American Growth Fund Series Two
Class E AMREX

Statement of Additional Information – November 30, 2018

This Statement of Additional Information is not a prospectus. Prospective investors should read this Statement of Additional Information only in conjunction with the Prospectus of Series Two of American Growth Fund, Inc. (the "Fund") dated November 30, 2018. A copy of the Prospectus may be obtained at no cost by writing World Capital Brokerage, Inc. (the "Distributor"), 1636 Logan Street, Denver, Colorado 80203, or by calling 800-525-2406 or on the Fund’s web site, www.americangrowthfund.com.

A

ADDITIONAL INVESTMENT INFORMATION, 5 AUTOMATIC CASH WITHDRAWAL PLAN, 16

B

BOARD OF DIRECTORS, 9 BROKERAGE, 19

C

CALCULATION OF NET ASSET VALUE, 20 CLASSIFICATION, 2

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES, 12

D

DISCLOSUE OF PROTFOLIO HOLDINGS, 7 DISTRIBUTION OF SHARES, 14 DISTRIBUTION PLANS, 17 DIVIDENDS, DISTRIBUTIONS AND TAXES, 21

F

FUND HISTORY, 2

I

INVESTMENT ADVISORY AGREEMENT, 12 INVESTMENT RISKS, 3 INVESTMENT STRATAGIES, 2

M

MANAGEMENT OF THE FUND, 8

O

OTHER SERVICE PROVIDERS, 14

P

PERFORMANCE DATA, 23 PORTFOLIO MANAGERS, 14 PORTFOLIO TURNOVER, 7 PRINCIPAL UNDERWRITER, 13 PROXY VOTING POLICIES, 12

R

RETIREMENT PLANS, 16

S

SECURITIES LENDING, 14 SERVICE AGREEMENTS, 13

T

TEMPORARY DEFENSIVE POSITION, 7

Series Two Prospectus Page 1


 

FUND HISTORY

American Growth Fund, Inc. was organized and incorporated in the State of Maryland in 1958. Series Two was established in February of 2011 as a diversified, open-end, mutual fund. In July of 2016 Series Two reorganized into a diversified mutual fund focused on the legal cannabis business.

CLASSIFICATION

The American Growth Fund Series Two is a diversified, open-end management mutual fund.

INVESTMENT STRATEGIES

In attempting to achieve its principal investment objective, the Fund will attempt to invest at least 80% of its assets in securities involved, at least some way, in the legal cannabis business, securities convertible into common stocks traded on national securities exchanges or over-the-counter or REITs.

At the time of purchase, with respect to 75% of the Fund's total assets, we do not invest more than 5% in any one issuer nor do we invest more than 25% in any one industry. We also follow a rigorous selection process designed to identify undervalued securities before choosing securities for the portfolio.

The Fund may invest in companies of all sizes. Investment Research Corporation, the Fund’s investment adviser (the Adviser or IRC), will choose securities that it believes have a potential for capital appreciation because of existing or anticipated economic conditions or because the securities are considered undervalued or out of favor with investors or are expected to increase in price over time.

The Fund may invest in REITs if the investment committee believes that it could be advantageous to the stockholders. These REITs could be involved in the areas of the legal cannabis business such as property development and rental or other legal endeavors associated with the cannabis business.

Consistent with its investment objective, policies, and restrictions, the Fund also may invest in securities, such as Exchange Traded Funds (“ETFs”).

Using the following approach, we look for companies having some of these characteristics:

~ Companies and/or securities involved legally in the cannabis business;
~ Large capitalization companies, although the Fund may invest in companies of all sizes, if the Adviser

believes it is in the best interests of the Fund. Large cap companies are generally companies with market
capitalization exceeding $5 billion at the date of acquisition;

~ growth that is faster than the market as a whole and sustainable over the long term;
~ strong management team;
~ leading market positions and growing brand identities;
~ financial, marketing, and operating strength.

When the Adviser believes the securities the Fund holds may decline in value, the Fund may sell them and, if the Adviser believes market conditions warrant the Fund may assume a defensive position. While in a defensive position, the Fund may invest all or part of its assets in corporate bonds, debentures (both short and long term) or preferred stocks rated A or above by Moody Investors Service, Inc., Standard and Poor’s, or Fitch Ratings (or, if unrated, of comparable quality in the opinion of the Adviser), United States Government securities, repurchase agreements meeting approved credit worthiness standards (e.g., whereby the underlying security is issued by the United States Government or any agency thereof), or retain funds in cash or cash equivalents. There is no maximum limit on the amount of fixed income securities in which the Fund may invest for temporary defensive purposes. If the Fund takes a temporary defensive position in attempting to respond to adverse market, economic, political or other conditions, it

Statement of Additional Information Page 2


 

may not achieve its investment objective. The Fund’s performance could be lower during periods when it retains or invests its assets in these more defensive holdings.

INVESTMENT RISKS

Investing in any mutual fund involves risk, including the risk that you may receive little or no return on your investment, and the risk that you may lose part or all of the money you invest.

