[The American Funds Group(r)]
[tab: 1973-1998]
THE GROWTH FUND OF AMERICA
INVESTING FOR GROWTH
25 YEARS
[cover: sketch of how an investment has grown since December 1, 1973]
ANNUAL REPORT FOR THE YEAR ENDED AUGUST 31, 1998
THE GROWTH FUND OF AMERICA(R)
invests in a wide range of companies that appear to offer superior
opportunities for growth of capital.
The Growth Fund of America is one of the 28 mutual funds in The American Funds
Group,(r) managed by Capital Research and Management Company. Since 1931,
Capital has invested with a long-term focus based on thorough research and
attention to risk.
ON OUR COVER:
This year marks the 25th anniversary of The Growth Fund of America under the
management of Capital Research and Management Company. The chart of how an
investment has grown since December 1, 1973, sketched on the cover, is shown in
detail on pages 2-3. It illustrates that investing for growth is unpredictable
in the short run but can be rewarding for long-term investors. Learn more about
how the fund has invested for growth in different markets, starting on page 4.
A QUICK LOOK AT THE FUND'S RESULTS
Over the long term, The Growth Fund of America has proved to be an excellent
investment. But as this chart illustrates, results have varied considerably
from one year to the next.
THE FUND'S TOTAL RETURNS FOR FISCAL PERIODS ENDED AUGUST 31
Average annual compound return +16.2%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1974* 75 76 77 78 79 80
- -16.4 24.4 14.0 10.9 62.7 17.2 33.5
81 82 83 84 85 86 87
12.3 9.1 46.1 0.8 13.5 28.6 32.3
88 89 90 91 92 93 94
- -10.7 39.3 -9.8 30.5 4.9 24.6 6.0
95 96 97 98
25.6 0.9 38.5 -0.2
</TABLE>
* For the period December 1, 1973 (when Capital Research and Management Company
became the fund's investment adviser) through August 31, 1974.
FUND RESULTS IN THIS REPORT WERE COMPUTED WITHOUT A SALES CHARGE, UNLESS
OTHERWISE INDICATED. 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.
FELLOW SHAREHOLDERS:
After the exceptional 38.5% gain made in fiscal 1997, this year turned out to
be a disappointing one for The Growth Fund of America. The fund's gains in the
first half of fiscal 1998 were erased by the sharp market decline in the second
half. Indeed, the fund's fiscal year ended on a day that marked a low point for
the stock market in recent months.
The value of your holdings fell 0.2% for the 12 months ended August 31 if you
reinvested the dividend of 13 cents a share and capital gain distribution of
$2.06 a share paid in December. Meanwhile, the unmanaged Standard & Poor's 500
Composite Index, driven by the results of a small number of very large
companies, increased 8.1%.
While these results are discouraging, they should be viewed in the context of a
volatile market. For instance, had the fund's fiscal year closed one day later
on September 1, the fund's total return would have been a gain of 3.4%.
It is also worth noting that the fund held up much better than many funds in
its universe. The Lipper Capital Appreciation Fund Index, which tracks the 30
largest of those funds, was down 4.4% for the period, while the Lipper Growth
Fund Index was up 2.1%. Over the years, The Growth Fund of America has often
done well in down markets, which is one reason the fund's lifetime average
annual compound return of 16.2% has outpaced the Lipper Capital Appreciation
Fund Index by an average of nearly three percentage points a year and the S&P
500 by more than two percentage points a year.
MARKET VOLATILITY AND THE TECHNOLOGY SECTOR
In recent months, the U.S. stock market has been swept up in the crisis of
investor confidence that followed Asian economic problems and their spread to
other world markets. This bout of market volatility began in April with
fluctuations in the stocks of small and medium-size companies. Later, large
U.S. stocks also began to suffer: The S&P 500 fell 19.3% between its peak on
July 17 and the end of the fund's fiscal year on August 31.
The uncertainty in global markets hit many technology companies hard,
especially those with significant exposure to Asia, where demand has weakened
considerably. Manufacturers of semiconductors, in particular, have been hurt by
falling prices and by the continued strength of the dollar relative to Asian
currencies. Many personal computer companies have also had a difficult year,
following an industrywide drive to emulate industry leader Dell Computer by
selling directly from the manufacturer to the consumer.
<TABLE>
<CAPTION>
LIFETIME AVERAGE
12-MONTH ANNUAL COMPOUND
TOTAL RETURNS RETURNS
(9/1/97-8/31/98) (12/1/73-8/31/98)
<S> <C> <C>
THE GROWTH FUND OF -0.2% +16.2%
AMERICA
S&P 500 +8.1 +14.0
LIPPER CAPITAL -4.4 +13.5
APPRECIATION FUND
INDEX
LIPPER GROWTH FUND +2.1 +12.8
INDEX
</TABLE>
GFA is one of 30 funds included in the Lipper Growth Fund Index. According to
Lipper, funds in this category invest primarily in companies with rapidly
growing earnings (and generally higher price/earnings ratios), whereas funds in
its capital appreciation category also seek growth of capital but do not
necessarily emphasize rapidly growing, higher p/e companies. In our view, GFA's
broad approach to seeking growth of capital better fits the Capital
Appreciation Fund Index. In any case, Lipper will be revising its fund
categories beginning in early 1999.
While technology companies generally did poorly over the period, a number of
the fund's telecommunications holdings did very well, notably cellular
companies such as Nokia and AirTouch. Long distance telephone giant MCI
Communications was also among the fund's most successful holdings for the
period, boosted by its merger with WorldCom.
MEDIA STOCKS CONTINUED TO RISE
Another notable development this year has been the strong gains of cable and
entertainment stocks, which now represent 24% of the fund's portfolio. A year
ago, we reported that media companies had emerged from a difficult period
following government reregulation of cable television and a dizzying number of
mergers among entertainment companies. This year, these companies have
consolidated their gains: Cable television continues to benefit from strong
demand, while entertainment companies have been focusing on core competencies,
reducing debt and buying back stock.
Of the fund's 10 largest holdings, six are cable and entertainment stocks, and
they were all among the fund's 25 most successful holdings for the year - a
remarkable record. Tele-Communications, TCI Group was the most successful of
the fund's top 10 holdings; its stock rose more than 88% over the period. Time
Warner, the fund's largest holding at 5.5% of the portfolio, was up 56%.
LOOKING AHEAD
We certainly appreciate that the recent turbulence in world markets is of
concern to investors. We believe, however, that it is likely to create new
investing opportunities, as the exceptionally high valuations of recent years
begin to come down to more reasonable levels. We will continue to search for
companies with sound fundamentals and strong potential for capital growth,
taking advantage of the fund's cash reserve to buy attractive values.
Investing for growth is unpredictable in the short run, but, we feel,
ultimately a rewarding enterprise for long-term investors. In the following
pages we will take you through the 25-year history of The Growth Fund of
America under the management of Capital Research and Management Company. The
fund has built an outstanding record over the years through a commitment to
thorough research and a unique approach to money management that allows each
portfolio counselor to act on his or her convictions. Our long-term,
value-oriented approach to investing has served us well through 25 years of ups
and downs in the stock market, and we are confident that it should continue to
do so.
