1985 3.1 1986 3.7 1987 3.9 1988 4.1 1989 5.4 1990 5.9 1991 10.5 1992 15.4 1993 19.0 1994 19.3 1995 25.7 1996 30.9
[end chart]
Year Number of Ended Net Assets Asset Shareholder Dec. 31 (in millions) Rank* Accounts 1969 $1,065.1 11 119,575 1970 1,168.1 7 130,108 1975 1,234.1 6 131,928 1980 1,670.1 3 114,140 1985 3,073.0 3 136,797 1990 5,922.8 3 331,277 1995 25,678.3 2 1,373,595 1996 30,875.5 2 1,473,590
*Among all U.S. equity funds. [End Sidebar] INVESTMENT PORTFOLIO - December 31, 1996 - ------------------------------------------ ---------- Percent of Largest Investment Categories Net Assets - ------------------------------------------ ---------- Services 18.01% Finance 17.77 Consumer Goods 17.27 - ------------------------------------------ ---------- Percent of Largest Individual Holdings Net Assets - ------------------------------------------ ---------- Philip Morris 3.79% Federal National Mortgage Assn. 2.88 Royal Dutch Petroleum 2.08 DuPont 1.68 Caterpillar 1.57 AT&T 1.42 Wal-Mart Stores 1.36 Intel 1.31 Pfizer 1.29 BankAmerica 1.24 - ------------------------------------------ ---------- Percent of Largest Industry Holdings Net Assets - ------------------------------------------ ---------- Banking 10.04% Energy Sources 7.72 Health & Personal Care 6.66 Beverages & Tobacco 6.06 Telecommunications 5.53 - ------------------------------------------ ---------- - ------------------------------------------ Companies Whose Equity-Type Securities Were Added to or Eliminated from the Portfolio - ------------------------------------------ Companies appearing in the portfolio since June 30, 1996 - ------------------------------------------ Air Products and Chemicals Bank of New York Broken Hill Proprietary Digital Equipment Exxon First Data Halliburton McDonnell Douglas Microsoft Norwest Toronto-Dominion Bank Union Electric Companies eliminated from the portfolio since June 30, 1996 - ------------------------------------------ Amgen Bethlehem Steel Dow Jones Deutsche Bank Great Lakes Chemical Hanson Hilton Hotels Motorola Pacific Gas and Electric Tandy
THE INVESTMENT COMPANY OF AMERICA INVESTMENT PORTFOLIO, December 31, 1996 - ------------------------------------------ Equity-Type Securities Market Percent - ------------------------------------------ Number of Value of Net Energy Shares (millions) Assets - ------------------------------------------ --------- --------- ------ Energy Sources-7.72% Amoco Corp. 3,050,000 $ 245.525 .79 Atlantic Richfield Co. 925,000 122.563 .40 British Petroleum Co. PLC (American Depositary Receipts) 508,871 71.942 .23 Broken Hill Proprietary Co. Ltd. 1,568,107 22.320 .07 Chevron Corp. 1,950,000 126.750 .41 Exxon Corp. 500,000 49.000 .16 Murphy Oil Corp. 2,075,000 101.156 .33 Phillips Petroleum Co. 3,350,000 148.238 .48 Royal Dutch Petroleum Co. (New York Registered Shares) 3,755,000 641.166 2.08 Societe Nationale Elf Aquitaine (American Depositary Receipts) 3,000,000 135.750 .44 Texaco Inc. 1,200,000 117.750 .38 TOTAL, Class B 1,359,340 110.656 .00 TOTAL, Class B (American Depositary Receipts) 1,851,501 74.523 .60 Union Pacific Resources Group, Inc. 1,973,988 57.739 .19 Unocal Corp. 4,800,000 195.000 .62 USX-Marathon Group 7,000,000 167.125 .54 Utilities: Electric & Gas-0.81% American Electric Power Co., Inc. 1,000,000 41.125 .13 El Paso Natural Gas Co. 346,425 17.494 .06 Entergy Corp. 500,000 13.875 .04 GPU, Inc. (formerly General Public Utilities Corp.) 1,475,000 49.597 .16 Houston Industries Inc. 1,500,000 33.938 .11 Long Island Lighting Co. 3,275,000 72.459 .23 Union Electric Co. 550,000 21.175 .08 --------- --------- 2,636.866 8.53 --------- --------- - ------------------------------------------ Materials .00 - ------------------------------------------ Chemicals-2.58% .00 Air Products and Chemicals, Inc. 1,935,000 133.757 .43 E.I. du Pont de Nemours and Co. 5,500,000 519.063 1.68 Eastman Chemical Co. 550,000 30.388 .10 Hoechst AG 700,000 33.088 .11 Imperial Chemical Industries PLC (American Depositary Receipts) 100,000 5.200 .02 Monsanto Co. 1,950,000 75.806 .24 Forest Products & Paper-2.24% Georgia-Pacific Corp. 4,018,900 289.361 .94 International Paper Co. 1,500,000 60.563 .20 Louisiana-Pacific Corp. 2,650,000 55.981 .18 Union Camp Corp. 705,000 33.664 .11 Weyerhaeuser Co. 5300000 251.087 .81 Metals: Nonferrous-1.61% Alcan Aluminium Ltd. 1,000,000 33.625 .11 Aluminum Co. of America 4,100,000 261.375 .85 Freeport-McMoRan Copper & Gold Inc., Class B 1,200,000 35.850 .12 Inco Ltd. 1,700,000 54.188 .18 Phelps Dodge Corp. 900,000 