THE GROWTH FUND OF AMERICA, INC.
Part B
o
Statement of Additional Information
NOVEMBER 1, 1998
as amended August 1, 1999
This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Growth Fund of America, Inc. (the fund or GFA) dated
November 1, 1998. The Prospectus may be obtained from your investment dealer
or financial planner or by writing to the fund at the following address:
THE GROWTH FUND OF AMERICA, INC.
ATTENTION: SECRETARY
ONE MARKET, STEUART TOWER
P.O. BOX 7650
SAN FRANCISCO, CA 94120
TELEPHONE: (415) 421-9360
Shareholders who purchase shares at net asset value through eligible
retirement plans should note that not all of the services or features described
below may be available to them, and they should contact their employer for
details.
Table of Contents
Item Page No.
CERTAIN INVESTMENT LIMITATIONS 2
DESCRIPTION OF CERTAIN SECURITIES 2
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 5
FUND ORGANIZATION 6
FUND OFFICERS AND DIRECTORS 7
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 13
PURCHASE OF SHARES 16
SELLING SHARES 22
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 23
EXECUTION OF PORTFOLIO TRANSACTIONS 26
GENERAL INFORMATION 26
INVESTMENT RESULTS AND RELATED STATISTICS 28
DESCRIPTION OF BOND RATINGS 33
FINANCIAL STATEMENTS ATTACHED
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
OBJECTIVE
- - Under normal market conditions, the fund will invest at least 65% of its
assets in securities of companies that appear to offer superior opportunities
for growth of capital.
DEBT SECURITIES
- - The fund may invest up to 10% of its assets in straight debt securities rated
Ba and BB or below or unrated but determined to be of equivalent quality.
NON-U.S. SECURITIES
- - The fund may invest up to 10% of its assets in securities of issuers
domiciled outside the U.S. and not included in the S&P 500 Composite Index
DESCRIPTION OF CERTAIN SECURITIES
The descriptions below are intended to supplement the material in the
prospectus under the "Risk/Return Summary" and "Investment Objective,
Strategies and Risks."
EQUITY SECURITIES - Equity securities represent an ownership position in a
company. These securities may include common stocks and securities with equity
conversion or purchase rights. The prices of equity securities fluctuate based
on changes in the financial condition of their issuers and on market and
economic conditions. The fund's results will be related to the overall market
for these securities. The growth-oriented, equity-type securities generally
purchased by the fund may involve large price swings and greater potential for
loss, particularly in the case of smaller capitalization stocks.
INVESTING IN SMALLER CAPITALIZATION STOCKS - The fund may invest from time to
time in the stocks of smaller companies (typically companies with market
capitalizations of less than $1.2 billion at the time of purchase). Capital
Research and Management Company believes that the issuers of smaller
capitalization stocks often provide attractive investment opportunities.
However, investing in smaller capitalization stocks can involve greater risk
than is customarily associated with investing in stocks of larger, more
established companies. For example, smaller companies often have limited
product lines, markets, or financial resources, may be dependent for management
on one or a few key persons, and can be more susceptible to losses. Also,
their securities may be thinly traded (and therefore have to be sold at a
discount from current prices or sold in small lots over an extended period of
time), may be followed by fewer investment research analysts, and may be
subject to wider price swings thus creating a greater chance of loss than
securities of larger capitalization companies.
DEBT SECURITIES - Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and generally must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values. The prices of debt securities fluctuate depending on such factors as
interest rates, credit quality and maturity. In general their prices decline
when interest rates rise and vice versa.
The fund may invest up to 10% of its assets in debt securities rate Ba and BB
or below by Moody's Investors Service, Inc. or Standard & Poor's Corporation or
in unrated securities that are determined to be of equivalent quality. These
securities are commonly known as "high-yield, high-risk" or "junk" bonds and
may have characteristics similar to the equity securities eligible for purchase
by the fund. Certain risk factors relating to investing in below investment
grade securities ("high-yield, high-risk bonds") are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds can be sensitive to adverse economic changes and political and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress that
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaults on its obligations to pay interest
or principal or enters into bankruptcy proceedings, the fund may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices and yields of high-yield, high-risk bonds and the
fund's net asset value. From time to time legislation has been proposed that
would limit the use of high-yield, high-risk bonds in certain instances. The
impact that such legislation if enacted, could have on the market for such
bonds cannot be predicted.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value will decrease in a
rising interest rate market, as will the value of the fund's assets. If the
fund experiences unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the fund's rate of return.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
OTHER SECURITIES - The fund may also invest in securities that have a
combination of equity and debt characteristics such as non-convertible
preferred stocks and convertible securities. These securities may at times
resemble equity more than debt and vice versa. Non-convertible preferred
stocks are similar to debt in that they have a stated dividend rate akin to the
coupon of a bond or note even though they are often classified as equity
securities. The prices and yield of non-convertible referred stocks generally
move with changes in interest rates and the issuer's credit quality, similar to
the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes by converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
INVESTING IN VARIOUS COUNTRIES - The fund may invest up to 10% of its assets
in securities of issuers domiciled outside the U.S. and not included in the
Standard & Poor's 500 Composite Index. Investing outside the U.S. involves
special risks, particularly in certain developing countries, caused by, among
other things: currency controls, fluctuating currency values; different
accounting, auditing, and financial reporting regulations and practices in some
countries; changing local and regional economic, political, and social
conditions; greater market volatility; differing securities market structures;
and various administrative difficulties such as delays in clearing and settling
portfolio transactions or in receiving payment of dividends. However, in the
opinion of Capital Research and Management Company, investing outside the U.S.
also can reduce certain portfolio risks due to greater diversification
opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The fund may purchase and sell currencies to
facilitate transactions in securities denominated in currencies other than the
US. dollar. Brokerage commissions may be higher outside the U.S., and the fund
will bear certain expenses in connection with its currency transactions.