Cordially,
[/s/ James F. Rothenberg] [/s/ James E. Drasdo]
James F. Rothenberg James E. Drasdo
Chairman of the Board President
October 15, 1998
HOW A $10,000 INVESTMENT HAS GROWN
December 1, 1973 through August 31, 1998
$390,174/1,2/
The Growth Fund of America
$255,636/3/
Standard
& Poor's 500
Composite Index
$229,985/4/
Lipper Capital
Appreciation
Fund Index
$196,093/4/
Lipper Growth
Fund Index
$35,599/5/
Consumer
Price Index
$10,000/1/
original
investment
Average annual compound
return for 24-3/4
years
16.0%/1/
[begin mountain chart]
<TABLE>
<CAPTION>
Year The Growth Standard & Lipper Capital Lipper Consumer
Ended Fund Poor's 500 Appreciation Growth Price Index/5/
August 31 of Composite Fund Index/4/ Fund
America /1,2/ Index/3/ Index/4/
<S> <C> <C> <C> <C> <C>
1974 7,874 7,737 7,563 7,204 10,893
1975 9,792 9,769 9,379 9,126 11,830
1976 11,165 12,040 11,009 10,607 12,505
1977 12,377 11,823 11,796 10,558 13,333
1978 20,136 13,292 15,352 13,315 14,379
1979 23,595 14,849 17,603 15,033 16,078
1980 31,496 17,539 23,344 19,013 18,148
1981 35,383 18,469 25,992 20,125 20,109
1982 38,595 19,034 27,089 20,339 21,285
1983 56,382 27,501 43,555 30,631 21,830
1984 56,805 29,185 41,112 29,823 22,767
1985 64,493 34,516 47,110 34,712 23,529
1986 82,962 48,055 63,140 46,117 23,900
1987 109,730 64,672 81,186 59,044 24,924
1988 97,962 53,072 65,886 49,752 25,926
1989 136,507 73,928 89,371 67,293 27,146
1990 123,184 70,156 81,474 62,015 28,671
1991 160,815 89,046 103,691 79,872 29,760
1992 168,703 96,145 108,930 84,053 30,697
1993 210,268 110,784 134,479 101,030 31,547
1994 222,852 116,826 140,353 105,782 32,462
1995 279,811 141,884 171,806 128,702 33,312
1996 282,323 168,467 192,511 142,829 34,270
1997 391,123 237,076 240,565 191,969 35,033
1998 390,174 255,636 229,985 196,093 35,599
</TABLE>
AVERAGE ANNUAL COMPOUND RETURNS*
<TABLE>
<CAPTION>
Periods Ended
8/31/98 9/30/98
<S> <C> <C>
10 years: +14.14% +14.58%
5 years: +11.83% +13.60%
1 year: -5.98 -3.41
</TABLE>
[end chart]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year ended August 31 1974# 1975 1976 1977
TOTAL VALUE
Dividends reinvested - $362 283 -
Value at year-end/1/ $7,874 9,792 11,165 12,377
GFA TOTAL RETURN (21.3) 24.4 14.0 10.9
Year ended August 31 1978 1979 1980 1981
TOTAL VALUE
Dividends reinvested 254 - 307 546
Value at year-end/1/ 20,136 23,595 31,496 35,383
GFA TOTAL RETURN 62.7 17.2 33.5 12.3
Year ended August 31 1982 1983 1984 1985
TOTAL VALUE
Dividends reinvested 1,673 2,290 1,643 1,249
Value at year-end/1/ 38,595 56,382 56,805 64,493
GFA TOTAL RETURN 9.1 46.1 0.8 13.5
Year ended August 31 1986 1987 1988 1989
TOTAL VALUE
Dividends reinvested 979 1,354 1,502 1,743
Value at year-end/1/ 82,962 109,730 97,962 136,507
GFA TOTAL RETURN 28.6 32.3 (10.7) 39.3
Year ended August 31 1990 1991 1992 1993
TOTAL VALUE
Dividends reinvested 3,611 3,208 2,510 1,454
Value at year-end/1/ 123,184 160,815 168,703 210,268
GFA TOTAL RETURN (9.8) 30.5 4.9 24.6
Year ended August 31 1994 1995 1996 1997
TOTAL VALUE
Dividends reinvested 929 1,372 2,452 2,019
Value at year-end/1/ 222,852 279,811 282,323 391,123
GFA TOTAL RETURN 6.0 25.6 0.9 38.5
Year ended August 31 1998
TOTAL VALUE
Dividends reinvested 2,525
Value at year-end/1/ 390,174
GFA TOTAL RETURN (0.2)
</TABLE>
Past results are not predictive of future results. The indexes are unmanaged
and do not reflect sales charges, commissions or expenses.
/#/For the period December 1, 1973 (when Capital Research and Management
Company became the fund's investment adviser) through August 31, 1974.
/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. The maximum initial sales charge was 8.5% prior
to July 1, 1988. There is no sales charge on dividends or capital gain
distributions that are invested in additional shares. Results shown do not take
into account income or capital gain taxes.
/2/Includes reinvested dividends of $34,265 and reinvested capital gain
distributions of $134,866.
/3/Includes reinvested dividends of $45,676.
/4/Includes reinvested dividends.
/5/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
25 YEARS OF INVESTING FOR GROWTH
CAPITAL RESEARCH AND MANAGEMENT COMPANY AND THE GROWTH FUND OF AMERICA
On the eve of the Watergate scandal and the prolonged bear market of 1973-1975,
Capital Research and Management Company took over a troubled fund, The Growth
Fund of America, from Greenwich Management Company. Since then, the fund's
assets have grown nearly 700-fold and its shareholder accounts more than
100-fold, while the value of an investment in the fund has grown by 4,044% - an
average of 16.2% each year, compared with an average 13.3% per year for capital
appreciation funds and 14.3% per year for growth funds.*
*Average annualized return of the Lipper average of both categories of funds
over GFA's lifetime.
<TABLE>
<CAPTION>
Then (1973) Now (1998)
<S> <C> <C>
GFA's assets $17,064,814 $11,798,444,190
Number of shareholder 6,320 683,755
accounts
Companies in the 29 166
portfolio
Industries emphasized chemicals, oil broadcasting/publishing,
electronic components
</TABLE>
Over the course of these 25 years, the fund has been through bull markets and
bear markets, economic booms and recessions, times of harmony and times of
trouble both at home and abroad. It has also seen tremendous technological
change: Hand-held computers, cellular telephones with global reach, and
instantaneous communication through faxes, e-mail and the Internet are taken
for granted in today's Information Age. A quarter of a century ago, these were
only concepts of what the future might bring.
[photo: stock exchange floor]
While times and markets have changed, Capital Research and Management Company's
approach to investing has remained consistent over the years. That means
knowing virtually every aspect of the companies we invest in, taking a
long-term view and entrusting your money to experienced professionals. For The
Growth Fund of America, which invests in a wide range of companies that appear
to offer superior opportunities for growth of capital, we add a fourth element
to our investing approach: flexibility to invest in many types of companies
and, when appropriate, in bonds and money market instruments.
In the pages that follow, we'd like to show you how the fund has invested for
growth over 25 years, first by taking a closer look at those four elements - a
long-term focus, research, flexibility and experience. Later, we will look at
the fund's 25-year history in five-year intervals, focusing on key events and
the fund's investing strategy in different market environments over the years.
We hope you enjoy this look back at the 25-year partnership between The Growth
Fund of America and Capital Research and Management Company.
INVESTING FOR THE LONG TERM
PARTICIPATING IN THE LONG-TERM GROWTH OF COMPANIES
Investing for growth is attempting to profit from all sorts of change,
including technological advances, scientific discoveries and social progress.
Capital Research and Management Company has found time and again that
regardless of the type or pace of change, patience can be very rewarding over
the long term.
Gordon Crawford, a portfolio counselor who was a research analyst for Capital
Research when it took over the fund in 1973, knows from experience the
discipline it takes to hold stocks for the long term. In 1983-1984, he bought a
number of cable television stocks for the fund that went through what he terms
"harrowing" price drops during the credit crunch in 1990 and, later, following
government reregulation of the cable industry in 1994. In recent years, those
cable stocks have been among the fund's most successful holdings. "If you buy
something that's worth holding onto and you're right about the industry and the
company and the people, you can make a lot of money," he says.