60.750 .19 WMC Ltd. 8,427,228 53.081 .16 Metals: Steel-0.29% USX-U.S. Steel Group 2,900,000 90.987 .29 --------- ------ 2,077.814 6.72 --------- ------ - ------------------------------------------ Capital Equipment - ------------------------------------------ Aerospace & Military Technology-1.90% Boeing Co. 660,000 70.208 .23 General Motors Corp., Class H 3,682,800 207.157 .67 Litton Industries, Inc./1/ 650,000 30.956 .10 McDonnell Douglas Corp. 700,000 44.800 .15 Northrop Grumman Corp. 470,000 38.893 .13 Raytheon Co. 1,700,000 81.812 .26 Sundstrand Corp. 1,250,000 53.125 .17 United Technologies Corp. 920,000 60.720 .19 Data Processing & Reproduction-2.92% Cisco Systems, Inc./1/ 1,200,000 76.350 .25 Digital Equipment Corp./1/ 2,050,000 74.569 .24 Hewlett-Packard Co. 3,000,000 150.750 .49 International Business Machines Corp. 1,135,000 171.385 .56 Microsoft Corp./1/ 400,000 33.050 .11 Oracle Corp./1/ 5,000,000 208.750 .68 Tandem Computers Inc./1/ 1,225,000 16.844 .05 Xerox Corp. 3,210,000 168.926 .54 Electrical & Electronic-1.03% Alcatel Alsthom 508,173 40.858 .13 General Electric Co. 800,000 79.100 .26 Lucent Technologies Inc. 3,450,000 159.562 .52 Northern Telecom Ltd. 600,000 37.125 .12 Electronic Components-2.07% Intel Corp. 3,100,000 405.906 1.31 Texas Instruments Inc. 3,670,000 233.963 .76 Energy Equipment-2.07% Baker Hughes Inc. 2,638,000 91.011 .29 Halliburton Co. 1,400,000 84.350 .27 Schlumberger Ltd. 3,450,000 344.569 1.12 Western Atlas Inc./1/ 1,700,000 120.487 .39 Industrial Components-0.69% Dana Corp. 1,721,500 56.164 .18 Goodyear Tire & Rubber Co. 900,000 46.237 .15 Rockwell International Corp./1/ 1,815,000 110.488 .36 Machinery & Engineering-3.99% Caterpillar Inc. 6,445,500 485.024 1.57 Cummins Engine Co., Inc./2/ 1,041,800 47.923 Cummins Engine Co., Inc./2/,/3/ 958,200 44.077 .30 Deere & Co. 8,000,000 325.000 1.05 Ingersoll-Rand Co. 1,600,000 71.200 .23 Mannesmann AG 420,000 182.146 .59 Newport News Shipbuilding Inc./1/ 745,000 11.175 .04 Parker Hannifin Corp. 1,640,000 63.550 .21 --------- ------ 4,528.210 14.67 --------- ------ - ------------------------------------------ Consumer Goods - ------------------------------------------ Appliances & Household Durables-0.18% Philips Electronics NV 116,700 4.731 Philips Electronics NV (New York Registered Shares) 1,283,300 51.332 .18 Automobiles-1.65% Chrysler Corp. 2,000,000 66.000 .21 Daimler-Benz AG /1/ 800,000 55.136 .18 Ford Motor Co., Class A 6,000,000 191.250 .62 General Motors Corp. 2,625,000 146.344 .47 Toyota Motor Corp. 1,760,000 50.590 .17 Beverages & Tobacco-6.06% Anheuser-Busch Companies, Inc. 2,063,000 82.520 .27 PepsiCo, Inc. 5,700,000 166.725 .54 Philip Morris Companies Inc. 10,400,000 1,171.300 3.79 RJR Nabisco Holdings Corp. 5,400,000 183.600 .59 Seagram Co. Ltd. 6,850,000 265.438 .87 Food & Household Products-2.39% Archer Daniels Midland Co. 3,870,000 85.140 .28 ConAgra, Inc. 1,600,000 79.600 .26 CPC International Inc. 1,278,900 99.115 .32 General Mills, Inc. 1,967,800 124.709 .40 H.J. Heinz Co. 1,200,000 42.900 .14 Nestle SA 140,000 150.302 .49 Procter & Gamble Co. 550,000 59.125 .19 Unilever NV (New York Registered Shares) 555,000 97.264 .31 Health & Personal Care-6.66% Abbott Laboratories 1,500,000 76.125 .25 American Home Products Corp. 2,500,000 146.563 .47 Avon Products, Inc. 600,000 34.275 .11 Bristol-Myers Squibb Co. 1,000,000 108.750 .35 Gillette Co. 500,000 38.875 .13 Johnson & Johnson 2,080,000 103.480 .34 Kimberly-Clark Corp. 1,250,000 119.062 .39 Eli Lilly and Co. 3,076,300 224.570 .73 Merck & Co., Inc. 4,235,000 335.624 1.09 Pharmacia & Upjohn, Inc. 2,247,500 89.057 .29 Pfizer Inc 4,800,000 397.800 1.29 Schering-Plough Corp. 1,846,000 119.529 .39 SmithKline Beecham PLC (American Depositary Receipts) 500,000 34.000 .11 Warner-Lambert Co. 3,048,300 228.622 .72 Recreation & Other Consumer Products-0.27% Duracell International Inc. 500,000 34.937 .11 Eastman Kodak Co. 600,000 48.150 .16 Textiles & Apparel-0.06% VF Corp. 300,000 20.250 .06 --------- ------ 5,332.790 17.27 --------- ------ - ------------------------------------------ Services - ------------------------------------------ Broadcasting & Publishing-3.88% Gannett Co., Inc. 480,200 35.955 .12 New York Times Co., Class A 3,100,000 117.800 .38 Tele-Communications, Inc., Series A, Liberty Media Group/1/ 5,505,225 157.243 .51 Tele-Communications, Inc., Series A, TCI Group1 11,392,200 148.811 .48 Time Warner Inc. 9,081,000 340.538 1.10 Tribune Co. 350,000 27.606 .09 U S WEST Media Group/1/ 5,185,000 95.922 .31 