The company may invest in companies of all sizes. The legal cannabis business is a quickly growing and emerging business. As a result there are additional risks that you should consider. Some of these risks are;

~ Stock Market Risk - the value of an investment may fluctuate,

~ Industry and Security Risk - risks relating to an industry as a whole or a company’s prospects for

business success,

~ Management Risk - risks that the Adviser’s assessment of a company’s growth prospects may not be
accurate,

~ Political, Economic and Regulatory Risk - Changes in economic and tax policies, high inflation rates,
government instability, and other political or economic actions or factors that may have an adverse effect
on Series Two. Governmental and regulatory actions, including law changes, may have unexpected or
adverse consequences on particular markets, strategies, or investments. Legislation or regulation may
also change the way in which Series Two itself is regulated. Series Two cannot predict the effects of any
new governmental regulation or law that may be implemented on the ability of Series Two to invest in
certain assets, or the possible effect on our ability to access financial markets, and there can be no
assurance that any new governmental regulation will not adversely affect Series Two’s ability to achieve
its investment objectives,

~ REITs Risk – Under its modified fundamental investment policies, Series Two may invest in REITs
(Real Estate Investment Trust), including Equity REITs and Mortgage REITs. Equity REITs invest directly
in property while Mortgage REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real property including declines in the value of real estate,
risks related to general and local economic conditions, over building and increased competition, increase
in property taxes and operating expenses, and variations in rental income. REITS are dependent on
management skills, are not diversified, and are subject to heavy cash flow dependency, default by
borrowers and self-liquidation. REITs (especially mortgage REITs) are also subject to interest rate risk.
When interest rates decline, the value of a REIT’s investment in fixed-rate obligations can be expected to
rise. Conversely, when interest rate rise, the value of a REIT’s investment in fixed-rate obligations can be
expected to decline. Mortgage REITs may be affected by the quality of any credit extended to them,

~ Cannabis Industry Risk – Cannabis Industry Risk - The possession and use of cannabis, even for
medical purposes, is illegal under federal and certain states’ laws, which may negatively impact the value
of the Fund’s investments. Use of cannabis is regulated by both the federal government and state
governments, and state and federal laws regarding marijuana may conflict. Even in states in which the
use of cannabis has been legalized, its possession and use remains a violation of federal law. Federal
law criminalizing the use of cannabis pre-empts state laws that legalize its use for medicinal and
recreational purposes. The U.S. Department of Justice has made recent statements that it remains
committed to enforcing federal laws relating to controlled substances, which include cannabis. The
federal government’s enforcement activities could adversely affect the ability of the companies in which

Statement of Additional Information Page 3


 

the Fund invests to benefit from involvement in the cannabis industry, or it could reduce the pool of actual
and potential customers for certain of the Fund’s portfolio companies. Any of these outcomes would
negatively affect the value of the Fund’s investments. It is possible that it will never be legal to produce
and sell cannabis products in the United States or other national or local jurisdictions in which it is
currently prohibited.
The cannabis industry is a very young, fast evolving industry with increased exposure to the risks
associated with changes in applicable laws (including increased regulation, other rule changes, and
related federal and state enforcement activities) as well as market developments, which may cause
businesses to close suddenly or businesses to contract. In addition, there is a risk that a company
currently operating legally under state or other law suddenly may find itself accused (or found guilty) of
illegal activities under federal law or because of changes to state law. Companies involved in the
cannabis industry also face intense competition, may have limited access to the services of banks, may
have substantial burdens on company resources due to litigation, complaints or enforcement actions, and
are heavily dependent on receiving necessary permits and authorizations to engage in medical marijuana
research or to otherwise cultivate, possess or distribute marijuana. Since the use of marijuana is illegal
under United States federal law, federally regulated banking institutions may be unwilling to make
financial services available to growers and sellers of cannabis.

~ Mid Cap Risk - mid cap stocks tend to have a greater exposure to market fluctuations and failure,

~ Small Cap Risk - small cap stocks tend to have a high exposure to market fluctuations and failure,

~ Micro Cap Risk - low-priced stocks issued by the smallest of companies. Many microcap companies do

not file financial reports with the SEC, so it's hard for investors to get the facts about the company's
management, products, services, and finances. Microcap stocks historically have been more volatile and
less liquid than the stock of larger companies,

~ Liquidity Risk - Series Two may face increased liquidity risk which is the risk that a given security or
asset may not be readily marketable.

~ New Issuer Risk – New Issuers have been in the business less than 3 years, may face increased
pressures from established companies, new unseasoned management, may be more volatile and may
offer less liquidity then larger companies.

~ Convertible Securities Risk - Convertible securities have the risk of loss of principal at maturity, but this
loss is limited to the value of the bond floor.

~ Large Cap Company Risk - Larger more established companies may be unable to respond quickly to
new competitive challenges such as changes in technology and consumer tastes. Many larger companies
also may not be able to attain the high growth rate of successful smaller companies, especially during
extended periods of economic expansion.

~ Portfolio Turnover Risk - High portfolio turnover (generally, turnover in excess of 100% in any given
fiscal year) may result in increased transaction costs to the Fund, which may result in higher fund
expenses and lower total return.

~ Investments in Other Investment Companies - Subject to the limitations prescribed by the Investment
Company Act of 1940 (“1940 Act”) and the rules thereunder, the Fund may invest in ETFs. The Fund’s
investments in another investment company will be subject to the risks of the purchased investment
company’s portfolio securities. The Fund’s shareholders must bear not only their proportionate share of
the Fund’s fees and expenses, but they also must bear indirectly the fees and expenses of the other

Statement of Additional Information Page 4


 

investment company. In addition, the Fund’s net asset value is subject to fluctuations in the net asset
values of the other investment companies in which it invests. The ability of the Fund to meet its
investment objective will depend, to a significant degree, on the ability of the other investment companies
to meet their objectives. The extent to which the investment performance and risks associated with the
Fund correlate to those of a particular investment company will depend upon the extent to which the
Fund’s assets are allocated from time to time for investment in the investment company, which will vary.
The other investment companies may change their investment objectives or policies without the approval
of the Fund. If that were to occur, the Fund might be forced to withdraw its investment from the
investment company at a time that is unfavorable to the Fund.