Furthermore, increased custodian costs may be associated with the maintenance
of assets in certain jurisdictions.
RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject
to restrictions on resale. All such securities whose principal trading market
is in the U.S. will be considered illiquid unless they have been specifically
determined to be liquid under procedures adopted by the fund's board of
directors, taking into account factors such as the frequency and volume of
trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The fund may
incur certain additional costs in disposing of illiquid securities.
U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. For these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, and Federal Intermediate Credit Banks.
CASH AND CASH EQUIVALENTS - These securities include (1) commercial paper
(short-term notes issued by corporations or governmental bodies), (2)
commercial bank obligations (E.G., certificates of deposit (interest bearing
time deposits), and bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation to pay at maturity), (3)
savings association and savings bank obligations (E.G., certificates of deposit
issued by savings banks or savings associations), (4) securities of the U.S.
Government, its agencies or instrumentalities that mature at the time of
purchase, or may be redeemed, in one year or less, and (5) corporate bonds and
notes that mature at the time of purchase, or that may be redeemed, in one year
or less.
CURRENCY TRANSACTIONS - Although the fund has no current intention to do so
(at least during the next 12 months) the fund has the ability to hold a portion
of its assets in U.S. dollars and other currencies and to enter into certain
currency contracts (on either a spot or forward basis) in connection with
investing in non-U.S. dollar denominated securities including foreign currency
exchange and forward currency contracts. A foreign exchange contract is used
to facilitate settlement of trades. For example, the fund might purchase a
currency or enter into a foreign exchange contract to preserve the U.S. dollar
price of securities it has contracted to purchase. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. The
fund will segregate liquid assets which will be marked to market daily to meet
its forward commitments to the extent required by the Securities and Exchange
Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
WARRANTS AND RIGHTS - In addition, the fund may purchase warrants, which are
usually issued together with bonds or preferred stocks. Warrants generally
entitle the holder to buy a proportionate amount of common stock at a specified
price, usually higher than the current market price. Warrants may be issued
with an expiration date or in perpetuity. The fund may also invest in rights
to purchase common stocks. Rights are similar to warrants except that they
normally entitle the holder to purchase common stock at a lower price than the
current market price. Rights generally expire in less than four weeks.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting, or the vote of more than 50% of the outstanding voting securities,
whichever is less.
The fund may not:
1. Purchase the securities of any issuer, except the U.S. Government or any
subdivision thereof, if upon such purchase more than 5% of the value of its
total assets would consist of securities of such issuer.
2. Purchase the securities of companies in a particular industry (other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities) if thereafter 25% or more of the value of its total assets
would consist of securities issued by companies in that industry.
3. Purchase more than 10% of the voting or non-voting securities of any one
issuer.
4. Invest more than 15% of the value of its assets in securities that are
illiquid.
5. Purchase securities on margin.
6. Purchase any real estate unless necessary for office space for the fund or
for the protection of investments already made.
7. Make loans to anyone (the purchase of a portion of an issue of bonds,
debentures or other securities, whether or not on the original issue of such
securities, is not to be considered the making of a loan).
8. Sell securities or property short or permit any of its officers, directors
or any of its affiliated persons to take short positions on shares of the fund.
9. Purchase the securities of a company which has an officer or director who
is an officer or director of the fund, or an officer or director of its
investment adviser, if, to the knowledge of the fund, one or more of such
persons own beneficially more than 1/2 of 1% of the shares of the company and
in the aggregate more than 5% of the outstanding securities of such company.
10. Borrow more than an amount equal to 5% of the value of its total assets,
determined immediately after the time of the borrowing, and then only from
banks, as a temporary measure for extraordinary or emergency purposes.
11. Invest in the securities of other managed investment companies.
12. Invest in the securities of any issuer for the purpose of exercising
control or management.
13. Deal in commodities or commodity contracts.
14. Act as underwriter of securities issued by other persons.
For purposes of Investment Restriction #4, the fund will not invest more than
15% of its net assets in illiquid securities. Notwithstanding Investment
Restriction #11, the fund may invest in securities of other investment
companies if deemed advisable by its officers in connection with the
administration of a deferred compensation plan adopted by Directors pursuant to
an exemptive order granted by the Securities and Exchange Commission.
Furthermore, Investment Restriction #13 does not prevent the fund from engaging
in transactions involving forward currency contracts.
FUND ORGANIZATION
The fund is an open-end, diversified management investment company. It was
organized as a Delaware corporation in 1958 and reorganized as a Maryland
Corporation on September 22, 1983.
All fund operations are supervised by the fund's board of directors. The
board meets periodically and performs duties required by applicable state and
federal laws. Members of the board who are not employed by Capital Research
and Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in "Directors and Director Compensation"
below. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund.