Viacom Inc., Class B/1/ 7,900,000 275.512 .89 Business & Public Services-3.41% Browning-Ferris Industries, Inc. 2,275,000 59.719 .19 Cognizant Corp./1/ 900,000 29.700 .10 Columbia/HCA Healthcare Corp. 1,500,000 61.125 .20 Dun & Bradstreet Corp. 900,000 21.375 .07 Electronic Data Systems Holding Corp. 1,772,200 76.647 .25 Federal Express Corp./1/ 2,500,000 111.250 .36 First Data Corp. 2,800,000 102.200 .33 Interpublic Group of Companies, Inc. 2,846,500 135.209 .44 Pitney Bowes Inc. 1,070,000 58.315 .19 United HealthCare Corp. 3,000,000 135.000 .44 WMX Technologies, Inc. 8,050,000 262.631 .84 Leisure & Tourism-1.50% Walt Disney Co. 5,504,600 383.258 1.24 McDonald's Corp. 1,700,000 76.925 .26 Merchandising-2.28% Limited Inc. 5,475,200 100.607 .32 May Department Stores Co. 1,100,000 51.425 .17 J.C. Penney Co., Inc. 1,000,000 48.750 .16 Sears, Roebuck and Co. 850,000 39.206 .13 Toys 'R' Us, Inc./1/ 1,432,600 42.978 .14 Wal-Mart Stores, Inc. 18,302,100 418.661 1.36 Telecommunications-5.53% AirTouch Communications/1/ 3,650,000 92.163 .30 Ameritech Corp. 3,780,400 229.187 .74 AT&T Corp. 10,535,000 439.836 1.42 GTE Corp. 150,000 6.825 .02 MCI Communications Corp. 9,925,000 324.423 1.05 Pacific Telesis Group 2,800,000 102.900 .33 SBC Communications Inc. 300,000 15.525 .05 Telefonos de Mexico, SA de CV, Class L (American Depositary Receipts) 3,057,400 100.894 .33 U S WEST Communications Group 4,800,000 154.800 .50 Vodafone Group PLC (American Depositary Receipts) 5,848,000 241.961 .79 Transportation: Airlines-0.46% AMR Corp./1/ 1,250,000 110.156 .36 Delta Air Lines, Inc. 471,050 33.386 .10 Transportation: Rail & Road-0.95% Conrail, Inc. 727,208 72.448 .23 CSX Corp. 1,800,000 76.050 .25 Norfolk Southern Corp. 300,000 26.250 .09 Union Pacific Corp. 1,975,000 118.747 .38 --------- ------ 5,559.919 18.01 --------- ------ - ------------------------------------------ Finance - ------------------------------------------ Banking-10.04% H.F. Ahmanson & Co. 2,500,000 81.250 .26 Banc One Corp. 5,000,000 215.000 .70 Bank of New York Co., Inc. 2,800,000 94.500 .31 BankAmerica Corp. 3,850,000 384.038 1.24 Bankers Trust New York Corp. 1,477,400 127.426 .41 Chase Manhattan Corp. 3,225,000 287.831 .93 Citicorp 1,400,000 144.200 .47 Comerica Inc. 1,800,000 94.275 .31 First Chicago NBD Corp. 3,626,500 194.924 .63 First Union Corp. 3,330,000 246.420 .80 Fleet Financial Group, Inc. 2,750,000 137.156 .44 Great Western Financial Corp. 2,500,000 72.500 .23 KeyCorp 1,825,000 92.163 .30 J.P. Morgan & Co. Inc. 2,400,000 234.300 .76 National City Corp. 1,500,000 67.312 .22 NationsBank Corp. 1,200,000 117.300 .38 Norwest Corp. 1,200,000 52.200 .17 PNC Bank Corp. 3,642,000 137.030 .44 SunTrust Banks, Inc. 900,000 44.325 .14 Toronto-Dominion Bank 1,400,000 35.966 .12 U.S. Bancorp 3,000,000 134.812 .44 Wachovia Corp. 900,000 50.850 .16 Wells Fargo & Co. 200,000 53.950 .18 Financial Services-4.67% American Express Co. 380,000 21.470 .07 Federal Home Loan Mortgage Corp. 3,155,400 347.488 1.13 Federal National Mortgage Assn. 23,900,000 890.275 2.88 Student Loan Marketing Assn. 1,950,000 181.594 .59 Insurance-3.06% Aetna Inc. 700,000 56.000 .18 Allstate Corp. 2,313,000 133.865 .43 American General Corp. 910,000 37.196 .12 American International Group, Inc. 1,822,500 197.286 .64 CIGNA Corp. 200,000 27.325 .09 General Re Corp. 1,217,800 192.108 .62 Lincoln National Corp. 1,050,000 55.125 .18 SAFECO Corp. 2,850,000 112.397 .36 St. Paul Companies, Inc. 2,240,000 131.320 .44 --------- ------ 5,483.177 17.77 --------- ------ - ------------------------------------------ Other - ------------------------------------------ Multi-Industry-1.62% AlliedSignal Inc. 1,600,000 107.200 .35 Canadian Pacific Ltd. 2,000,000 53.000 .17 Minnesota Mining and Manufacturing Co. 895,000 74.173 .24 Tenneco Inc. (new)/1/ 3,900,000 175.988 .57 Textron Inc. 948,700 89.415 .29 Gold Mines -0.82% Barrick Gold Corp. 3,000,000 86.250 .28 Newmont Mining Corp. 2,500,000 111.875 .36 Placer Dome Inc. 2,500,000 54.375 .18 Miscellaneous-3.20% Equity-type securities in initial period of acquisition 988.418 3.20 --------- ------ 1,740.694 5.64 --------- ------ Total Equity-Type Securities (cost: $16,687.974 million) 27,359.470 88.61 --------- ------ Principal - ------------------------------------------ Amount Bonds & Notes (millions) - ------------------------------------------ --------- U.S. Treasuries-2.86% 4.75% August 1998 $300.000 294.891 .96 5.125% November 1998 300.000 296.016 .96 8.875% November 1998 25.000 26.305 .09 5.75% December 1998 