~ Exchange-Traded Funds (“ETFs”) - ETFs are investment companies whose shares are listed on a
securities exchange and trade like a stock throughout the day. Certain ETFs use a “passive” investment
strategy and will not attempt to take defensive positions in volatile or declining markets. ETFs that track
particular indices typically will be unable to match the performance of the index exactly due to the ETF’s
operating expenses and transaction costs, among other things. Other ETFs are actively managed (i.e.,
they do not seek to replicate the performance of a particular index). An actively managed ETF’s
performance will reflect its adviser’s ability to make investment decisions that are suited to achieving the
ETF’s investment objective. It is also possible that an active trading market for an ETF may not develop or
be maintained, in which case the liquidity and value of the Fund’s investment in the ETF could be
substantially and adversely affected. Investments in ETFs are subject to a variety of risks, including risks
associated with the underlying securities that the ETF holds. For example, the general level of stock
prices may decline, thereby adversely affecting the value of the underlying common stock investments of
the ETF and, consequently, the value of the ETF. Moreover, the market value of the ETF may differ from
the value of its portfolio holdings because the market for ETF shares and the market for underlying
securities are not always identical. Similar to investments in other investment companies, the Fund’s
shareholders must bear not only their proportionate share of the Fund’s fees and expenses, but they also
must bear indirectly the fees and expenses of the ETF. In addition, the ability of the Fund to meet its
investment objective will directly depend on the ability of the ETFs to meet their investment objectives.
The extent to which the investment performance and risks associated with the Fund correlate to those of
a particular ETF will depend upon the extent to which the Fund’s assets are allocated from time to time
for investment in the ETF, which will vary.

~ Pharmaceutical Risk - Companies in the pharmaceutical industry are heavily dependent on patent
protection. The expiration of patents may adversely affect the profitability of the companies.
Pharmaceutical companies are also subject to extensive litigation based on product liability and other
similar claims. Many new products are subject to approval of the Food and Drug Administration, a
process that can be long and costly. Expanding international operations may lead to risks resulting from
differences between U.S. and foreign legal, political and economic systems, regulatory regimes and
market practices.

Before you invest in the Fund you should carefully evaluate the risks. Because of the nature of the Fund,
you should consider the investment to be a long-term investment that typically provides the best results
when held for a number of years.

Loss of some or all of the money you invest is a risk of investing in Series Two.

ADDITIONAL INVESTMENT INFORMATION
The following information supplements the information in Series Two’s Prospectus under the heading
Principal Investment Strategy.

Statement of Additional Information Page 5


 

The Fund is subject to certain restrictions on its fundamental investment policies, including the following:

1. No securities may be purchased on margin, the Fund may not sell securities short, and will not participate in a joint or joint and several basis with others in any securities trading account.

2. Series Two cannot invest more than 5% of the value of its total assets at the time of investment in securities of any one issuer other than securities issued by the United States Government, or hold more than 10% of any class of voting securities or other securities of any one issuer in its securities portfolio. These diversification of investment limitations only apply to 75% of Series Two’s total assets.

3. The Fund cannot act as an underwriter of securities of other issuers.

4. The Fund cannot borrow money except from a bank as a temporary measure for extraordinary or emergency purposes, and then only in an amount not to exceed 10% of its total assets taken at cost, or mortgage or pledge any of its assets.

5. The Fund cannot make or purchase loans to any person including real estate mortgage loans, other than through the purchase of a portion of publicly distributed debt securities pursuant to the investment policy of the Fund.

6. Series Two cannot issue senior securities, but is able to invest in other investment companies or investment trusts under a different set of conditions which are set forth below. Series Two is able to invest in other investment companies or investment trusts under the following set of conditions: (a) Other Investment Companies – Series Two is able to invest in other investment companies to the extent permitted by applicable law or SEC exemption. Under Section 12(d)(1) of the 1940 Act, a mutual fund generally is limited to investing only up to 10% of its assets in shares of other investment companies and up to 5% of its assets in any one investment company, and no such investment can represent more than 3% of the voting stock of an acquired investment company. In addition, no mutual funds for which IRC acts as an advisor may, in the aggregate, own more than 10% of the voting stock of a closed-end investment company. The 1940 Act and related rules provide certain exemptions from these restrictions. (b) Real Estate Investment Trusts (REITs) – Series Two may invest in REITs as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over Series Two.

7. Series Two cannot invest in direct real estate, but may invest in REITs as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over Series Two.

8. The Fund cannot invest in companies for the purpose of exercising management or control.

9. Series Two may invest in commodity contracts as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over Series Two.

10. In applying its restrictions on concentration of investments in any one industry, the Fund uses industry classifications based, where applicable, on Bridge Information Systems, Reuters, the S&P Stock Guide published by Standard & Poors, the O’Neil Database published by William O’Neil & Co., Inc., information obtained from Value Line, Bloomberg L.P. and Moody’s International, and/or the prospectus of the issuing company, and/or other recognized classification resources. Selection of an appropriate industry classification resource will be made by management in the exercise of its reasonable discretion. The

Statement of Additional Information Page 6


 

Fund will not concentrate its investments in any particular industry nor will it purchase a security if, as a result of such purchase, more than 25% of its assets will be invested in a particular industry.

11. Series Two may invest in puts, calls, straddles and spreads as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over Series Two.