FUND OFFICERS AND DIRECTORS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS AND WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AGE REGISTRANT DURING PAST (INCLUDING (INCLUDING OF FUND
5 YEARS VOLUNTARILY VOLUNTARILY BOARDS
DEFERRED DEFERRED ON WHICH
COMPENSATION/ COMPENSATION/1/) DIRECTOR
1/) FROM ALL FUNDS SERVES/3/
FROM THE FUND MANAGED BY
DURING FISCAL CAPITAL RESEARCH
YEAR ENDED AND
8/31/98 MANAGEMENT
COMPANY OR ITS
AFFILIATES/2/
FOR THE YEAR
ENDED 8/31/98
<S> <C> <C> <C> <C> <C>
Guilford C. Director Associate $9,700 $34,800 2
Babcock Professor of
Age: 67 Finance,
1500 Park School of
Place Business
San Marino, Administration, University
CA 91108 of Southern
California
Robert A. Director President and $18,000/4/ $105,817/4/ 6
Fox Chief
Age: 61 Executive
P.O. Box Officer,
457 Foster Farms
1000 Davis
Street
Livingston,
CA 95334
Roberta L. Director Consultant; $17,967 $67,717 4
Hazard Rear Admiral,
Age: 63 United States
1419 Audmar Navy
Drive (Retired)
McLean, VA
22101
Leonade D. Director Former $17,700/4/ $99,967/4/ 6
Jones Treasurer,
Age: 50 The
1536 Los Washington
Montes Post Company
Drive
Burlingame,
CA 94010
John G. Director The IBJ $21,683/4/ $168,700/4/ 8
McDonald Professor of
Age: 61 Finance,
Graduate Graduate
School of School of
Business Business,
Stanford Stanford
University University
Stanford,
CA 94305
Gail L. Director President, $10,200 $66,800 5
Neale The Lovejoy
Age: 63 Consulting
The Lovejoy Group, Inc.;
Consulting former
Group, Inc. Executive
154 Vice
Prospect President,
Parkway Salzburg
Burlington, Seminar
VT 05401
+James W. Director Senior None/5/ None /5/ 8
Ratzlaff Partner, The
Age: 62 Capital Group
333 South Partners L.P.
Hope Street
Los
Angeles, CA
90071
Henry E. Director President, $20,883/4/ $82,133/4/ 5
Riggs Keck Graduate
Age: 63 Institute of
Keck Applied Life
Graduate Sciences;
Institute former
of President and
Applied Professor of
Life Engineering,
Science Harvey Mudd
1263 North College
Dartmouth
Claremont,
CA 91711
+James F. Director President and None/5/ None/5/ 3
Rothenberg Director,
Age: 52 Capital
333 South Research and
Hope Street Management
Los Company
Angeles, CA
90071
Patricia K. Director Private $21,183 $103,050 6
Woolf investor;
Age: 64 Lecturer,
506 Quaker Department of
Road Molecular
Princeton, Biology,
NJ 08540 Princeton
University;
Corporate
Director
</TABLE>
+ "Interested persons" of the fund within the meaning of the Investment Company
Act of 1940 (the 1940 Act) on the basis of their affiliation with the fund's
Investment Adviser, Capital Research and Management Company or the parent
company of the Investment Adviser, The Capital Group Companies, Inc.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in The American Funds Group as designated by the director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 29 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., New World Fund, Inc., SMALLCAP World Fund, Inc., The
Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The
Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt
Money Fund of America, The U.S. Treasury Money Fund of America, U.S. Government
Securities Fund and Washington Mutual Investors Fund, Inc. Capital Research
and Management Company also manages American Variable Insurance Series and
Anchor Pathway Fund which serve as the underlying investment vehicles for
certain variable insurance contracts; and Endowments, whose shareholders are
limited to (i) any entity exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any
trust, the present or future beneficiary of which is a 501(c)(3) organization,
and (iii) any other entity formed for the primary purpose of benefiting a
501(c)(3) organization. An affiliate of Capital Research and Management
Company, Capital International, Inc., manages Emerging Markets Growth Fund,
Inc.
/3/ Includes funds managed by Capital Research and Management Company and
affiliates.
/4/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors are as
follows: Robert A. Fox ($143,465), Leonade D. Jones ($61,174) John G.
McDonald ($91,936) and Henry E. Riggs ($106,225). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Director.