250.000 249.415 .81 11.625% November 2004 10.000 13.203 .04 --------- ------ Total Bonds & Notes (cost: $880.360 million) 879.830 2.86 --------- ------ Total Investment Securities (cost: $17,568.334 million) 28,239.300 91.47 --------- ------ - ------------------------------------------ Short-Term Securities - ------------------------------------------ U.S. Treasuries and Other Federal Agencies-4.54% Treasury Notes 5.75%-8.875% due 1/15-11/15/97 $900.000 903.268 2.92 Treasury Bills 5.06%-5.07% due 4/24-5/15/97 294.100 288.670 .94 Federal Home Loan Mortgage Corp. 5.23%-5.40% due 1/31-3/10/97 90.235 89.543 .29 Federal National Mortgage Assn. 5.20%-5.35% due 2/18-3/31/97 120.900 119.563 .39 Corporate Short-Term Notes-3.66% American Express Credit Corp. 5.30%-6.75% due 1/2-3/11/97 61.350 61.128 .20 Ameritech Corp. 5.29%-5.33% due 1/16-2/19/97 91.000 90.513 .30 BellSouth Corp. 5.28%-5.32% due 1/21-3/11/97 82.800 82.234 .26 Walt Disney Co. 5.26%-5.28% due 1/21-3/17/97 80.700 80.112 .25 E.I. du Pont De Nemours and Co. 5.26%-5.28% due 1/7-2/13/97 81.700 81.463 .27 Ford Motor Credit Corp. 5.29%-5.46% due 1/6-2/11/97 117.900 117.525 .39 General Electric Capital Corp. 5.29%-6.50% due 1/2-1/27/97 113.300 113.014 .36 IBM Credit Corp. 5.28%-5.31% due 1/17-1/31/97 132.600 132.093 .43 Lucent Technologies Inc. 5.28%-5.38% due 1/7-3/10/97 91.200 90.661 .29 Procter & Gamble Co. 5.27%-5.28% due 1/22-2/12/97 89.600 89.218 .29 Raytheon Co. 5.34%-5.39% due 1/13-1/17/97 93.500 93.300 .30 Warner-Lambert Co. 5.30% due 1/6/97 20.300 20.282 .07 Weyerhaeuser Co. 5.26%-5.30% due 1/9-2/4/97 79.700 79.476 .25 Total Short-Term Securities (cost: $2,557.961 million) 2,532.063 8.20 Excess of cash and receivables over payables 104.109 .33 --------- ------ Total Short-Term Securities, Cash and Receivables, Net of Payables 2,636.172 8.53 ----------- --------- Net Assets $30,875.472 100.00% ============ ========= /1/ Non-income-producing securities. /2/ The fund owns 5.06% of the outstanding voting securities of Cummins Engine Co., which represents investment in an affiliate as defined in the Investment Company Act of 1940. /3/ Purchased in a private placement transaction; resale to the public may require registration or sale only to qualified institutional buyers. See Notes to Financial Statements
The Investment Company of America - ----------------------------------------- ------------- ------------- Statement of Assets and Liabilities (dollars in at December 31, 1996 millions) - ---------------------------------------- ------------- ------------- Assets: Investment securities at market (cost: $17,568.334) $28,239.300 Short-term securities at market (cost: $2,557.961) 2,532.063 Cash 7.457 Receivables for- Sales of investments $63.070 Sales of fund's shares 34.571 Dividends and accrued interest 74.379 172.020 ------------- ------------- 30,950.840 Liabilities: Payables for- Purchases of investments 26.824 Repurchases of fund's shares 36.112 Management services 6.519 Accrued expenses 5.913 75.368 ------------- ------------- Net Assets at December 31, 1996- Equivalent to $24.23 per share on 1,274,429,294 shares of $1 par value capital stock outstanding (authorized capital stock--2,000,000,000 shares) $30,875.472 ============= Statement of Operations (dollars in for the year ended December 31, 1996 millions) - ----------------------------------------- ------------- ------------- Investment Income: Income: Dividends $574.293 Interest 201.545 $ 775.838 ------------- Expenses: Management services fee 72.350 Distribution expenses 59.604 Transfer agent fee 21.426 Reports to shareholders 2.376 Registration statement and prospectus 1.405 Postage, stationery and supplies 5.731 Directors' fees .428 Auditing and legal fees .130 Custodian fee .750 Taxes (other than federal income tax) .314 Other expenses .255 164.769 ------------- ------------- Net investment income 611.069 ------------- Realized Gain and Unrealized Appreciation on Investments: Net realized gain 1,256.875 Net increase in unrealized appreciation on investments 3,151.153 ------------- Net realized gain and increase in unrealized appreciation on investments 4,408.028 ------------- Net Increase in Net Assets Resulting from Operations $5,019.097 ============= - ---------------------------------------- ------------- ------------- Statement of Changes in Net Assets (dollars in millions) Year ended December 31 1996 1995 - ----------------------------------------- ------------- ------------- Operations: Net investment income $ 611.069 $ 606.095 Net