The foregoing policies can be changed only by approval of a majority of the outstanding shares of the Fund, which means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are present in person or by proxy, or (ii) more than 50% of the outstanding shares.

When the Series Two makes temporary investments in U.S. Government securities, it ordinarily will purchase U.S. Treasury Bills, Notes, or Bonds. Series Two may make temporary investments in repurchase agreements where the underlying security is issued or guaranteed by the U.S. Government or an agency thereof. Series Two will not invest more than 10% of its assets in repurchase agreements maturing in more than seven days. Series Two will not invest in oil, gas or mineral leases, or invest more than 5% of its net assets in warrants or rights, valued at the lower of cost or market, nor more than 2% of its net assets in warrants or rights (valued on the same basis) which are not listed on the New York or American Stock Exchanges.

The Fund is subject to certain restrictions on its non-fundamental investment policies, including the following: 1) Series Two will invest, at the discretion of the Investment Advisor and when possible, in the securities of issuers involved in the legal cannabis business, and the group of industries that make up the legal cannabis business, without limit, as contemplated by its investment strategy. The legal cannabis business does not need to be the sole focus point of a company for Series Two to invest in it, nor does it need to account for a majority of its overall revenues.

A non-fundamental policy is a policy that can be changed without obtaining shareholder approval. A 60-day notice must be sent to the shareholders prior to the Mutual Fund making a change in a non-fundamental investment policy.

TEMPORARY DEFENSIVE POSITION

If Series Two invests in fixed-income securities, for temporary defensive purposes, these securities generally are U.S. government obligations. If corporate fixed-income securities are used, the securities normally are rated A or higher by Moody’s Investor Service, Inc. (Moody’s), Fitch Ratings or A or higher by Standard & Poor’s (S&P). There is no maximum limit on the amount of fixed income securities in which Series Two may invest for temporary defensive purposes.

PORTFOLIO TURNOVER

Normal portfolio turnover for Series Two is between 4% and 25%. Series Two portfolio turnover was 8%.

DISCLOSURE OF PORTFOLIO HOLDINGS

The Fund’s portfolio information is publicly available: (1) at the time such information is filed with the SEC in a publicly available filing; and/or (2) when such information is posted on the Fund’s website. The Fund’s publicly available portfolio information, which may be provided to third parties without prior approval, are complete portfolio holdings disclosed in the Fund’s semi-annual or annual reports and filed

Statement of Additional Information Page 7


 

with the SEC on Form N-CSR, and complete portfolio holdings disclosed in the Fund’s first and third quarter reports and filed with the SEC on Form N-Q.

The Fund’s President, in consultation with the CCO may grant exceptions to permit additional disclosure of Fund portfolio holdings information at differing times and with different lag times (the period from the date of the information to the date the information is made available), if any, in instances where the Fund has legitimate business purposes for doing so, it is in the best interests of Fund shareholders, and the recipients are subject to a duty of confidentiality, including a duty not to trade on the nonpublic information, and are required to execute an agreement to that effect. The Board will be informed of any such disclosures at its next regularly scheduled meeting or as soon as is reasonably practicable thereafter. In no event will the Fund, IRC, or any other party receive any direct or indirect compensation in connection with the disclosure of information about the Fund’s portfolio holdings. No person is authorized to disclose the Fund’s portfolio holdings or other investment positions except in accordance with the Fund’s policies and procedures.

The Board exercises continuing oversight of the disclosure of the Fund’s portfolio holdings by (1) overseeing the implementation and enforcement of the Fund’s portfolio holdings policies and procedures by the CCO and the Fund; (2) considering reports and recommendations by the CCO concerning any material compliance matters that may arise in connection with any portfolio holdings policies and procedures; and (3) considering whether to approve or ratify any amendment to any of the portfolio holdings policies and procedures. The Board and the Fund reserve the right to amend the policies and procedures in their sole discretion at any time and from time to time without prior notice to shareholders. Currently, the Fund has no ongoing arrangements or commitment to release non-public portfolio holdings to any individual or group.

MANAGEMENT OF THE FUND

The day-to-day operations of Series Two are managed by its officers subject to the overall supervision and control of the board of directors. Series Two’s Audit Committee meets annually and is responsible for reviewing the financial statements of the Fund. The following information about the interested directors2 of the Fund includes their principal occupations for the past five years:

        Number of Other
    Term of Principal Portfolios in Directorships
Name, Address, Position(s) Held Office1 and Occupation(s) Fund Complex Held by Director
and Age with Fund Length of Time During Past 5 Overseen by for the Past Five
    Served Years Director Years
      Principal    
      financial and    
Timothy E.     accounting   Director of
Taggart, 1636 Chairman,   officer,   World Capital
Logan Street, President,   employee of   Brokerage, Inc.
    Since April 2004   2  
Denver, CO Director and   Adviser since   and Investment
DOB: October Treasurer   1983. See   Research
18, 1953     below for   Corporation
      affiliation with    
      Distributor.    

 

The following information about the non-interested directors, officers and advisors of the Fund includes their principal occupations for the past five years:

    Term of Principal Number of Other
Name, Address, Position(s) Held Office1 and Occupation(s) Portfolios in Directorships
and Age with Fund Length of Time During Past 5 Fund Complex Held by Director
    Served Years Overseen by for the Past Five

 

Statement of Additional Information Page 8


 

Eddie R. Bush,   Director, Audit      
1400 W. 122nd   Committee      
 
Ave., Suite 100,   Chairman Since Certified Public  
Westminster,   (financial September 1987 Accountant  
CO DOB:   expert), Lead      
December 31,   Independent      
1939   Director      
Darrell E. Bush,          
2714 West        
118th Ave,     Since    
Westminster,   Director   Accountant  
CO DOB:     September 2013    
February 19,          
1971          
Michael L.          
Gaughan, 2001   Chief      
Avenue D,   Compliance Since Employee of the  
Scottsbluff, NE   Officer and September 2004 1995. Fund since  
DOB: November Secretary      
29, 1967          
Patricia A. Blum          
1636 Logan       Employee of the  
      Since June    
Street, Denver,   Vice President   Fund since  
      2013    
CO DOB: June       2001 .
27, 1959          

 

Director

Years

2      None
2      None World Capital
 

Brokerage, Inc.