/5/ James W. Ratzlaff and James F. Rothenberg are affiliated with the
Investment Adviser and, accordingly, receive no compensation from the fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
HELD WITH DURING PAST 5 YEARS
REGISTRANT
<S> <C> <C> <C>
James E. Drasdo 53 President Senior Vice President and
333 South Hope Street Director, Capital
Los Angeles, CA 90071 Research and Management
Company
Gordon Crawford 51 Senior Vice Senior Vice President and
333 South Hope Street President Director, Capital
Los Angeles, CA 90071 Research and Management
Company
Paul G. Haaga, Jr. 49 Senior Vice Executive Vice President
333 South Hope Street President and Director, Capital
Los Angeles, CA 90071 Research and Management
Company
Donald D. O'Neal 38 Senior Vice Vice President, Capital
P.O. Box 7650 President Research and Management
San Francisco, CA Company
94120
Richard M. Beleson 44 Vice Senior Vice President and
P.O. Box 7650 President Director
San Francisco, CA
94120
Michael T. Kerr 39 Vice Executive Vice President
333 South Hope Street President and Research Director,
Los Angeles, CA 90071 Capital Research and
Management Company
Julie F. Williams 50 Secretary Vice President - Fund
333 South Hope Street Business Management
Los Angeles, CA 90071 Group, Capital Research
and Management Company
Sheryl F. Johnson 30 Treasurer Vice President - Fund
5300 Robin Hood Road Business Management
Norfolk, VA 23513 Group, Capital Research
and Management Company
Robert P. Simmer 37 Assistant Vice President - Fund
5300 Robin Hood Road Treasurer Business Management
Norfolk, VA 23513 Group, Capital Research
and Management Company
</TABLE>
All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser. No compensation is paid by
the fund to any officer or director who is a director, officer or employee of
the Investment Adviser or affiliated companies. The fund pays fees of $14,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$1,000 for each Board of Directors meeting attended, plus $500 for each meeting
attended as a member of a committee of the Board of Directors. The directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the unaffiliated directors. As of October 1,
1998 the officers and directors of the fund and their families, as a group,
owned beneficially or of record less than 1% of the outstanding shares.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South College Boulevard, Brea, Ca 92821. The
Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $175 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser,
dated January 1, 1994, and approved by the shareholders on December 14, 1993,
was amended by the Board of Directors effective on November 1, 1997. The
Agreement shall be in effect until the close of business on August 31, 1999 and
may be renewed from year to year thereafter, provided that any such renewal has
been specifically approved at least annually by (i) the Board of Directors of
the fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
directors who are not parties to the Agreement or interested persons (as
defined in said Act) of any such party, cast in person, at a meeting called for
the purpose of voting on such approval. The Agreement also provides that
either party has the right to terminate it without penalty, upon 60 days'
written notice to the other party, and that the Agreement automatically
terminates in the event of its assignment (as defined in said Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, as well as general purpose accounting forms, supplies, and
postage to be used at the offices of the fund relating to the services
furnished by the Investment Adviser. The fund pays all expenses not
specifically assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
designing, printing and mailing reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses of the issuance and redemption of
shares of the fund (including stock certificates, registration and
qualification fees and expenses); expenses pursuant to the fund's Plan of
Distribution (described below); legal and auditing expenses; compensation,
fees, and expenses paid to directors unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
Capital Research and Management Company receives a management fee at the
annual rates of 0.50% on the first $1 billion of the fund's net assets, 0.40%
on net assets in excess of $1 billion but not exceeding $2 billion, 0.37% on
net assets in excess of $2 billion but not exceeding $3 billion, 0.35% on net
assets in excess of $3 billion but not exceeding $5 billion, 0.33% on net
assets in excess of $5 billion but not exceeding $8 billion, 0.315% on net
assets in excess of $8 billion but not exceeding $13 billion, 0.30% on net
assets in excess of $13 billion but not exceeding $21 billion and 0.29% on net
assets in excess of $21 billion.
The Agreement provides that the Investment Adviser shall reduce the fee
payable by the fund the amount, if any, by which the total expenses of the fund
for any fiscal year (excluding interest, taxes and extraordinary expenses)
exceed 1.5% of the first $30 million of average net assets of the fund for such
fiscal year, plus 1% of such average net assets in excess thereof. Expenses
which are not subject to this limitation are interest, taxes, and extraordinary
expenses. Expenditures, including costs incurred in connection with the
purchase or sale of portfolio securities, which are capitalized in accordance
with generally accepted accounting principles applicable to investment
companies, are accounted for as capital items and not as expenses.
For the fiscal years ended August 31, 1998, 1997, and 1996, the Investment
Adviser received advisory fees of $45,511,000, $36,531,000, and $30,625,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by
the Principal Underwriter on sales of fund shares during the fiscal year ended
August 31, 1998 amounted to $6,615,000 after allowance of $32,726,000 to
dealers. During the fiscal years ended 1997 and 1996, the Principal
Underwriter received $4,855,000 and $7,465,000, after allowance of $24,257,000
and $38,496,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors, and separately by a majority of the directors who are not interested
persons of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund. The officers and directors who are "interested"
persons of the fund may be considered to have a direct or indirect financial
interest in the operation of the Plan due to present or past affiliations with
the Investment Adviser and related companies. Potential benefits of the Plan
to the fund include improved shareholder services, savings to the fund in
transfer agency costs, savings to the fund in advisory fees and other expenses,
benefits to the investment process from growth or stability of assets and
maintenance of a financially healthy management organization. The selection
and nomination of directors who are not "interested persons" of the fund are
committed to the discretion of the directors who are not interested persons
during the existence of the Plan. The Plan is reviewed quarterly and must be
renewed annually by the Board of Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees or a community foundation).
Commissions on sales of shares exceeding $1 million (including purchases by
any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fiscal year ended August 31, 1998, the fund paid $31,284,000 under the
Plan as compensation to dealers. As of August 31, 1998, accrued and unpaid
distribution expenses were $7,048,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
may no longer be able to avail themselves of any automatic investment or other
services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986, as amended (the Code). Under Subchapter M,
if the fund distributes within specified times at least 90% of its investment
company taxable income, it will be taxed only on that portion of such
investment company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the fund's assets
is represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities which must be
limited, in respect of any one issuer, to an amount not greater than 5% of the
fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income for the calendar year, (ii) 98% of
capital gains (both long-term and short-term) for the one-year period ending on
October 31 (as though the one-year period ending on October 31 were the
regulated investment company's taxable year), and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the fund pays income tax for the year. The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid excise tax
liability.