[begin sidebar]
THE BENEFITS OF LONG-TERM INVESTING
An illustration of appreciation in the share prices* of the
companies that make up the fund's 10 largest holdings
<TABLE>
<CAPTION>
FUND HOLDING
(ranked by size YEAR HOLDING FIRST PERCENT RISE IN
as of 8/31/98) ACQUIRED BY GFA STOCK PRICE*
<S> <C> <C>
1.Time Warner 1984 210%
2.Fannie Mae 1984 1,840%
3.Viacom, Class A 1998 -10%
Viacom, Class B 1995 10%
4.Philip Morris 1989 60%
5.Tele-Communications, 1983 210%
TCI Group
6.Comcast, Class A 1992 110%
Comcast, Class A Special 1991 170%
7.Tele-Communications, 1995 300%
Liberty Media Group
8.News Corp. preferred 1990 20%
News Corp. 1994 390%
9.Walt Disney 1991 90%
10.Texas Instruments 1984 160%
</TABLE>
*Based on the weighted average price per share of all shares purchased by the
fund from the date the stock was first acquired through 8/31/98. The percent
rise in each stock price is the difference between the weighted average price
per share and the closing price on 8/31/98. Figures are rounded to the nearest
10. (Figures reflect only price changes since the fund first purchased the
security. They do not take into account sales transactions, nor do they
represent what the fund has realized on its investments in these companies.)
RESEARCH
SEARCHING FOR VALUE BY UNDERSTANDING EVERY COMPANY WE INVEST IN
In-depth research has been a fundamental element of how the fund has invested
for growth over the years. Because the fund can invest wherever the best
opportunities for growth may be, thorough research is particularly important.
"The investment universe of this fund is very wide. Having a large number of
seasoned investment analysts helps us find capital appreciation opportunities
in many nontraditional sectors," says Jim Drasdo, president of the fund.
Capital Research has more than 100 analysts who work all over the world. Each
analyst specializes in an industry and a geographic area, and can draw on the
expertise of a larger research "cluster," a group of analysts who cover
different segments of the same industry. Clusters serve as a sounding board for
analysts to discuss investment ideas, industry trends and individual companies.
Says Peter Labon, who covers software and semiconductor companies for GFA and
is one of eight analysts in the technology cluster, "We want to make sure each
of us knows the facts everyone else knows, because cumulatively we have a lot
more facts than we do individually. We don't always agree on what the
implications are or what the future holds, but diversity of opinion is what
makes our investment approach so strong."
FLEXIBILITY
HOLDING A VARIETY OF STOCKS, BONDS AND CASH TO TAKE ADVANTAGE OF MARKET
CONDITIONS
As a fund that aims to provide shareholders with growth of capital, The Growth
Fund of America invests wherever the best opportunities may be, ranging from
turnaround and value situations to cyclical stocks and traditional growth
stocks. The fund also has the flexibility to invest in bonds and cash when
market conditions may warrant moving out of the stock market. During the
1981-1982 market decline, for example, only half of the fund's assets were
invested in stocks. "It's a flexible fund that has the ability to buy any
financial instruments we think we can make money with," says Walter Stern,
former chairman of the fund and a director of GFA for 24 years. "When we have
judged stocks to be overpriced, we have invested in fixed-income, and when we
have judged growth companies to be overpriced, we've gone to cyclical stocks."
The flexibility to invest in cash and bonds has helped cushion stock market
downturns over the years. On occasion, keeping a relatively large cash position
as a reserve for buying good companies and as insurance against future bear
markets has dampened the fund's returns. But, as fund Chairman Jim Rothenberg
says, "When you look at our conservative position, it's important to remember
that if you go down 50%, you have to go up 100% to get even. There's a great
advantage in this business in going down as little as possible in bear
markets."
THE VALUE OF EXPERIENCE
ENTRUSTING YOUR MONEY TO EXPERIENCED INVESTMENT PROFESSIONALS
Capital Research has a 25-year history with The Growth Fund of America. The
fund's portfolio counselors, on average, have been in the investment business
even longer - for 28 years, and an average of 26 years with Capital Research.
This longevity has been a key factor behind the fund's consistent long-term
record, particularly in helping the fund hold up in down markets.
Says Bill Newton, who has been a GFA portfolio counselor since 1973, "I
remember my first bear market, and it was much more alarming than the ones I
went through after that. I remember 1957, '62, '65, '70, '73-'74, '80, ' 87,
'90.... When you've experienced some of these, you realize that a bear market
is not the end of the world. You stop panicking and you realize that it's an
opportunity to find value."
The 1973-1974 bear market turned out to be a great opportunity for the fund to
buy good companies at reasonable prices. This is where our history of The
Growth Fund of America begins.
THE AFTERMATH OF WATERGATE
[Tab: 1973-1978]
[photo: data processing room]
GFA LOOKS FOR GOOD COMPANIES IN A BEAR MARKET
At the end of 1973, the American economy entered its worst recession since
World War II, battered by the Watergate scandal, oil shocks and rising
inflation and interest rates. Investor infatuation with the large,
well-established "Nifty Fifty" companies, which had led the market to new highs
at the beginning of the decade, ended abruptly. In October 1974, the S&P 500
had fallen 48.2% from its high in 1973, and the average stock on the New York
Stock Exchange sold at less than one-third of its 1968 price.
Capital Research took over GFA in the midst of the political and economic
crisis. The fund immediately sold the chemical and oil stocks which it had
inherited and began buying science and technology companies, many of them
computer or semiconductor manufacturers like IBM and National Semiconductor.
The fund also bought a number of small and medium-size companies, which made a
more robust and rapid recovery than large firms. Over the five-year period, the
companies owned by the fund produced earnings gains averaging a remarkable
198%, compared with 70% for the 500 large companies represented in the S&P
index.
After falling 16.4% in fiscal 1974, the fund recorded double-digit gains from
1975 through the end of the period in 1978 and, on average, outperformed the
market by more than 10 percentage points for the five years. Fiscal 1978 turned
out to be the best year in the fund's history, with a total return of 62.7%,
compared with 12.4% for the S&P 500.
[Begin Sidebar]
Average annual compound returns
12/1/73 - 8/31/78
GFA 17.4%
S&P 500 6.2%
Lipper* 9.4%
*Lipper Capital Appreciation Fund Index
[End Sidebar]
[Begin Sidebar]
[watermark: 1973-1978]
"By and large, the companies we invest in are financially strong,
well-established and innovative. They either have a dominant share of their
market, a unique product or service, highly effective marketing programs,
unusual production capabilities or a combination of these attributes. Thus,
many of them are likely to do well regardless of swings in the economy."
- - 1978 GFA Annual Report
[End Sidebar]
[photo: computer disk]
[Begin Caption]
1973 IBM introduces the "Winchester," a 1.7 million bits per square inch disk
storage unit that becomes widely used for the next decade.
[End Caption]
[Begin Sidebar]
LARGE HOLDINGS
AUGAT
manufacturer of integrated circuits and microprocessors
(acquired by Thomas & Betts in 1996)
TYMSHARE
world's largest computer time-sharing company
(acquired by McDonnell Douglas in 1984, which was
purchased by Boeing in 1997)
WYNN'S INTERNATIONAL
producer of automotive supplies and accessories
[End Sidebar]
THE DAWN OF THE REAGAN ERA
[Tab: 1978-1983]
THE FUND WEATHERS THE RECESSION AND MARKET DECLINE
[photo: computer chip]
From 1979 to 1981, the fund enjoyed three years of double-digit returns,
propelled by the strong growth of its technology holdings (the stock of
supercomputer maker Cray Research rose 102% in fiscal 1980). Meanwhile, the
early 1980s was a period of anemic or negative returns for many stock market
investors as the American economy slid into recession. Between November 28,
1980 and August 12, 1982, the S&P 500 fell 27.1%, and the stocks of small and
medium-size growth companies were hit even harder, many of them plummeting more
than 50%.
Having a substantial portion of fund assets in cash equivalents helped the fund
withstand the market decline. At the end of fiscal 1981, more than 40% of the
fund's assets were invested in U.S. Treasury bills, and the fund returned 12.3%
that year, compared with 5.3% for the S&P 500. In 1982, the fund bought U.S.
government bonds, taking advantage of declining interest rates.
Thus, in spite of unfavorable market conditions, GFA had positive returns every
fiscal year between 1978 and 1983, returning an impressive 23% each year on
average. Toward the end of the period, the fund took advantage of low prices to
buy attractive companies in high-growth sectors such as media and health care.
The market began to turn around in August 1982, marking the beginning of a
prolonged bull market that would falter on only two occasions (1987 and 1990)
and continue roaring well into 1998.