N/A

and Investment Research Corporation

 
 
  World Capital
N/A Brokerage, Inc.

 

1. Trustees and officers of the fund serve until their resignation, removal or retirement.

2. Timothy Taggart is an "interested person" of the Fund as defined by the Investment Company Act of 1940 because of the following positions which he holds.

Timothy E. Taggart is the President, Treasurer and a Director of World Capital Brokerage, Inc. and is the President, Treasurer and a Director of Investment Research Corporation.

Timothy E. Taggart is president and a director of the Distributor and the president and a director of Investment Research Corporation.

Eddie R. Bush is the Fund’s Lead Independent Director. Mr. E. Bush is also the chairman of the Audit Committee as well as serves on the Nominating Committee and Qualified Legal Compliance Committee.

None of the above named persons received any retirement benefits or other form of deferred compensation from the Fund. There are no other funds that together with the Fund constitute a Fund Complex.

As of December 31, 2017, all officers and directors as a group (a total of 3) owned directly 0 of its shares or 0.00% of shares outstanding. Together, directly and indirectly, all the officers and directors as a group owned 0 shares or 0.00% of all shares outstanding.

As of December 31, 2017, officers, directors and members of the advisory board and their relatives owned of record and beneficially Fund shares with net asset value of approximately $32,063 representing approximately 4.42% of the total net assets of the Fund.

BOARD OF DIRECTORS

The management of the Fund believes that the business experience and educational background of the

Statement of Additional Information Page 9



Fund´s Directors and Officers set forth above make these individuals well qualified to serve the Fund in the positions that they hold.

Timothy E. Taggart, Chairman, President and Director, has held his securities license since 1987. His knowledge of the securities industry is vast as owner and president of World Capital Brokerage, Inc., a registered Broker Dealer, and owner and president of Investment Research Corporation, a registered Investment Advisor. Mr. Taggart is also a member of the Investment Committee.

Eddie R. Bush, Fund Lead Independent Director, Audit Committee Chairman, Nominating Committee member and Qualified Legal Compliance Committee member is a Financial Expert as a result of his extensive experience in mutual fund accounting and auditing as a certified public accountant with his own local accounting business in Colorado.

Darrell Bush, Fund Independent Director, Nominating Committee member and Qualified Legal Compliance Committee member is an accountant who offers the Fund, and the Audit Committee, his professional financial experience.

Eddie R. Bush is the Chairman of the Fund´s Audit Committee and is the Fund’s Lead Independent Director. He reviews and reports to the Board periodically on the validity of the accounting data provided to the Board.

It is the duty of the Fund Board to review in its oversight capacity, on a quarterly basis, the actions taken by Fund Management, including how management addressed any risk management issues confronting the Fund that arose during the previous quarter. This includes, in part, trade, expense and performance issues and data.

Under a standing item on the Agenda for each quarterly Fund Board meeting the Information provided to the Board by the management and staff of the Fund is used by the members of the Board to review and analyze risk(s) confronting the Fund on a quarterly basis. Each Director´s opinions, views and questions on risk management and any other issue concerning the Fund are directly communicated to the management and staff of the Fund, both at the quarterly Fund Board meetings and in necessary between board meetings, under the current leadership structure of the Fund Board.

Mr. E. Bush is a member of the Audit Committee whose main purpose is the review and oversight of the Fund´s financials. During the past fiscal year there were a total of three regular meetings held by the audit committee. Members of the Audit Committee are nominated and voted upon by the Board of Directors.

On September 23, 2010 an Investment Advisory Committee was formed with the purpose of offering investment advice to the senior portfolio manager of the Fund. The members of the Investment Advisory Committee are Timothy Taggart and Robert Fleck.

The Fund has a Nominating Committee comprised of all of its independent Directors. The purpose of the Nominating Committee is to nominate and interview individuals to serve on the Board of Directors. The Nominating Committee was formed in September of 2016; and it did not hold any meetings in the fiscal year ended July 31, 2018. The Nominating Committee will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the board. Such suggestions must be sent in writing to the nominating and governance committee of the fund, addressed to the fund’s secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the committee.

The Fund has a Qualified Legal Compliance Committee. The Fund has designated its Audit Committee to serve as its Qualified Legal Compliance Committee. The Qualified Legal Compliance Committee reviews reports of evidence of a material violation of an applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law, or a similar material violation of any United States federal or state law (each, a “Material Violation”), determining whether an investigation is necessary with respect to any such report and, if deemed necessary or appropriate, investigating and recommending an appropriate response thereto. The Qualified Legal Compliance

Statement of Additional Information Page 10


 

Committee was formed in September of 2016 and met one time, as part of the Audit Committee, during fiscal year end July 31, 2018.

Director Ownership of the Fund. The following table shows the amount of equity securities owned in the American Growth Fund family by the Directors as of the calendar year ended December 31, 2017.