The amount of any realized gain or loss on closing out a futures contract such
as a forward commitment for the purchase or sale of foreign currency will
generally result in a realized capital gain or loss for tax purposes. Futures
contracts held by the fund at the end of each fiscal year will be required to
be "marked to market" for federal income tax purposes, that is, deemed to have
been sold at market value. Sixty percent (60%) of any net gain or loss
recognized on these deemed sales and sixty percent (60%) of any net realized
gain or loss from any actual sales will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
Currency transactions that are not subject to Section 1256 of the Code may be
subject to Section 988 of the Code, in which case the 60%/40%
long-term/short-term capital gain or loss rule of Section 1256 would not apply.
Rather, each Section 988 foreign currency gain or loss would generally be
computed separately and treated as ordinary income or loss. The fund will
attempt to monitor Section 988 transactions to avoid an adverse tax impact.
If the fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" (PFIC), the fund may be subject to U.S.
federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend by the fund to its shareholders. Additional charges in the nature of
interest may be imposed on either the fund or its shareholders in respect of
deferred taxes arising from such distributions or gains. If the fund were to
invest in a PFIC and elected to treat the PFIC as a "qualified electing fund"
under the Code, in lieu of the foregoing requirements, the fund might be
required to include in income each year a portion of the ordinary earnings and
net capital gains of the qualified electing fund, even if not distributed to
the fund, and such amounts would be subject to the 90% and calendar year
distribution requirements described above.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent that the fund's income is derived from dividends
(which if received directly, would qualify for such deduction) received from
domestic corporations. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the fund shares paying the
dividends upon which the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
The fund may be required to pay withholding and other taxes imposed by foreign
countries generally at rates from 10% to 40% which would reduce the fund's
investment income. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. Not more than 50% of the total assets of the
fund are expected to consist of securities of foreign issuers. Therefore, the
fund will not be eligible to elect to "pass through" foreign tax credits to
shareholders and, to the extent the fund does pay foreign withholding or other
foreign taxes on investments in foreign securities, shareholders will not be
able to deduct their pro rata share of such taxes in computing their taxable
income and will not be able to take their share of such taxes as a credit
against their U.S. income taxes.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains on assets held more than one year is 20%; and
the maximum corporate tax applicable to ordinary income and net capital gains
is 35%. However, to eliminate the benefit of lower marginal corporate income
tax rates, corporations which have taxable income in excess of $100,000 for a
taxable year will be required to pay an additional amount of tax of up to
$11,750 and corporations which have taxable income in excess of $15,000,000 for
a taxable year will be required to pay an additional amount of tax of up to
$100,000. Naturally, the amount of tax payable by a shareholder with respect
to either distributions from the fund or disposition of fund shares will be
affected by a combination of tax law rules covering, E.G., deductions, credits,
deferrals, exemptions, sources of income and other matters. Under the Code, an
individual is entitled to establish an IRA each year (prior to the tax return
filing deadline for the year) whereby earnings on investments are tax-deferred.
In addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment $50 minimum (except where a
Minimums and Fund lower minimum is noted under
Numbers" for initial "Investment Minimums and Fund
investment minimums. Numbers").
By Visit any investment Mail directly to your
contacting dealer who is investment dealer's address
your registered in the state printed on your account
investment where the purchase is statement.
dealer made and who has a
sales agreement with
American Funds
Distributors.
By mail Make your check payable Fill out the account additions
to the fund and mail to form at the bottom of a recent
the address indicated account statement, make your
on the account check payable to the fund,
application. Please write your account number on
indicate an investment your check, and mail the check
dealer on the account and form in the envelope
application. provided with your account
statement.
By telephone Please contact your Complete the "Investments by
investment dealer to Phone" section on the account
open account, then application or American
follow the procedures FundsLink Authorization Form.
for additional Once you establish the
investments. privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(r) and make
investments by telephone
(subject to conditions noted in
"Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By computer Please contact your Complete the American FundsLink
investment dealer to Authorization Form. Once you
open account, then establish the privilege, you,
follow the procedures your financial advisor or any
for additional person with your account
investments. information may access American
FundsLine OnLine(r) on the
Internet and make investments
by computer (subject to
conditions noted in "Telephone
and Computer Purchases,
Redemptions and Exchanges"
below).
By wire Call 800/421-0180 to Your bank should wire your
obtain your account additional investments in the
number(s), if same manner as described under
necessary. Please "Initial Investment."
indicate an investment
dealer on the account.
Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the
account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(r) (see
description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) $1,000 02
American Balanced Fund(r) 500 11
American Mutual Fund(r) 250 03
Capital Income Builder(r) 1,000 12
Capital World Growth and Income Fund(sm) 1,000 33
EuroPacific Growth Fund(r) 250 16
Fundamental Investors(sm) 250 10
The Growth Fund of America(r) 1,000 05
The Income Fund of America(r) 1,000 06
The Investment Company of America(r) 250 04
The New Economy Fund(r) 1,000 14
New Perspective Fund(r) 250 07
New World Fund (SM) 1,000+ 36
SMALLCAP World Fund(r) 1,000 35
Washington Mutual Investors Fund(sm) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(r) 1,000 40
American High-Income Trust(sm) 1,000 21
The Bond Fund of America(sm) 1,000 08
Capital World Bond Fund(r) 1,000 31
Intermediate Bond Fund of America(sm) 1,000 23
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(sm)
The Tax-Exempt Bond Fund of America(r) 1,000 19
The Tax-Exempt Fund of California(r)* 1,000 20
The Tax-Exempt Fund of Maryland(r)* 1,000 24
The Tax-Exempt Fund of Virginia(r)* 1,000 25
U.S. Government Securities Fund(sm) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(r) 2,500 09
The Tax-Exempt Money Fund of America(sm) 2,500 39
The U.S. Treasury Money Fund of America(sm) 2,500 49
___________
*Available only in certain states.