realized gain on investments 1,256.875 1,026.204 Net increase in unrealized appreciation on investments 3,151.153 4,320.176 ------------- ------------- Net increase in net assets resulting from operations 5,019.097 5,952.475 ------------- ------------- Dividends and Distributions Paid to Shareholders: Dividends from net investment income (606.665) (556.505) Distributions from net realized gain on investments (1,256.817) (1,033.686) ------------- ------------- Total dividends and distributions (1,863.482) (1,590.191) ------------- ------------- Capital Share Transactions: Proceeds from shares sold: 154,894,329 and 155,130,380 shares, respectively 3,568.101 3,118.719 Proceeds from shares issued in reinvestment of net investment income dividends and distributions of net realized gain on investments: 70,957,086 and 69,096,019 shares, respectively 1,707.735 1,453.606 Cost of shares repurchased: 139,431,152 and 127,074,306 shares, respectively (3,234.297) (2,535.884) ------------- ------------- Net increase in net assets resulting from capital share transactions 2,041.539 2,036.441 ------------- ------------- Total Increase in Net Assets 5,197.154 6,398.725 Net Assets: Beginning of year 25,678.318 19,279.593 ------------- ------------- End of year (including undistributed net investment income: $281.829 and $277.425, respectively) $30,875.472 $25,678.318 ============= ============= See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS 1. The Investment Company of America, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks long-term growth of capital and income, placing greater emphasis on future dividends than on current income. The following paragraphs summarize the significant accounting policies consistently followed by the fund in the preparation of its financial statements: Equity-type securities traded on a national securities exchange (or reported on the NASDAQ national market) and securities traded in the over-the-counter market are stated at the last reported sales price on the day of valuation; other securities, and securities for which no sale was reported on that date, are stated at the last quoted bid price. Nonconvertible bonds and other long-term debt securities are valued at prices obtained from a bond-pricing service provided by a major dealer in bonds, when such prices are available; however, in circumstances where the investment adviser deems it appropriate to do so, such securities will be valued at the mean of their representative quoted bid and asked prices or, if such prices are not available, at prices for securities of comparable maturity, quality and type. Securities for which market quotations are not readily available are valued at fair value by the Board of Directors or a committee thereof. Short-term securities with original or remaining maturities in excess of 60 days are valued at the mean of their quoted bid and asked prices. Short-term securities with 60 days or less to maturity are valued at amortized cost, which approximates market value. As is customary in the mutual fund industry, securities transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses from securities transactions are reported on an identified cost basis. Dividend and interest income is reported on the accrual basis. Discounts on securities purchased are amortized over the life of the respective securities. The fund does not amortize premiums on securities purchased. Dividends and distributions paid to shareholders are recorded on the ex-dividend date. Investment securities and other assets and liabilities denominated in non-U.S. currencies are recorded in the financial statements after translation into U.S. dollars utilizing rates of exchange on the last business day of the year. Purchases and sales of investment securities, income and expenses are calculated using the prevailing exchange rate as accrued. The effects of the changes in foreign currency exchange rates on investment securities are included with the net realized and unrealized gain or loss on investment securities. Pursuant to the custodian agreement, the fund receives credits against its custodian fee for imputed interest on certain balances with the custodian bank. The custodian fee of $750,000 includes $194,000 that was paid by these credits rather than in cash. 2. It is the fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net taxable income, including any net realized gain on investments, to its shareholders. Therefore, no federal income tax provision is required. As of December 31, 1996, net unrealized appreciation on investments for federal income tax purposes aggregated $10,654,486,000, of which $10,918,654,000 related to appreciated securities and $264,168,000 related to depreciated securities. During the year ended December 31, 1996, the fund realized, on a tax basis, a net capital gain of $1,257,110,000 on securities transactions. The cost of portfolio securities for federal income tax purposes was $20,116,877,000 at December 31, 1996. 