[Begin Sidebar]
Average annual compound returns
9/1/78 - 8/31/83
GFA 22.9%
S&P 500 15.6%
Lipper* 23.2%
*Lipper Capital Appreciation Fund Index
[End Sidebar]
[Begin Sidebar]
[watermark: 1978-1983]
"I think that over the next five years we'll see some fundamental changes in
the way we generate, use, send and store information. The driving force behind
these changes will be those incredible semiconductors. This tiny chip that's
half the size of your fingernail and costs $50 can perform more functions today
than a whole room full of equipment worth $50,000 could perform 15 years ago."
- - Jim Martin, GFA analyst, 1982 Annual Report
[End Sidebar]
[Begin Sidebar]
LARGE HOLDINGS
DATAPOINT
manufacturer of business computer systems
CORDIS
maker of cardiovascular instruments
(acquired by Johnson & Johnson in 1996)
CRAY RESEARCH
manufacturer of supercomputers
(acquired by Silicon Graphics in 1996)
[End Sidebar]
[photo: dual-chamber pacemaker]
[Begin Caption]
1979 Medtronic introduces the dual-chamber pacemaker, which remains the
industry standard today.
[End Caption]
THE 1980S
[Tab: 1983-1988]
THE FUND ROUNDS OFF 13 CONSECUTIVE YEARS OF GROWTH
[photo: health care employee]
President Reagan's first term ended on a bad note for the U.S. economy. Years
of deregulation of the banking industry led to the failure of more than 70
debt-ridden U.S. banks in 1984, the highest rate in almost 50 years. After
shaking off the effects of the savings and loan crisis, the stock market
recovered in 1986 and 1987, led by the strong performance of large, blue chip
companies.
[Begin Sidebar]
Average annual compound returns
9/1/83 - 8/31/88
GFA 11.7%
S&P 500 14.0%
Lipper* 8.6%
*Lipper Capital Appreciation Fund Index
[End Sidebar]
GFA grew at a respectable annual rate of 11.7% during the five-year period,
though the fund's returns were outpaced by large-company indexes such as the
S&P 500. Many growth stocks lagged the S&P 500, particularly technology issues
such as manufacturers of software, computers and electronic components. Media
stocks, on the other hand, made considerable gains as investors began to
recognize their potential. The fund benefited from a series of mergers and
acquisitions among broadcasting companies, such as the purchase of MTV Networks
by Viacom in 1985. Health care companies like Syntex and Merck also did well
over the period, buoyed by strong sales and growing earnings.
Fiscal 1987 marked the 13th consecutive year of positive results for GFA, an
accomplishment shared by only one other capital appreciation fund in existence
since the bear market of 1974.+ The fund's string of positive years was broken
in fiscal 1988 with the infamous "Black Monday" of October 1987. Yet the fund
held up considerably better than the market, helped by having a portion of fund
assets invested in bonds and cash equivalents. Once again, the fund took
advantage of low prices to buy stocks at bargain prices, and the patience of
shareholders was duly rewarded when the market began to turn around in 1989.
+Source: Lipper Analytical Services
[Begin Sidebar]
LARGE HOLDINGS
[watermark: 1983-1988]
TELE-COMMUNICATIONS
major cable TV operator
(split into two companies, TCI Group and Liberty Media,
in 1995)
SYNTEX
international manufacturer of health products
(acquired by Roche Group in 1994)
TEXACO
large U.S.-based international oil company
[End Sidebar]
[photo: Apple computer]
[Begin Caption]
1984 Apple launches the Macintosh product line,
revolutionizing the personal computer industry.
[End Caption]
[Begin Sidebar]
"To our way of thinking, investing for growth means more than racking up gains
when the investment climate is sunny. It also means trying to hold on to most
of those gains when the weather changes."
- - 1987 GFA Annual Report
[End Sidebar]
THE END OF THE COLD WAR
[Tab: 1988-1993]
GFA NAVIGATES THROUGH UP AND DOWN MARKETS
[photo: satellite dishes]
The fall of the Berlin Wall in 1989 brought peace and freedom to many former
Cold War battlegrounds, but the new era of global stability was soon shattered
by the Iraqi invasion of Kuwait on August 2, 1990. Fearing a prolonged war and
oil shortages, investors fled the market during the months following the
invasion. After the U.S.-led coalition forced Iraq's retreat in early 1991, the
U.S. economy continued to battle through a recession, and it was only at the
twilight of George Bush's presidency in 1992 that the economy finally entered a
prolonged recovery.
This five-year period was a volatile one for investors. Three years of robust
growth in the stock market -1989, 1991 and 1993 - were tempered by two slower
ones, 1990 and 1992. GFA and other capital appreciation funds' results
generally followed the movements in the stock market, reflected in the
remarkably similar returns all three categories earned for the five-year
period.
Meanwhile, the fund continued to search for promising companies that would
provide long-term growth through up and down markets. Cellular telephone
companies did particularly well during the five-year period, spurred by
tremendous sales growth and, later on, by mergers with telecommunications
companies. Health care companies, which represented the largest concentration
of fund assets in 1990-1991, grew substantially in spite of the economic
slowdown. U.S. semiconductor companies enjoyed a boom in 1992-1993, following
an industrywide drive to enhance competitiveness and efficiency.
[Begin Sidebar]
[watermark: 1988-1993]
"We look for companies that we believe will provide growth of capital. We start
by studying all the usual sources of Wall Street wisdom. But we don't stop
there. We also visit the companies. And their competitors. And their bankers.
And their suppliers. And the government agencies that can affect them."
- - 1992 GFA Annual Report
[End Sidebar]
[Begin Sidebar]
Average annual compound returns
9/1/88 - 8/31/93
GFA 16.5%
S&P 500 15.8%
Lipper* 15.3%
*Lipper Capital Appreciation Fund Index
[End Sidebar]
[Begin Sidebar]
LARGE HOLDINGS
MCCAW CELLULAR COMMUNICATIONS
world's largest cellular telephone company
(acquired by AT&T in 1994)
AMGEN
giant biotechnology company
PHILIP MORRIS
world's largest consumer products company
[End Sidebar]
[photo: cellular telephone]
[Begin Caption]
1989 Motorola introduces the MicroTAC cellular phone, the smallest and
lightest on the market.
[End Caption]
THE BULL MARKET ERA
[Tab: 1993-1998]
[photo: laptop computer]
GFA GROWS STEADILY IN A MARKET THAT FAVORS LARGE STOCKS
The past five years have been very rewarding for most stock market investors.
Between September 1, 1993 and August 31, 1998, the Dow Jones Industrial Average
more than doubled, from 3,651 to 7,539, and the S&P 500 rose 18.3% each year on
average. Investors remained confident, corporate earnings rose and the U.S.
economy grew at a healthy pace through a long run of low inflation and low
unemployment, stable interest rates and a strong dollar.
Despite returning 13.2% each year on average over the period - well above the
10.3% average annual return of the S&P 500 for the past 70 years* - GFA was
outpaced by the phenomenal growth of large-company stocks. In searching for
companies with potential for capital appreciation, the fund shunned the lofty
valuations of large stocks and instead emphasized media and technology
companies.
*For the period 8/31/28-8/31/98
After a difficult year in 1996, media companies like Time Warner, Viacom and
Tele-Communications recovered to become some of the fund's most successful
holdings. Technology stocks have been mixed in recent years. Many companies
have been adversely affected by the Asian crisis, although selected companies
like Internet service provider America Online have done extremely well overall.
The fund kept a 10% to 20% cash position during much of the period as a buying
reserve and to help cushion against market declines, but this also limited the
fund's participation in the market's advances. With the recent turbulence in
world markets, the fund will likely take advantage of its cash reserve to buy
good companies at reasonable prices. As we have seen throughout the fund's
history, this strategy has often proved to be very rewarding for long-term
investors.