+Effective September 15, 1999.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
SALES CHARGES - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than $100,000 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than $50,000 4.71 4.50 3.75
$50,000 but less than $100,000 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND
FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES - Investment of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchases. Investments by retirement plans,
foundations or endowments with $50 million or more in assets made by made with
no sales charge and are not subject to a contingent deferred sales charge.
In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:
(1) current or retired directors, trustees, officers and advisory board
members of the funds managed by Capital Research and Management Company,
employees of Washington Management Corporation, employees and partners of The
Capital Group Companies, Inc. and its affiliated companies, certain family
members of the above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives
with respect to accounts established while active, or full-time employees (and
their spouses, parents, and children) of dealers who have sales agreements with
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger,
acquisition or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS - Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS - American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top one
hundred dealers who have sold shares of the fund or other funds in The American
Funds Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis, determine
the advisability of continuing these payments.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
REDUCING YOUR SALES CHARGE - You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and offering
prices set forth in the Prospectus apply to purchases of $50,000 or more made
within a 13-month period subject to the following statement of intention (the
Statement) terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to use the Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
Transfer Agent. All dividends and any capital gain distributions on shares
held in escrow will be credited to the shareholder's account in shares (or paid
in cash, if requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will pay to the Principal Underwriter
the difference between the sales charge actually paid and the sales charge
which would have been paid if the total of such purchases had been made at a
single time. If the difference is not paid by the close of the period, the
appropriate number of shares held in escrow will be redeemed to pay such
difference. If the proceeds from this redemption are inadequate, the purchaser
will be liable to the Principal Underwriter for the balance still outstanding.
The Statement may be revised upward at any time during the 13-month period, and
such a revision will be treated as a new Statement, except that the 13-month
period during which the purchase must be made will remain unchanged and there
will be no retroactive reduction of the sales charges paid on prior purchases.
Existing holdings eligible for rights of accumulation (see the prospectus and
account application) and any individual investments in American Legacy products
(American Legacy, American Legacy II and American Legacy III variable
annuities, American Legacy Life, American Legacy Variable Life, and American
Legacy Estate Builder) may be credited toward satisfying the statement. During
the statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month period
will be handled as follows: The regular monthly payroll deduction investment
will be multiplied by 13 and then multiplied by 1.5. The current value of
existing American Funds investments (other than money market fund investments)
any rollovers or transfers reasonably anticipated to be invested in non-money
market American Funds during the 13-month period, and any individual
investments in American Legacy products are added to the figure determined
above. The sum is the Statement amount and applicable breakpoint level. On
the first investment and all other investments made pursuant to the statement
of intention, a sales charge will be assessed according to the sales charge
breakpoint thus determined. There will be no retroactive adjustments in sales
charges on investments previously made during the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the 1940 Act, again excluding employee benefit plans described
above, or (3) for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund shares.
Purchases made for nominee or street name accounts (securities held in the name
of an investment dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or street name accounts
unless otherwise qualified as described above.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When
determining your sales charge, you may also take into account the value of your
individual holdings, as of the end of the week prior to your investment, in
various American Legacy products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). Direct purchases of the
money market funds are excluded.
PRICE OF SHARES - Shares are purchased at the offering price next determined
after the purchase order is received and accepted by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In the case of orders sent directly to the fund or American Funds
Service Company, an investment dealer must be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper do not always indicate the prices at which you will be purchasing and
redeeming shares of the fund, since such prices generally reflect the previous
day's closing price whereas purchases and redemptions are made at the next
calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the normal close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00
p.m. on the next, the fund's share price would be determined as of 4:00 p.m.
New York time on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined, as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; The fair value of all other assets is
added to the value of securities at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly
or indirectly to any person or entity, where, after the sale, such person or
entity would own beneficially directly or indirectly more than 4.5% of the
outstanding shares of the fund without the consent of a majority of the fund's
directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s).
- - A signature guarantee is required if the redemption is:
- -- Over $50,000;
- -- Made payable to someone other than the registered shareholder(s); or
- -- Sent to an address that has not been used with the account for at least 10
days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(r)
- - Redemptions by telephone or fax (including American FundsLine(r) and American
FundsLine OnLine(r)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application).
- -- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed.
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(I) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, to automatically redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) or American FundsLine OnLine(r) (see "American FundsLine(r) and
American FundsLine OnLine(r)" below), or by telephoning 800/421-0180 toll-free,
faxing (see "Principal Underwriter and Transfer Agent" in the prospectus for
the appropriate fax numbers) or telegraphing American Funds Service Company.