        Aggregate Dollar Range of Equity
    Dollar Range of Equity Securities   Securities in All Registered
Name of Director       Investment Companies Overseen
    in the Fund   by Director in Family of Investment
        Companies
Interested Director        
Timothy E. Taggart $ 0 $ 10,001 - $50,000
Non-Interested Directors        
Eddie R. Bush $ 0 $ 10,001 - $50,000
Darrell Bush $ 0 $ 0

 

All officers and directors in the aggregate (a total of 12) received total compensation of $1,237, from the Fund in fiscal year 2018. Directors of the Fund were compensated at the rate of $400 per meeting attended, and the board members who are members of the audit committee receive an additional $100 per meeting and the audit chairman receives and additional $100 per meeting.

Out-of-town officers and directors are also reimbursed for their travel expenses to meetings.

        Pension or       Total
Name of Person,   Aggregate   Retirement   Estimated Annual   Compensation
Position   Compensation   Benefits Accrued   Benefits Upon   From Fund and
    From Fund   As Part of Fund   Retirement   Fund Complex
        Expenses       Paid to Directors
 
 
Eddie R. Bush $ 675.73 $ 0 $ 0 $ 15,599.53
Independent Director                
 
 
Darrell Bush $ 374.83 $ 0 $ 0 $ 8,456.41
Independent Director                
 
Timothy Taggart                
Interested Director $ 0 $ 0 $ 0 $ 0
and President                

 

In addition to the amounts disclosed in the table, the Fund makes payments to Mr. Taggart for other services, and if those amounts are included, the total compensation paid to Mr. Taggart by the Fund is $3,301.08.

During the year ended July 31, 2018, Messrs. Taggart, E. Bush and D. Bush were the only directors serving during that year.

The Fund, its Investment Adviser (Investment Research Corporation) and its underwriter (World Capital

Statement of Additional Information Page 11


 

Brokerage, Inc.) have adopted a Code of Ethics under rule 17j-1 of the Investment Company Act. This Code of Ethics contains guidelines for purchasing securities that are held by the Fund and are available by contacting the Fund at 800-525-2406.

PROXY VOTING POLICIES

For proxy votes cast on behalf of American Growth Fund:

Investment Research Corporation ("the adviser"), the investment adviser of the Fund, has a fiduciary duty to act solely in the best interests of the Fund. As it relates to proxy voting, the adviser recognizes that it must vote Fund securities in a timely manner and make voting decisions that are in the best interests of the Fund.

The following are general policies of the adviser with respect to proxy voting but the adviser does reserve the right to depart from these policies, if such a departure is in the best interests of the Fund and its shareholders.

Election of Directors: Unless we are aware of extenuating circumstances, such as a proxy fight for board seats, the adviser will generally vote in favor of management’s slate of directors.

Appointment of Auditors: The adviser will generally vote in favor of the auditors recommended by management.

Changes In Capital Structure: The adviser will generally vote in accordance with management’s recommendation unless other information indicates that the Fund’s interests are better served by a vote against the proposal.

Other Proxy Issues: The adviser will consider other proxy issues on a case by case basis with the Fund’s interests determining the vote.

Conflicts of Interest: The adviser recognizes that there may be situations where a proxy issue presents a conflict of interest between the interest of the Fund and the adviser’s representative casting the proxy vote. If a conflict exists, any votes inconsistent with this policy will be submitted to the Fund’s Board of Directors for review and approval.

The President of the Fund is responsible for voting all proxies. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 800-525-2406 or through the Fund’s website at www.americangrowthfund.com and on the Security and Exchange Commission’s website at http://www.sec.gov.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Control Persons. No person controls more the 25% of American Growth Fund, Inc.’s voting securities. Management Ownership. All officers and directors own a combined total of 0% of American Growth Fund, Inc. Series Two shares.

INVESTMENT ADVISORY AGREEMENT

The investment adviser for Series Two is Investment Research Corporation ("IRC"), 1636 Logan Street, Denver, Colorado 80203.

Under the terms of its advisory agreement with the Fund, the Adviser is paid an annual fee of one percent of the Fund’s average net assets up to $30,000,000 of such assets and three-fourths of one percent of such assets above $30,000,000. This fee and all other expenses of the Fund are paid by the Fund. The fee is computed daily based on the assets and paid on the fifth day of the ensuing month. For this fee the Adviser manages the portfolio of the Fund and furnishes such statistical and analytical information as the Fund may reasonably require.

IRC will obtain assistance from employees of World Capital Advisors ("WCA"), who will be acting in the capacity of employees of IRC, in managing Series One and Series Two. In return for receiving such services IRC pays those employees up to the full amount of its investment advisory fee.

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The advisory agreements require the Fund to pay its own expenses subject to the limitations set by the securities laws in effect from time to time in the states in which the Fund’s securities are then registered for sale or are exempt from registration and offered for sale. The categories of expenses paid by the Fund are set forth in detail in the Fund’s financial statements. Currently the Fund’s securities are either registered for sale or are exempt from registration and offered for sale in California, Colorado, Florida, Kansas, Minnesota, New York, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas and Virginia.

Total advisory fees paid by the Fund to the Investment Research Corporation in fiscal years 2016, 2017 and 2018 were $18,275, $6,217 and $7,085 resulting in management fees of 1%, 1% and 1% of average net assets, respectively.

The advisory agreement will continue from year to year so long as such continuance is specifically approved annually either by the vote of the entire board of directors of the Fund or by the vote of a majority of the outstanding shares of the Fund, and in either case by the vote of a majority of the directors who are not interested persons of the Fund or the Adviser cast in person at a meeting called for the purpose of voting on such approval. The advisory agreement may be canceled without penalty by either party upon 60 days’ notice and automatically terminates in the event of assignment.