[Begin Sidebar]
AVERAGE ANNUAL COMPOUND RETURNS
9/1/93 - 8/31/98
GFA 13.2%
S&P 500 18.3%
Lipper* 11.3%
*Lipper Capital Appreciation Fund Index
[End Sidebar]
[Begin Sidebar]
LARGE HOLDINGS
TIME WARNER
media and entertainment conglomerate
WALT DISNEY
world's premier family entertainment company
FEDERAL NATIONAL MORTGAGE ASSOCIATION
federally sponsored purchaser of residential mortgages
INTEL
developer of microprocessors and semiconductors
[End Sidebar]
[photo: Pentium processor]
[Begin Caption]
1993 Intel introduces the Pentium processor, which allows computers to more
easily incorporate "real world" data such as speech, sound and handwriting.
[End Caption]
[Begin Sidebar]
[watermark: 1993-1998]
"We try to move with the changes in the world around us and participate in the
growth of companies that are engineering that change."
- - Jim Rothenberg, chairman, The Growth Fund of America
[End Sidebar]
<TABLE>
THE GROWTH FUND OF AMERICA
INVESTMENT PORTFOLIO, August 31, 1998
Percent
of Net
Assets
----------
<S> <C> <C> <C>
Largest Industry Holdings
- -----------------------------
Broadcasting & Publishing 23.92%
Electronic Components 9.96%
Business & Public Services 6.49%
Data Processing & Reproduction 5.03%
Financial Services 4.72%
Other Industries 37.92%
Cash & Equivalents 11.96%
Largest Equity Holdings
- -------------------------------------
Time Warner 5.45%
Fannie Mae 3.58
Viacom 3.16
Philip Morris 3.01
Tele-Communications, TCI Group 2.74
Comcast 2.71
Tele-Communications, Liberty Media Group 2.53
News Corp. 1.90
Walt Disney 1.88
Texas Instruments 1.69
.
THE GROWTH FUND OF AMERICA
INVESTMENT PORTFOLIO, August 31, 1998
Market Percent
EQUITY SECURITIES (Common & Preferred Stocks) Value of Net
Shares (000) Assets
- ------------------------------------- ----------- -------- ----------
Broadcasting & Publishing - 23.92%
Time Warner Inc. 8,000,750 643,060 5.45
Viacom Inc., Class B (1) 6,700,000 332,487
Viacom Inc., Class A (1) 814,700 40,124 3.16
Comcast Corp., Class A, special stock 6,887,262 257,411
Tele-Communications, Inc., Series A, TCI Group (1) 9,792,299 323,146 2.74
Comcast Corp., Class A 1,680,000 63,000 2.71
Tele-Communications, Inc., Series A, Liberty Media Group (1) 9,128,355 298,383 2.53
News Corp. Ltd. (ADR) (Australia) 5,450,000 131,140
News Corp. Ltd., preferred (ADR) 4,428,750 93,004 1.90
Cox Communications, Inc., Class A (1) 3,281,800 137,836 1.17
Tele-Communications, Inc., Series A, TCI Ventures Group (1) 7,884,862 131,086 1.11
Cablevision Systems Corp., Class A (1) 2,520,000 85,365 .72
USA Networks, Inc. (1) 3,020,000 59,268 .50
Chris-Craft Industries, Inc. (1) 1,218,000 50,699 .43
E.W. Scripps Co., Class A 950,000 44,828 .38
CANAL+ (France) 195,100 39,447 .33
Century Communications Corp., Class A (1) 1,505,000 34,991 .30
Jacor Communications, Inc. (1) 350,000 20,650 .18
Ziff-Davis Inc. (1) 2,440,000 19,520 .17
Chancellor Media Corp., Class A (1) 250,000 8,922 .08
BHC Communications, Inc., Class A (1) 62,840 7,321 .06
Electronic Components - 9.96%
Texas Instruments Inc. 4,170,000 198,857 1.68
Intel Corp. 2,590,000 184,376 1.56
Micron Technology, Inc. (1) 5,528,300 125,769 1.07
ADC Telecommunications, Inc. (1) 3,600,000 79,875 .68
Altera Corp. (1) 2,550,000 74,268 .63
Advanced Micro Devices, Inc. (1) 4,778,600 63,018 .53
Linear Technology Corp. 1,100,000 51,700 .44
Microchip Technology Inc. (1) (2) 2,675,000 48,986 .42
Quantum Corp. (1) 4,125,000 47,180 .40
Seagate Technology (1) 2,500,000 43,750 .37
Adaptec, Inc. (1) 3,750,000 43,125 .37
National Semiconductor Corp. (1) 4,652,930 42,458 .36
Analog Devices, Inc. (1) 2,997,933 42,158 .36
Xilinx, Inc. (1) 1,000,000 30,500 .26
PMC-Sierra, Inc. (1) 883,300 26,996 .23
LSI Logic Corp. (1) 2,000,000 24,500 .21
Newbridge Networks Corp. (Canada) (1) 1,100,000 20,419 .17
SCI Systems, Inc. (1) 500,000 11,469 .10
Tellabs, Inc. (1) 235,000 9,929 .08
Level One Communications, Inc. (1) 300,000 5,231 .04
Business & Public Services - 6.49%
Cendant Corp. (1) 13,800,000 159,563 1.35
America Online, Inc. (1) 1,580,000 129,461 1.10
Columbia/HCA Healthcare Corp. 5,253,125 118,524 1.00
FDX Corp. (1) 1,610,000 80,601 .68
Waste Management Inc. (New) (1) 1,279,775 56,470 .48
Shared Medical Systems Corp. 812,700 43,378 .37
Allied Waste Industries, Inc. (1) 2,283,000 43,377 .37
First Data Corp. 1,200,000 24,825 .21
Paychex, Inc. 585,000 22,230 .19
Universal Health Services, Inc., Class B (1) 500,000 19,375 .16
Electronic Data Systems Corp. 530,000 17,755 .15
Ecolab Inc. 500,000 13,906 .12
TeleTech Holdings, Inc. (1) 1,350,000 11,306 .10
Pittston Brink's Group 350,000 10,981 .09
Concord EFS, Inc. (1) 300,000 5,925 .05
American Disposal Services, Inc. (1) 150,000 4,397 .04
APAC TeleServices, Inc. (1) 570,000 1,781 .02
USWeb Corp. (1) 100,000 1,413 .01
Data Processing & Reproduction - 5.03%
Oracle Corp. (1) 7,098,500 141,526 1.20
Solectron Corp. (1) 1,571,000 64,902 .55
Cisco Systems, Inc. (1) 600,000 49,125 .42
PeopleSoft, Inc. (1) 1,731,500 48,698 .41
Silicon Graphics, Inc. (1) 4,975,500 45,091 .38
International Business Machines Corp. 400,000 45,050 .38
Lexmark International Group, Inc., Class A (1) 575,000 34,823 .30
Intuit Inc. (1) 978,600 33,456 .28
Microsoft Corp. (1) 325,000 31,180 .26
Gateway 2000, Inc. (1) 300,000 14,194 .12
Ascend Communications, Inc. (1) 400,000 14,000 .12
Sequent Computer Systems, Inc. (1) 1,980,000 12,746 .11
Computer Associates International, Inc. 467,800 12,631 .11
Data General Corp. (1) 1,520,000 11,400 .10
Compaq Computer Corp. 400,000 11,175 .09
Vantive Corp. (1) 1,250,000 10,156 .09
3Com Corp. (1) 400,000 9,475 .08
Mentor Graphics Corp. (1) 515,000 3,573 .03
Financial Services - 4.72%
Fannie Mae 7,431,700 422,213 3.57
SLM Holding Corp. 1,575,000 56,503 .48
Household International, Inc. 1,300,000 48,019 .41
Capital One Financial Corp. 350,000 30,625 .26
Health & Personal Care - 4.42%
Forest Laboratories, Inc. (1) 1,949,000 63,830 .54
Sepracor Inc. (1) 1,100,000 52,388 .44
MedImmune, Inc. (1) 1,064,000 51,338 .43
AB Astra, Class A (ADR) (Sweden) 2,600,000 41,925 .36
Boston Scientific Corp. (1) 600,000 41,550 .35
Warner-Lambert Co. 600,000 39,150 .33
Pfizer Inc 400,000 37,200 .32
Guidant Corp. 510,000 31,492 .27
Gilead Sciences, Inc. (1) 1,495,000 27,284 .23
Immunex Corp. (1) 500,000 25,312 .21
BioChem Pharma Inc. (Canada) (1) 1,600,000 24,500 .21
Dura Pharmaceuticals, Inc. (1) 1,000,000 16,500 .14
Avon Products, Inc. 250,000 15,719 .13
Pharmacia & Upjohn, Inc. 290,000 12,053 .10
Guilford Pharmaceuticals, Inc. (1) 900,000 10,688 .09
Alza Corp. (1) 250,000 9,000 .08
NeXStar Pharmaceuticals, Inc. (1) (3) 1,000,000 6,656
NeXStar Pharmaceuticals, Inc. (1) 200,000 1,331 .07