3. The fee of $72,350,000 for management services was paid pursuant to an agreement with Capital Research and Management Company (CRMC), with which certain officers and Directors of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees, accrued daily, based on an annual rate of 0.39% of the first $1 billion of average net assets; 0.336% of such assets in excess of $1 billion but not exceeding $2 billion; 0.30% of such assets in excess of $2 billion but not exceeding $3 billion; 0.276% of such assets in excess of $3 billion but not exceeding $5 billion; 0.258% of such assets in excess of $5 billion but not exceeding $8 billion; 0.246% of such assets in excess of $8 billion but not exceeding $13 billion; 0.24% of such assets in excess of $13 billion but not exceeding $21 billion; 0.235% of such assets in excess of $21 billion but not exceeding $34 billion; and 0.231% of such assets in excess of $34 billion. Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its average net assets annually for any activities primarily intended to result in sales of fund shares, provided the categories of expenses for which reimbursement is made are approved by the fund's Board of Directors. Fund expenses under the Plan include payments to dealers to compensate them for their selling and servicing efforts. During the year ended December 31, 1996, distribution expenses under the Plan were $59,604,000. As of December 31, 1996, accrued and unpaid distribution expenses were $5,478,000. American Funds Service Company (AFS), the transfer agent for the fund, was paid a fee of $21,426,000. American Funds Distributors, Inc. (AFD), the principal underwriter of the fund's shares, received $16,461,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's shares. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying statement of operations. Directors and Advisory Board members who are unaffiliated with CRMC may elect to defer part or all of the fees earned for services as members of the Board. Amounts deferred are not funded and are general unsecured liabilities of the fund. As of December 31, 1996, aggregate amounts deferred and earnings thereon were $294,000. CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No such persons received any remuneration directly from the fund. 4. Option warrants are outstanding, which may be exercised at any time for the purchase of 838,283 shares of the fund at approximately $5.242 per share. If all warrants had been exercised on December 31, 1996, the net assets of the fund would have been $30,879,867,000; the shares outstanding would have been 1,275,268,000; and the net asset value would have been equivalent to $24.21 per share. During the year ended December 31, 1996, 170 warrants were exercised for the purchase of 3,730 shares. 5. As of December 31, 1996, accumulated excess distributions of net realized gain on investments were $53,000 and additional paid-in capital was $18,674,155,000. The fund made purchases and sales of investment securities, excluding short-term securities, of $6,382,434,000 and $5,238,909,000, respectively, during the year ended December 31, 1996. Dividend and interest income is recorded net of non-U.S. taxes paid. For the year ended December 31, 1996, such non-U.S. taxes were $9,783,000. Net realized currency losses on dividends, interest, withholding taxes reclaimable, and sales of non-U.S. bonds and notes were $93,000 for the year ended December 31, 1996. To conform to its tax reporting, the fund reclassified $16,000 from undistributed net currency gains to undistributed net realized gains and $158,000 to undistributed net realized gains from paid-in surplus for the year ended December 31, 1996. Year Per-Share Data and Ratios ended December 31 1996 1995 1994 1993 1992 ---------------------------- ------- ------- ------- Net Asset Value, Beginning of Year $21.61 $17.67 $18.72 $17.89 $17.48 ---------------------------- ------- ------- ------- Income from Investment Operations: Net investment income .49 .52 .51 .54 .49 Net realized and unrealized gain (loss) on investments 3.66 4.83 (.48) 1.51 .71 ---------------------------- ------- ------- ------- Total income from investment operations 4.15 5.35 .03 2.05 1.20 ---------------------------- ------- ------- ------- Less Distributions: Dividends from net investment income (.50) (.50) (.48) (.47) (.47) Distributions from net realized gains (1.03) (.91) (.60) (.75) (.32) ---------------------------- ------- ------- ------- Total distributions (1.53) (1.41) (1.08) (1.22) (.79) ---------------------------- ------- ------- ------- Net Asset Value, End of Year $24.23 $21.61 $17.67 $18.72 $17.89 ============ ============ ======= ======= ======= Total Return/1/ 19.35% 30.63% .16% 11.62% 6.99% Ratios/Supplemental Data: Net assets, end of year (in millions) $30,875 $25,678 $19,280 $19,005 $15,428 Ratio of expenses to average net assets .59% .60% .60% .59% .58% Ratio of net income to average net assets 2.17% 2.70% 2.83% 3.03% 3.06% Average commissions paid per share/2/ 5.79 cents 6.16 cents 5.11 cent 6.20 cent 7.43cents Portfolio turnover - common stocks 17.46% 20.91% 17.94% 19.57% 7.23% Portfolio turnover - investment securities 19.56% 20.37% 31.08% 17.57% 9.73% /1/Calculated without deducting a sales charge. The maximum sales charge is 5.75% of the fund's offering price. /2/Brokerage commissions paid on portfolio transactions increase the cost of securities purchased or reduce the proceeds of securities sold, and are not reflected in the fund's statement of operations. Shares traded on a principal basis (without commissions) are excluded. Generally, non-U.S. commissions are lower than U.S. commissions when expressed as cents per share but higher when expressed as a percentage of transactions because of the lower per-share prices of many non-U.S. securities.
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The Investment Company of America, Inc. In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the per-share data and ratios present fairly, in all material respects, the financial position of The Investment Company of America, Inc. (the "Fund") at December 31, 1996, the results of its operations, the changes in its net assets and the per-share data and ratios for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and per-share data and ratios (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1996 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. /s/PRICE WATERHOUSE LLP Los Angeles, California January 31, 1997 1996 Tax Information (Unaudited) We are required to advise you within 60 days of the fund's fiscal year-end regarding the federal tax status of distributions received by shareholders during such fiscal year. The distributions made during the fiscal year by the fund were earned from the following sources: Dividends and Distributions per Share
To From Net From Net From Net Shareholders Investment Realized Realized of Record Payment Date Income Short- Long- Term Term Gains Gains March 1, 1996 March 4, 1996 $0.12 - - June 7, 1996 June 10, 1996 0.12 - - September 6, September 9, 0.12 - - 1996 1996 December 24, December 26, 0.14 $0.02 $1.01 1996 1996
Corporate shareholders may exclude up to 70% of qualifying dividends received during the year. For purposes of computing this exclusion, 80% of the dividends paid by the fund from net investment income represent qualifying dividends. Certain states may exempt from income taxation that portion of the dividends paid from net investment income that was derived from direct U.S. Treasury obligations. For purposes of computing this exclusion, 17% of the dividends paid by the fund from net investment income were derived from interest on direct U.S. Treasury obligations. Dividends and distributions received by retirement plans such as IRAs, Keogh-type plans, and 403(b) plans need not be reported as taxable income. However, many plan retirement trusts may need this information for their annual information reporting. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. THE INVESTMENT COMPANY OF AMERICA BOARD OF DIRECTORS CHARLES H. BLACK Pacific Palisades, California Private investor and consultant; former Executive Vice President and Director, KaiserSteel Corporation ANN S. BOWERS Palo Alto, California Senior Trustee, The Noyce Foundation MALCOLM R. CURRIE, PH.D. Agoura, California Chairman Emeritus, Hughes Aircraft Company JON B. LOVELACE, JR. Los Angeles, California Chairman of the Board of the fund Vice Chairman of the Board, Capital Research and Management Company JOHN G. MCDONALD Stanford, California The IBJ Professor of Finance, Graduate School of Business, Stanford University BAILEY MORRIS-ECK Washington, D.C. Senior Adviser to Clinton Administration on InterAmerican Affairs; Senior Fellow, Institute for International Economics; Consultant, The Independent of London RICHARD G. NEWMAN Los Angeles, California Chairman, President and Chief Executive Officer, AECOM Technology Corporation (architectural engineering) WILLIAM C. NEWTON Los Angeles, California President of the fund Senior Partner, The Capital Group Partners L.P. JAMES W. RATZLAFF San Francisco, California Executive Vice President of the fund Senior Partner, The Capital Group Partners L.P. OLIN C. ROBISON, PH.D. Middlebury, Vermont President of the Salzburg Seminar; President Emeritus, Middlebury College WILLIAM J. SPENCER, PH.D.* Austin, Texas Chairman and Chief Executive Officer, SEMATECH (research and development consortium) *Elected to the Board in January 1997. ADVISORY BOARD MEMBERS JOHN F. BOOKOUT# Houston, Texas Supervisory Director, Royal Dutch Petroleum Company; former President and Chief Executive Officer, Shell Oil Company THOMAS M. CROSBY, JR. Minneapolis, Minnesota Partner, Faegre & Benson (law firm) MALCOLM FRASER Melbourne, Australia Former Prime Minister of Australia ALLAN E. GOTLIEB Toronto, Canada Former Canadian Ambassador to the United States WILLIAM H. KLING St. Paul, Minnesota President, Minnesota Public Radio; President, Greenspring Co.; former President, American Public Radio (now Public Radio International) ROBERT J. O'NEILL, PH.D. Oxford, England Professor and Fellow, All Souls College, University of Oxford NORMAN R. WELDON, PH.D. Miami, Florida Managing Director, Partisan Management Group, Inc.; Chairman of the Board, Novoste Corporation #John F. Bookout was elected to the Advisory Board following his retirement as a Director of the fund in April 1996. OTHER OFFICERS WILLIAM R. GRIMSLEY San Francisco, California SENIOR VICE PRESIDENT OF THE FUND Senior Vice President and Director, Capital Research and Management Company R. MICHAEL SHANAHAN Los Angeles, California SENIOR VICE PRESIDENT OF THE FUND Chairman of the Board, Capital Research and Management Company GREGG E. IRELAND Washington, D.C. VICE PRESIDENT OF THE FUND Vice President, Capital Research and Management Company ANNE M. LLEWELLYN Los Angeles, California VICE PRESIDENT OF THE FUND Associate, Capital Research and Management Company JAMES B. LOVELACE Los Angeles, California VICE PRESIDENT OF THE FUND Vice President, Capital Research and Management Company DONALD D. O'NEAL San Francisco, California VICE PRESIDENT OF THE FUND Vice President, Capital Research and Management Company PATRICIA L. VAUGHN Los Angeles, California VICE PRESIDENT OF THE FUND Vice President and Director, Capital Research Company VINCENT P. CORTI Los Angeles, California SECRETARY OF THE FUND Vice President - Fund Business Management Group, Capital Research and Management Company STEVEN N. KEARSLEY Brea, California TREASURER OF THE FUND Vice President and Treasurer, Capital Research and Management Company JULIE F. WILLIAMS Los Angeles, California ASSISTANT SECRETARY OF THE FUND Vice President - Fund Business Management Group, Capital Research and Management Company R. MARCIA GOULD Brea, California ASSISTANT TREASURER OF THE FUND Vice President - Fund Business Management Group, Capital Research and Management Company MARY C. HALL Brea, California ASSISTANT TREASURER OF THE FUND Senior Vice President - Fund Business Management Group, Capital Research and Management Company OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND MANAGEMENT COMPANY 333 South Hope Street Los Angeles, California 90071-1443 135 South State College Boulevard Brea, California 92821-5804 TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS (Please write to the address nearest you.) American Funds Service Company P.O. Box 2205 Brea, California 92822-2205 P.O. Box 659522 San Antonio, Texas 78265-9522 P.O. Box 6007 Indianapolis, Indiana 46206-6007 P.O. Box 2280 Norfolk, Virginia 23501-2280 CUSTODIAN OF ASSETS The Chase Manhattan Bank One Chase Manhattan Plaza New York, New York 10081-0001 COUNSEL O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071-2899 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 400 South Hope Street Los Angeles, California 90071-2889 PRINCIPAL UNDERWRITER American Funds Distributors, Inc. 333 South Hope Street Los Angeles, California 90071-1462 [illustration: pathway] [The American Funds Group(R)] -----END PRIVACY-ENHANCED MESSAGE-----