PRINCIPAL UNDERWRITER

World Capital Brokerage, Inc., at 1636 Logan, Denver, CO 80203, is the underwriter and distributor for the Fund. Timothy E. Taggart is the President and a Director of the Underwriter.

Total fees paid to the Underwriter/Distributor for the fiscal years 2016, 2017 and 2018 were $9, $1,044 and $3,192, respectively.

SERVICE AGREEMENTS

The Fund’s Transfer Agent is Fund Services, Inc. and was paid, $2,758 for the 2016 fiscal year, $1,095 for the 2017 fiscal year and $3,693 for the 2018 fiscal year.

UMB Bank is the Fund’s Custodian. For the fiscal years 2016, 2017 and 2018 total fees paid to the Custodian were $4,040, $6,356 and $6,186, respectively.

Tait, Weller and Baker LLP is the Fund’s auditor. For the fiscal years 2016, 2017 and 2018 total fees paid to the Auditor were $18,900, $18,900 and $18,946, respectively.

DEALER REALLOWANCES. No front-end sales loads were reallowed to dealers.

RULE 12b-1 PLANS The Fund’s directors have adopted separate 12b-1 rule plans for Class E shares that allow such class to pay distribution fees for the sales and distribution of its shares. Class E shares are subject to an annual 12b-1 fee no greater than 0.30% of average net assets.

For the fiscal year ended July 31, 2018 principal types of activities for which payments were made, including those amounts, are;

Type Amount Advertising $0

Printing and mailing of prospectuses to other than current shareholders $0 Compensation to the Underwriter $1,044 Compensation to the Broker-Dealer $19,835* Compensation to sales personnel $0 Interest, carrying, or other financial charges $0

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Other (specify) $0

*Of which $98 was retained by the distributor.

In addition to the aforementioned service fees, the 12b-1 plan allows for reimbursement to the Distributor of expenses incurred. Expenses are reimbursed on an ongoing basis, subject to review by the board of directors and do not carryover from year to year.

The Fund does not participate in any joint distribution activities.

No affiliated person of the Fund has a direct or indirect financial interest in the operation of the 12b-1 plan or related agreements.

The Fund anticipates the 12b-1 plan will result in the distributor providing the Fund and its shareholders with a high level of service. The 12b-1 plan is subject to the review of the board of directors on a quarterly basis.

OTHER SERVICE PROVIDERS

No other person provides significant administrative or business affairs management services for the Fund.

SECURITES LENDING

During the last fiscal year, the Fund did not lend any securities and therefor does not have any revenue from such activities to report.

PORTFOLIO MANAGERS

The Fund is managed by an Investment Committee, activated in April of 2011, made up of; Timothy Taggart, the Fund’s President who has been a member of the Investment Committee since September of 2010 and is the President of the Fund’s principal underwriter and distributor, World Capital Brokerage, Inc. ("WCB"), and Robert Fleck, employee of the Adviser who has acted in this capacity since September 2010. Mr. Fleck is owner of World Capital Advisors (“WCA”). WCA is not a sub-advisor to the Fund. Mr. Taggart and Mr. Fleck are jointly and primarily responsible for the portfolio management of Series One (total net assets of $17,345,901 as of close of business on 07/31/2018) and Series Two (total net assets of $764,799 as of close of business on 07/31/2018). As of 7/31/2018 there were no conflicts of interest in connection with the portfolio manager’s management of Series One or Series Two. Mr. Taggart receives a salary which is allocated between the Fund, the Advisor, the Underwriter and other affiliated companies. Mr. Fleck receives 85% of the management fee of assets raised directly by him and 15% of the management fee of assets raised from other sources. Neither individual’s compensation is based upon performance of the Fund. Neither individual manages any other funds. As of 12/31/2018 Mr. Fleck owned $10,001-$50,000 of Series Two Fund shares.

DISTRIBUTION OF SHARES

The Fund’s distributor is World Capital Brokerage, Inc., (WCB or the Distributor) 1636 Logan Street, Denver, Colorado 80203, which continuously sells the Funds shares to dealers and directly to investors. The offering of the Fund’s shares is subject to withdrawal or cancellation at any time. The Fund and the Distributor reserve the right to reject any order or any account for any reason.

The Fund offers one class of shares with a par value $.01 per share. The shares are fully paid and non-assessable when issued. Class E shares bear the expenses of ongoing service fees and distribution fees. The fees that are imposed on Series Two shares are imposed directly against that class. Dividends paid by the Fund for Class E shares are calculated in the same manner at the same time. Class E shares have exclusive voting rights with respect to the distribution and service plan adopted with respect to such class pursuant to which distribution and service plan fees are paid.

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The Fund has entered into separate distribution agreements with the Distributor in connection with the offering of Series One and Series two shares of the Fund (the "Distribution Agreements"). The Distributor has made no firm commitment to take any Fund shares from the Fund and is permitted to buy only sufficient shares to fill unconditional orders placed with it by investors and selected investment dealers. The Distribution Agreements obligate the Distributor to pay certain expenses in connection with the offering of Class E shares of the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the offering to dealers and investors. The Distributor also pays for other supplementary sales literature and advertising costs.