Gensia Sicor Inc. (1) 1,332,202 3,663
Gensia Sicor Inc. (1) (3) 1,125,000 3,094
Gensia Sicor Inc., warrants, expire 2002 (1) (3) 1,125,000 0 .06
Medtronic, Inc. 130,000 6,679 .06
CliniChem Development Inc., Class A (1) 40,000 155 .00
Leisure & Tourism - 4.24%
Walt Disney Co. 8,075,000 221,558 1.88
King World Productions, Inc. (1) (2) 3,674,000 77,154 .65
MGM Grand, Inc. (1) 2,600,000 74,587 .63
Mirage Resorts, Inc. (1) 4,200,000 62,475 .53
Carnival Corp., Class A 1,800,000 51,975 .44
Harrah's Entertainment, Inc. (1) 900,000 12,994 .11
Beverages & Tobacco - 3.28%
Philip Morris Companies Inc. 8,540,000 354,944 3.01
PepsiCo, Inc. 1,150,000 31,840 .27
9,690,000
Telecommunications - 2.26%
AirTouch Communications (1) 2,665,700 149,946 1.27
MCI Communications Corp. 1,150,000 57,500 .49
WorldCom, Inc. (1) 500,000 20,468 .17
Paging Network, Inc. (1) 2,300,000 16,675 .14
Crown Castle International Corp. (1) 2,000,000 16,250 .14
American Tower Systems Corp. Class A (1) 400,000 6,300 .05
Transportation: Airlines - 2.23%
Southwest Airlines Co. 6,539,512 116,485 .99
AMR Corp. (1) 1,720,000 93,740 .79
Delta Air Lines, Inc. 515,000 52,530 .45
Chemicals - 2.01%
Monsanto Co. 3,120,000 170,625 1.45
Air Products and Chemicals, Inc. 1,030,000 31,479 .27
A. Schulman, Inc. 1,522,500 24,170 .20
International Flavors & Fragrances Inc. 291,200 11,284 .09
Merchandising - 2.01%
Limited Inc. 2,868,000 59,869 .51
Cardinal Health, Inc., Class A 619,300 54,189 .46
Lowe's Companies, Inc. 800,000 28,050 .24
Venator Group (1), (formerly Woolworth Corp.) 3,000,000 27,188 .23
Circuit City Stores, Inc. - Circuit City Group 800,000 24,700 .21
Consolidated Stores Corp. (1) 699,000 22,018 .18
Boise Cascade Office Products Corp. (1) 1,015,000 13,893 .12
Intimate Brands, Inc., Class A 400,000 7,400 .06
Insurance - 1.88%
EXEL Ltd. (New) Class A (1) 2,705,000 180,728 1.53
MGIC Investment Corp. 1,000,000 41,500 .35
Electrical & Electronics - 1.32%
Telefonaktiebolaget LM Ericsson, Class B (ADR) (Sweden) 4,000,000 85,500 .72
Nokia Corp., Class A (ADR) (Finland) 650,000 43,428 .37
General Instrument Corp. (1) 1,340,000 26,633 .23
Banking - 1.15%
Washington Mutual, Inc. 1,200,000 38,400 .33
Associated Banc-Corp 1,170,737 37,464 .32
PNC Bank Corp. 600,000 25,800 .22
Norwest Corp. 479,100 14,253 .12
Citicorp 100,000 10,813 .09
Wells Fargo & Co. 30,000 8,456 .07
Energy Equipment - 1.05%
Transocean Offshore Inc. 1,656,234 40,681 .35
Diamond Offshore Drilling, Inc. 1,665,000 34,757 .29
Schlumberger Ltd. (Netherlands Antilles) 650,000 28,478 .24
Baker Hughes Inc. 650,000 11,863 .10
Cooper Cameron Corp. (1) 407,900 8,668 .07
Energy Sources - 0.91%
TOTAL, Class B (ADR) (France) 550,000 26,434 .22
Talisman Energy Inc. (Canada) (1) 1,400,000 20,645 .18
Pogo Producing Co. 1,663,200 19,854 .17
Enterprise Oil PLC (United Kingdom) 2,700,000 16,739 .14
Woodside Petroleum Ltd. (Australia) 3,500,000 15,808 .14
Oryx Energy Co. (1) 600,000 7,463 .06
Electronic Instruments - 0.72%
Perkin-Elmer Corp. 528,800 30,604 .26
Applied Materials, Inc. (1) 1,000,000 24,563 .21
Security Dynamics Technologies, Inc. (1) 2,035,000 19,078 .16
Waters Corp. (1) 200,000 10,775 .09
Recreation & Consumer Products - 0.53%
Hasbro, Inc. 2,000,000 62,625 .53
Miscellaneous Materials & Commodities - 0.37%
Sealed Air Corp. (1) 1,200,000 43,200 .37
Textiles & Apparel - 0.32%
NIKE, Inc., Class B 475,000 16,477 .14
Nine West Group Inc. (1) 925,000 14,742 .12
Liz Claiborne Inc. 250,000 7,125 .06
Food & Household Products - 0.28%
Keebler Foods Co. (1) 1,300,000 33,556 .28
Transportation: Rail & Road - 0.27%
Wisconsin Central Transportation Corp. (1) 2,524,300 31,712 .27
Machinery & Engineering - 0.24%
Thermo Electron Corp. (1) 1,725,000 28,031 .24
Industrial Components - 0.15%
Danaher Corp. 500,000 18,125 .15
Aerospace & Military - 0.14%
Gulfstream Aerospace Corp. (1) 458,000 16,087 .14
Real Estate - 0.11%
Security Capital Group, Class A (1) 4,300 4,300
Security Capital Group Inc., Class B, warrants (1) 124,200 2,640 .06
Catellus Development Corp. (1) 500,000 6,281 .05
Multi-Industry - 0.02%
U.S. Industries, Inc. 150,000 2,081 .02
Other equity securities in initial period of 527,828 4.47
acquisition ---------- ----------
TOTAL EQUITY SECURITIES (cost: $7,617,297,000) 9,970,069 84.50
---------- ----------
Bonds & Notes
- -------------------------------------
U.S. Treasury Obligations - 3.54%
6.125% due 11/15/27 325,000 361,003 3.06
6.375% due 8/15/27 50,000 57,016 .48
---------- ----------
TOTAL BONDS & NOTES (cost: $403,910,000) 418,019 3.54
---------- ----------
Principal
Amount
SHORT-TERM SECURITIES (000)
--------
Corporate Short-Term Notes - 10.10%
Emerson Electric Co. 5.47%-5.49% due 9/2-10/1/98 122,900 122,533 1.04
Motorola Credit Corp. 5.46%-5.50% due 9/8-12/17/98 102,300 101,441 .86
E.I. du pont de Nemours and Co. 5.48%-5.50% due 10/7-10/19/98 100,000 99,344 .84
Lucent Technologies Inc. 5.49%-5.50% due 9/17- 9/28/98 97,700 97,361 .83
Coca-Cola Co. 5.47%-5.50% due 10/2-11/3/98 92,989 92,338 .78
Procter & Gamble Co. 5.47%-5.50% due 9/22-11/04/98 69,600 69,138 .59
Xerox Corp. 5.49%-5.50% due 9/16-10/5/98 67,100 66,878 .57
BellSouth Telecommunications, Inc. 5.48%-5.49% due-10/8/98 60,000 59,653 .51
Abbott Laboratories 5.47%-5.48% due 9/28-10/1/98 59,000 58,740 .50
Shell Oil Co. 5.47%-5.48% due 9/21-10/16/98 57,300 57,039 .48
National Rural Utilities Cooperative Finance Corp. 54,000 53,858 .46
5.49%-5.50% due 9/3- 10/08/98
Commercial Credit Co. 5.51%-5.52% due 9/10-10/15/98 51,500 51,279 .43
American Express Credit Corp. 5.50% due 9/1-9/11/98 46,100 46,059 .39
A.I. Credit Corp. 5.49%-5.50% due 9/4-10/20/98 45,000 44,832 .38
Deere & Co. 5.51% due 10/21/98 41,500 41,177 .35
Ford Motor Credit Co. 5.51% due 10/6-10/8/98 36,000 35,798 .30
Kimberly Clark 5.48%-5.50% due 9/23-10/16/98 (2) 34,900 34,731 .29
Atlantic Richfield Co. 5.51% due 9/3/98 (2) 31,000 30,986 .26
General Electric Capital Corp. 5.53% due 9/4/98 30,000 29,982 .25
---------- ----------
1,193,167 10.11
---------- ----------
Federal Agency Discount Notes - 1.97%
Freddie Mac 5.40%-5.46% due 9/4-11/10/98 121,470 120,899 1.03
Fannie Mae 5.41%-5.45% due 9/8-10/19/98 49,800 49,683 .42
Federal Home Loan Banks 5.40%-5.42% due 9/2-10/2/98 61,600 61,548 .52
---------- ----------
232,130 1.97
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $1,425,306,000) 1,425,297 12.08
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $9,446,513,000) 11,813,385 100.12
---------- ----------
Excess of payables over cash and receivables 14,941 .12
---------- ----------
NET ASSETS $11,798,444 100.00%
========== =======
(1) Non-income-producing securities.