(See "Telephone and Computer Purchases, Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments will be reflected on regular confirmation statements from American
Funds Service Company. Dividend and capital gain reinvestments and purchases
through automatic investment plans and certain retirement plans will be
confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(r) - You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(r) or American
FundsLine OnLine(r). To use this service, call 800/325-3590 from a TouchTonet
telephone or access the American Funds Web site on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(r)
and American FundsLine OnLine(r) are subject to the conditions noted above and
in "Shareholder Account Services and Privileges--Telephone and Computer
Purchases, Redemptions and Exchanges" below. You will need your fund number
(see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone or computer (including American FundsLine(r) or American FundsLine
OnLine(r)), fax or telegraph redemption and/or exchange options, you agree to
hold the fund, American Funds Service Company, any of its affiliates or mutual
funds managed by such affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone because of technical difficulties, market conditions, or
a natural disaster, redemption and exchange requests may be made in writing
only.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund
to direct the Transfer Agent to redeem your shares for their then current net
asset value per share if at such time you own of record, shares having an
aggregate net asset value of less than the minimum initial investment amount
required of new shareholders as set forth in the fund's current registration
statement under the 1940 Act, and subject to such further terms and conditions
as the Board of Directors of the fund may from time to time adopt.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available
prices in its portfolio transactions taking into account the costs and
promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
Portfolio transactions for the fund may be executed as part of concurrent
authorizations to purchase or sell the same security for other funds served by
the Investment Adviser, or for trusts or other accounts served by affiliated
companies of the Investment Adviser. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to the fund, they
are effected only when the Investment Adviser believes that to do so is in the
interest of the fund. When such concurrent authorizations occur, the objective
is to allocate the executions in an equitable manner. The fund will not pay a
mark-up for research in principal transactions.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended August 31, 1998, 1997, and 1996, amounted to $7,217,000, $5,577,000, and
$5,390,000, respectively.
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more
than 15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, American Express
Credit Corp. was among the dealers that acted as principals in portfolio
transactions. The fund held debt securities of American Express Credit Corp.
in the amount of $46,059,000 as of the close of its most recent fiscal year.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02101, as Custodian. Non-U.S. securities may be held by
the Custodian pursuant to sub-custodial arrangements in non-U.S. banks or
foreign branches of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly-owned subsidiary of
the Investment Adviser, maintains the record of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $10,116,000 for the fiscal year ended August 31, 1998.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents of the fund to be filed with the Securities and Exchange Commission.
The financial statements incorporated in this Statement of Additional
Information have been so included in reliance on the report of Deloitte &
Touche LLP given on the authority of said firm as experts in accounting and
auditing.
SHAREHOLDER VOTING RIGHTS -- The fund does not hold annual meetings of
shareholders. However, significant matters which require shareholder approval,
such as certain elections of board members or a change in a fundamental
investment policy, will be presented to shareholders at a meeting called for
such purpose. At any meeting of shareholders, duly called and at which a
quorum is present, the shareholders may, by the affirmative vote of the holders
of a majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed directors. Accordingly,
the directors of the fund will promptly call a meeting of shareholders for the
purpose of voting upon the removal of any director when requested in writing
to do so by the record holders of at least 10% of the outstanding shares.
Shareholders have one vote per share owned.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on August 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The annual
financial statements are audited by the fund's independent auditors, Deloitte &
Touche LLP, whose selection is determined annually by the Board of Directors.
In an effort to reduce the volume of mail shareholders receive from the fund
when a household owns more than one account, the Transfer Agent has taken steps
to eliminate duplicate mailings of shareholder reports. To receive additional
copies of a report shareholders should contact the Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
DETERMINATION OF NET ASSET VALUE,
REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE--AUGUST 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $17.95
Maximum offering price per share
(100/94.25 of net asset value per share
which takes into account the fund's current
maximum sales charge) $19.05
</TABLE>
Investment Results and Related Statistics
The fund's yield is 0.52% based on a 30-day (or one month) period ended August
31, 1998, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of
the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's average annual total returns for the one, five and ten-year periods
ended on August 31, 1998 were -5.98%, 11.83%, and 14.14%, respectively. The
average annual total return (T) is computed by using the value at the end of
the period (ERV) of a hypothetical initial investment of $1,000 (P) over a
period of years (n) according to the following formula as required by the
Securities and Exchange Commission: P(1+T)/n/ = ERV. The fund's average
annual total returns at net asset value for the one-, five- and ten-year
periods ended on August 31, 1998 was -0.24%, 13.16%, and 14.82%, respectively.
In calculating average annual total return, the fund assumes: (1) deduction
of the maximum sales load of 5.75% from the $1,000 initial investment; (2)
reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated.
To calculate total return, an initial investment is divided by the offering
price (which includes the sales charge) as of the first day of the period in
order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Directors. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the period. Total return may be calculated for one year, five years,
ten years and for other periods of years. The average annual total return over
periods greater than one year also may be computed by utilizing ending values
as determined above.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
The fund may include, in advertisements or in reports furnished to present or
prospective shareholders, information on its investment results and/or
comparisons of its investment results to various unmanaged indices (such as The
Dow Jones Average of 30 Industrial Stocks and The Standard & Poor's 500 Stock
Composite Index) or results of other mutual funds or investment or savings
vehicles. . The fund may also combine its results with those of other funds in
The American Funds Group for purposes of illustrating investment strategies
involving multiple funds.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., Wiesenberger Investment Companies Services and by the U.S. Department of
Commerce. Additionally, the fund may refer to results published in various
newspapers or periodicals, including Barrons, Forbes, Fortune, Institutional
Investor, Kiplinger's Personal Finance Magazine, Money, U.S. News and World
Report and The Wall Street Journal.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index,
which is a measure of the average change in prices over time in a fixed market
basket of goods and services (E.G. food, clothing, and fuels, transportation,
and other goods and services that people buy for day-to-day living).