(2) The fund owns 5.26% and 5.02% of the outstanding
voting securities of Microchip
Tech and King World Productions, repectively, which
represent investments 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 investors.
See Notes to Financial Statements
ADR = American Depositary Receipt
</TABLE>
Equity securities
appearing in the portfolio
since February 28, 1998
- -----------------------------
Allied Waste Industries
American Disposal Services
American Tower Systems
APAC TeleServices
Applied Materials
Baker Hughes
Boston Scientific
Cablevision Systems
Catellus Development
Chancellor Media
CliniChem Development
Crown Castle International
CSC Holdings
First Data
Gateway 2000
Household International
Immunex
International Flavors & Fragrances
Keebler Foods
Level One Communications
Liz Claiborne
MGIC Investment Corp.
Microsoft
Paging Network
Perkin-Elmer
PMC-Sierra
Pogo Producing
SCI Systems
Sealed Air
Security Capital Group
Security Dynamics Technologies
Universal Health Services
USWeb
Waters
Wells Fargo
Ziff-Davis
- -------------------------------
Equity securities
eliminated from the portfolio
since February 28, 1998
- -------------------------------
Acclaim Entertainment
Aetna
BJ Services
Camco International
Corrections Corp. of America
Digital Equipment
Digital Microwave
Electronic Arts
Everest Reinsurance Holdings
Freddie Mac
KLA-Tencor
KN Energy
LCI International
Manpower
Mattel
Netscape Communications
Outback Steakhouse
Overseas Shipping
Payless ShoeSource
Potash Corp. of Saskatchewan
Quorum Health Group
R&B Falcon
Remedy
Sun Microsystems
Sybase
Tech Data
Telefonos de Mexico
United States Surgical
Western Atlas
Western Digital.
<TABLE>
The Growth Fund of America
Financial Statements
- ---------------------------------------------- ---------- ----------
Statement of Assets and Liabilities (dollars in
at August 31, 1998 thousands)
- ---------------------------------------------- ---------- ----------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $9,446,513) $11,813,385
Cash 281
Receivables for-
Sales of investments $35,235
Sales of fund's shares 17,187
Dividends and interest 8,905 61,327
---------- ----------
11,874,993
Liabilities:
Payables for-
Purchases of investments 35,373
Repurchases of fund's shares 29,575
Management services 4,009
Other expenses 7,592 76,549
---------- ----------
Net Assets at August 31, 1998-
Equivalent to $17.95 per share on
657,372,110 shares of $0.10 par value
capital stock outstanding (authorized
capital stock--800,000,000 shares) $11,798,444
================
- ---------------------------------------------- ---------- ----------
Statement of Operations (dollars in
for the year ended August 31, 1998 thousands)
- ---------------------------------------------- ---------- ----------
Investment Income:
Income:
Dividends $ 61,020
Interest 90,685 $ 151,705
Expenses:
Management services fee 45,511
Distribution expenses 31,284
Transfer agent fee 10,116
Reports to shareholders 355
Registration statement and prospectus 530
Postage, stationery and supplies 1,980
Directors' fees 137
Auditing and legal fees 55
Custodian fee 236
Other expenses 113 90,317
---------- ----------
Net investment income 61,388
----------
Realized Gain and Unrealized
Appreciation (Depreciation) on Investments:
Net realized gain 1,530,218
Net increase in unrealized appreciation:
on investments
Beginning of period 4,007,264
End of period 2,366,879 (1,640,385)
---------- ----------
Net realized gain and unrealized depreciation
on investments (110,167)
----------
Net Decrease in Net Assets Resulting
from Operations ($48,779)
==========
See Notes to Financial Statements
(dollars in
thousands)
- ---------------------------------------------- ---------- ----------
Year ended Year ended
Statement of Changes in Net Assets August 31, 199August 31, 1997
- ---------------------------------------------- ---------- ----------
Operations:
Net investment income $ 61,388 $ 73,625
Net realized gain on investments 1,530,218 1,086,444
Net increase (decrease) in unrealized appreciation
on investments (1,640,385) 2,094,086
---------- ----------
Net increase (decrease) in net assets
resulting from operations (48,779) 3,254,155
---------- ----------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (75,837) (60,737)
Distributions from net realized gain on
investments (1,201,719) (474,852)
---------- ----------
Total dividends and distributions (1,277,556) (535,589)
---------- ----------
Capital Share Transactions:
Proceeds from shares sold: 109,029,348
and 96,996,524 shares, respectively 2,241,289 2,011,945
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 66,729,473 and 30,970,137 shares,
respectively 1,225,124 515,288
Cost of shares repurchased: 96,539,758
and 102,494,003 shares, respectively (1,987,987) (2,110,158)
---------- ----------
Net increase in net assets resulting from
capital share transactions 1,478,426 417,075
---------- ----------
Total Increase in Net Assets 152,091 3,135,641
Net Assets:
Beginning of year 11,646,353 8,510,712
---------- ----------
End of year (including undistributed
net investment income: $37,030
and $51,497, respectively) $ 11,798,444 $11,646,353
========== ==========
See Notes to Financial Statements
</TABLE>
1. The Growth Fund of America, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund invests in a wide range of companies that appear
to offer superior opportunities for growth of capital. The following paragraphs
summarize the significant accounting policies consistently followed by the fund
in the preparation of its financial statements:
Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Securities with original maturities of one year or
less having 60 days or less to maturity are amortized to maturity based on
their cost if acquired within 60 days of maturity or, if already held on the
60th day, based on the value determined on the 61st day. Assets or liabilities
initially expressed in terms of Non-U.S. currencies are translated (prior to
the next determination of the net asset value of the fund's shares) into U.S.
dollars at the prevailing market rates at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing market rates on the dates of such transactions.