GFA vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
10-Year Average
Periods Savings
9/1 - 8/31 GFA DJIA/1/ S&P 500/2/ Account/3/
<S> <C> <C> <C> <C>
1988 - 1998 +275% +396% +383% + 62%
1987 - 1997 +236 +290 +267 + 64
1986 - 1996 +221 +309 +251 + 68
1985 - 1995 +309 +386 +311 + 73
1984 - 1994 +270 +359 +300 + 82
1983 - 1993 +251 +340 +303 + 93
1982 - 1992 +312 +441 +405 +1048
1981 - 1991 +328 +435 +382 +116
1980 - 1990 +269 +344 +300 +122
1979 - 1989 +445 +400 +398 +124
1978 - 1988 +358 +283 +299 +124
1977 - 1987 +735 +422 +447 +124
1976 - 1986 +600 +234 +299 +124
1975 - 1985 +521 +173 +253 +121
1974 - 1984 +579 +211 +277 +116
1973#- 1983 +464 +151 +175 +106
</TABLE>
_________________
# From December 1, 1973
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
<TABLE>
<CAPTION>
If you are considering GFA for an
Individual Retirement Account. .
Here's how much you would have if you had invested $2,000
a year on September 1
of each year in GFA over the past 3, 5 and 10 years:
<S> <C> <C>
3 years 5 years 10 years
(9/1/95-8/31/98) (9/1/93-8/31/98) (9/1/88-8/31/98)
$7,114 $13,911 $ 41,712
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . and had taken
all dividends and
capital gain
distributions
in shares, your
If you had investment would
invested $10,000 have been worth
in GFA this many this much at
years ago . . . 8/31/98
| |
Number Periods
of Years 9/1 - 8/31 Value
<S> <C> <C>
1 1997 - 1998 $9,402
2 1996 - 1998 13,024
3 1995 - 1998 13,142
4 1994 - 1998 16,499
5 1993 - 1998 17,487
6 1992 - 1998 21,802
7 1991 - 1998 22,865
8 1990 - 1998 29,860
9 1989 - 1998 26,936
10 1988 - 1998 37,545
11 1987 - 1998 33,519
12 1986 - 1998 44,317
13 1985 - 1998 57,035
14 1984 - 1998 64,758
15 1983 - 1998 65,213
16 1982 - 1998 95,307
17 1981 - 1998 103,955
18 1980 - 1998 116,750
19 1979 - 1998 155,866
20 1978 - 1998 182,615
21 1977 - 1998 297,054
22 1976 - 1998 329,356
23 1975 - 1998 375,870
24 1974 - 1998 466,464
25 1973#- 1998 390,174
</TABLE>
__________________
#From December 1, 1973
Illustration of a $10,000 investment in GFA with
dividends reinvested and capital gain distributions taken in shares
(for the period December 1, 1973 through August 31, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Year Annual Dividends Total From From From Total
Ended Dividends (cumulative) Investment Initial Capital Gains Dividends Value
August 31 Cost Investment Reinvested Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1974# - - $10,000 $ 7,874 - - $ 7,874
1975 $ 362 $ 362 10,362 9,322 - $ 470 9,792
1976 283 645 10,645 10,327 - 838 11,165
1977 - 645 10,645 11,449 - 928 12,377
1978 254 899 10,899 18,364 - 1,772 20,136
1979 - 899 10,899 21,519 - 2,076 23,595
1980 307 1,206 11,206 28,318 - 3,178 31,496
1981 546 1,752 11,752 31,304 - 4,079 35,383
1982 1,673 3,425 13,425 32,507 - 6,088 38,595
1983 2,290 5,715 15,715 44,886 - 11,496 56,382
1984 1,643 7,358 17,358 43,120 $ 1,064 12,621 56,805
1985 1,249 8,607 18,607 47,370 1,744 15,379 64,493
1986 979 9,586 19,586 56,066 7,355 19,541 82,962
1987 1,354 10,940 20,940 69,339 14,360 26,031 109,730
1988 1,502 12,442 22,442 56,949 18,289 22,724 97,962
1989 1,743 14,185 24,185 75,387 28,688 32,432 136,507
1990 3,611 17,796 27,796 60,251 33,708 29,225 123,184
1991 3,208 21,004 31,004 73,295 47,920 39,600 160,815
1992 2,510 23,514 33,514 72,052 55,106 41,545 168,703
1993 1,454 24,968 34,968 88,758 68,670 52,840 210,268
1994 929 25,897 35,897 90,294 77,818 54,740 222,852
1995 1,372 27,269 37,269 108,176 104,252 67,383 279,811
1996 2,452 29,721 39,721 100,592 116,565 65,166 282,323
1997 2,019 31,740 41,740 131,682 171,693 87,748 391,123
1998 2,525 34,265 44,265 117,363 192,135 80,676 390,174
</TABLE>
The dollar amount of capital gain distributions during the period was $134,866.
#From December 1, 1973
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine growth and growth-income funds that are at least 10 years old. In
the rolling 10-year periods since January 1, 1968 (133 in all), those funds
have had better total returns than the Standard & Poor's 500 Composite Stock
Index in 124 of the 133 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
DESCRIPTION OF BOND RATINGS
Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as 'gilt edge.' Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Moody's supplies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic rating category.
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
Subsequent to its purchase by the fund, the rating of an issue of bonds may be
changed from the rating required for its purchase, or in the case of an unrated
issue of bonds, its credit quality may become equivalent to an issue of bonds
ineligible for purchase by the fund. Neither event requires the elimination of
such an obligation from the fund's portfolio, but Capital Research and
Management Company (the Investment Adviser) will consider such an event in
determining whether the fund should continue to hold such an obligation in its
portfolio.
<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.