The effects of changes in Non-U.S. currency exchange rates on investment
securities are included with the net realized and unrealized gain or loss on
investment securities. Securities and assets for which representative market
quotations are not readily available are valued at fair value as determined in
good faith by a committee appointed by the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. 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 and premiums on securities purchased are amortized. Dividends and
distributions paid to shareholders are recorded on the ex-dividend date.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of August 31, 1998 net unrealized appreciation on investments for book and
federal income tax purposes aggregated $2,366,871,000, of which $3,643,171,000
related to appreciated securities and $1,276,300,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended August 31, 1998. Net losses related
to non-U.S. currency transactions of $36,000 were treated as an adjustment to
ordinary income for federal income tax purposes. The cost of portfolio
securities for book and federal income tax purposes was $9,446,513,000 at
August 31, 1998.
3. The fee of $45,511,000 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.50% of the first $1 billion of average net assets; 0.40%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.37% of
such assets in excess of $2.0 billion but not exceeding $3.0 billion; 0.35% of
such assets in excess of $3.0 billion but not exceeding $5.0 billion; 0.335% of
such assets in excess of $5.0 billion but not exceeding $8.0 billion; 0.325%
of such assets in excess of $8.0 billion but not exceeding $13.0 billion; 0.30%
of such assets in excess of $13.0 billion but not exceeding $21.0 billion; and
0.29% of such assets in excess of $21.0 billion. The Board of Directors has
approved an amended Investment Advisory and Service Agreement, which provides
for reduced fees for the fund for average net assets in excess of $5.0 billion
effective November 1, 1997, at the following annual rates: 0.33% of such
assets in excess of $5.0 billion but not exceeding $8.0 billion; 0.315% of such
assets in excess of $8.0 billion but not exceeding $13.0 billion; 0.30% of such
assets in excess of $13.0 billion but not exceeding $21.0 billion; and 0.29% of
such assets in excess of $21.0 billion. Beginning September 1, 1997, CRMC has
voluntarily agreed to waive its management fees in excess of those provided by
the amended agreement.
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 August 31, 1998,
distribution expenses under the Plan were $31,284,000. As of August 31, 1998,
accrued and unpaid distribution expenses were $7,048,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $10,116,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $6,615,000 (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 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 August 31,
1998, aggregate amounts deferred and earnings thereon were $403,000.
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. As of August 31, 1998, accumulated undistributed net realized gain on
investments was $1,312,314,000 and additional paid-in capital was
$8,016,466,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $4,937,026,000 and $4,391,342,000, respectively,
during the year ended August 31, 1998.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $236,000 includes $70,000 that was paid by these credits
rather than in cash.
Net realized currency losses on dividends, on a book basis, were $36,000
for the year ended August 31, 1998.
<TABLE>
Per-Share Data and Ratios/1/
Year ended August 31
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------
Net Asset Value, Beginning of Period $20.14 $15.39 $16.55 $13.81 $13.58 $11.02
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income from Investment Operations:
Net investment income .10 .13 .13 .13 .07 .07
Net realized and unrealized gain (loss)
on investments (.10) 5.59 (.01) 3.21 .71 2.63
------- ------- ------- ------- ------- -------
Total income from
investment operations .00 5.72 .12 3.34 .78 2.70
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income (.13) (.11) (.14) (.08) (.06) (.09)
Distributions from net realized gains (2.06) (.86) (1.14) (.52) (.49) (.05)
------- ------- ------- ------- ------- -------
Total distributions (2.19) (.97) (1.28) (.60) (.55) (.14)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $17.95 $20.14 $15.39 $16.55 $13.81 $13.58
======= ======= ======= ======= ======= ========
Total Return/2/ (.24) 38.54% .90% 25.56% 5.98% 24.64%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $11,798 $11,646 $8,511 $7,525 $5,427 $5,018
Ratio of expenses to average net
assets .70% .72% .74% .75% .78% .77%
Ratio of net income to average net
assets .48% .73% .82% .90% .49% .56%
Portfolio turnover rate 38.84% 34.10% 27.95% 26.90% 24.77% 25.23%
/1/ Adjusted to reflect the 100% share dividend
effective at the close of business on
December 12, 1996.
/2/ Excludes maximum sales charge of 5.75%.
/3/ Brokerage commissions paid on
portfolio transactions increase
the cost of securities purchased
or reduce the proceeds of securities
sold and are not separately reflected in the
fund's statement of operations.
Shares traded on a principal basis (without commissions),
such as most over-the-counter and fixed-income transactions,
are excluded.
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Growth Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Growth Fund of America, Inc., including the investment portfolio, as of August
31,1998,and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the per-share data and ratios for each of the five years in the
period then ended. These financial statements and the per-share data and ratios
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the per-share data and
ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1998 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The Growth Fund of America, Inc. at August 31, 1998, 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 per-share data and ratios
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 30, 1998
1998 Tax Information (Unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
Dividends and Distributions per Share
<TABLE>
<CAPTION>
To Payment Date From Net From Net From Net
Shareholders Investment Realized Realized
of Record Income Short-Term Long-Term
Gains Gains*
<S> <C> <C> <C> <C>
December 17, December 18, $0.13 .472 1.588
1997 1997
</TABLE>
*INCLUDES $0.921 LONG-TERM CAPITAL GAINS TAXED AT A MAXIMUM RATE OF 28%.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 6% of the dividends
paid by the fund from net investment income represents qualifying dividends.
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.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099 DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
BOARD OF DIRECTORS
GUILFORD C. BABCOCK
San Marino, California
Associate Professor of Finance,
Marshall School of Business,
University of Southern California
ROBERT A. FOX
Livingston, California
President and Chief Executive Officer, Foster Farms Inc.
ROBERTA L. HAZARD
McLean, Virginia
Consultant; Rear Admiral,
U.S. Navy (retired)
LEONADE D. JONES
Burlingame, California
Former Treasurer,
The Washington Post Company
JOHN G. MCDONALD
Stanford, California
The IBJ Professor of Finance,
Graduate School of Business,
Stanford University
GAIL L. NEALE
Burlington, Vermont
President, The Lovejoy Consulting
Group, Inc.; former Executive Vice
President of the Salzburg Seminar;
former Director of Development and
of the Capital Campaign, Hampshire College
JAMES W. RATZLAFF
San Francisco, California
Senior Partner,
The Capital Group Partners L.P.
HENRY E. RIGGS
Claremont, California
President, Keck Graduate Institute
of Applied Life Sciences
JAMES F. ROTHENBERG
Los Angeles, California
Chairman of the Board of the fund
President and Director,
Capital Research and
Management Company
PATRICIA K. WOOLF, PH.D.
Princeton, New Jersey
Private investor; lecturer,
Department of Molecular Biology, Princeton University
OTHER OFFICERS
JAMES E. DRASDO
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and
Management Company
GORDON CRAWFORD
Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and
Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and
Management Company
DONALD D. O'NEAL
San Francisco, California
Senior Vice President of the fund
Vice President,
Capital Research and
Management Company
RICHARD M. BELESON
San Francisco, California
Vice President of the fund
Senior Vice President,
Capital Research Company
MICHAEL T. KERR
Los Angeles, California
Vice President of the fund
Senior Vice President and Director,
Capital Research Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and
Management Company
SHERYL F. JOHNSON
Norfolk, Virginia
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and
Management Company
ROBERT P. SIMMER
Norfolk, Virginia
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and
Management Company
[The American Funds Group(r)]
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
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
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02105-1713
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
PREPARING FOR THE YEAR 2000
The fund's key service providers - Capital Research and Management Company, the
investment adviser, and American Funds Service Company, the transfer agent -
are updating their computer systems to process date-related information
properly following the turn of the century. Both are on track to complete
modifications of significant internal systems by the end of 1998. Testing with
business partners, vendors and other service providers is already under way. We
will continue to keep you up-to-date in our regular publications. If you'd like
more detailed information, call Shareholder Services at 800/421-0180, ext. 21,
or visit our Web site at www.americanfunds.com.
This report is for the information of shareholders of The Growth Fund of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after December 31, 1998, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180, OR VISIT WWW.AMERICANFUNDS.COM ON THE
WORLD WIDE WEB.
Printed on recycled paper
Litho in USA CD/GRS/3919
Lit. No. GFA-011-1098
45016/15016