Fund shares may be purchased at the public offering price through the Distributor or through broker-dealers who are members of the Financial Industry Regulatory Authority who have sales agreements with the Distributor. The Prospectus contains information concerning how the public offering price of the Funds shares is determined. The Distributor allows dealers discounts or concessions from the applicable public offering price on Class E shares. Concessions are alike for all dealers in the United States and its territories, but the Distributor may pay additional compensation for special services. On direct sales to customers through its own sales representatives, the Distributor pays to them such portion of the sales commission as it deems appropriate.

Initial Sales Alternatives - Class E Shares. The gross sales charges for the sale of Class E shares for the fiscal years ended July 31, 2016, 2017, and 2018 were $14, $7,933 and $22,929 (of which $19,835 was dealer commissions and $3,094 for the underwriter) respectively.

For the period ended July 31, 2018, for the sale of Class E shares the Distributor retained $3,192 (of which $98 was for dealer commission and $3,094 for the underwriter) as its portion of commissions paid for purchases of the Fund’s shares after allowing as concession to other dealers $19,737.

The following sample calculation of the public offering price of one Class E share of the Fund is based on the net asset value of one Class E share as of July 31, 2018 and a transaction with an applicable sales charge at the maximum rate of 5.75%.

Net asset value per share   Class E
(Total net assets/Total shares    
outstanding) $ 3.85
(5.75% of offering price)   0.23
Maximum offering price per share $ 4.08

 

Investment Plans. Investors have flexibility in the purchase of shares under the Fund’s investment plans. They may make single, lump-sum investments and they may add to their accounts on a regular basis, including through reinvestment of dividends and capital gains distributions.

An investor may elect on his application to have all dividends and capital gains distributions reinvested or take income dividends in cash and have any capital gains distributions reinvested. An investor may also retain the option of electing to take any year’s capital gains distribution in cash by notifying the Fund of his choice to do so in writing.

The Internal Revenue Code of 1986, as amended (the “Code”) contains limitations and restrictions upon participation in all forms of qualified plans and for contributions made to retirement plans for tax years

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beginning after December 31, 1986. Consultation with an attorney or a competent tax advisor regarding retirement plans is recommended. A discussion of the various qualified plans offered by the Fund is contained below.

The Distributor must be notified by the shareholder when a purchase takes place if the shareholder wishes to qualify for the reduced charge on the basis of previous purchases. The reduced sales charge is inapplicable to income dividends and capital gain distributions which are reinvested at net asset value. The reduced charge is subject to confirmation of the investors holdings through a check of the Funds records.

Automatic Investment Plan. After making an initial investment, a shareholder may make additional purchases at any time either through the shareholder’s securities dealer, or by mail directly to the transfer agent. Voluntary accumulation also can be made through a service known as the Fund’s Automatic Investment Plan whereby the Fund is authorized through pre-authorized checks or automated clearing house debits to charge the regular bank account of the shareholder on a regular basis to provide systematic additions to the account of such shareholder.

From time to time the Distributor may pay a finder’s fee to Selling Group Members not to exceed 1% of the purchase for net asset value trades over one million dollars.

AUTOMATIC CASH WITHDRAWAL PLAN

The Automatic Withdrawal Plan is designed as a convenience for those shareholders wishing to receive a stated amount of money at regular intervals from their investment in shares of the Fund. A Plan is opened by completing an application for such Plan and surrendering to the Fund all certificates issued to the investor for Fund shares. No minimum number of shares or minimum withdrawal amount is required. Withdrawals are made from investment income dividends paid on shares held under the Plan and, if these are not sufficient, from the proceeds from redemption of such number of shares as may be necessary to make periodic payments. As such redemptions involve the use of capital, over a period of time they will very likely exhaust the share balance of an account held under a Plan and may result in capital gains taxable to the investor. Use of a Plan cannot assure realization of investment objectives, including capital growth or protection against loss. Price determinations with respect to share redemptions are generally made on the 23rd of each month or the next business day thereafter. Proceeds from such transactions are generally mailed three business days following such transaction date.

Withdrawals concurrent with purchases of additional shares may be inadvisable because of duplication of sales charges. Single payment purchases of shares in amounts less than $5,000 in combination with a withdrawal plan will not ordinarily be permitted. No withdrawal plan will be permitted if the investor is also a purchaser under a continuous investment plan. Either the owner or the Fund may terminate the Plan at any time, for any reason, by written notice to the other.

Investment income dividends paid on shares held in a withdrawal plan account will be credited to such account and reinvested in additional Fund shares. Any optional capital gains distributions will be taken in shares, which will be added to the share balance held in the Plan account. Dividends and distributions paid into the Plan account are taxable for federal income tax purposes.

RETIREMENT PLANS

Series Two may not suitable and is not recommended for your retirement plan. If you feel otherwise you should consult with your financial advisor and/or tax professional before investing in Series Two.

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The Fund makes available retirement plan services to its Class E shares. Investors in the Fund can establish accounts in any one of the retirement plans offered by the Fund. Each participant in a retirement plan account is charged a $20 annual service fee to offset expenses incurred in servicing such accounts. Dividends and capital gains distributions are automatically reinvested. Under each of the plans, the Fund’s retirement plan custodian or successor custodian provides custodial services required by the Code including the filing of reports with the Internal Revenue Service (“IRS”). Consultation with an attorney or competent tax advisor is recommended before establishing any retirement plan. Brochures which describe the following retirement plans and contain IRS model or prototype plan documents may be obtained from the Distributor. The Distributor, in its sole discretion, may reimburse a Fund shareholder for any penalties which the shareholder may incur in transferring assets from a retirement plan established with a third party to one or more of the retirement plans offered by the Fund. No such reimbursement shall exceed the amount of the dealer concession which the Distributor would otherwise pay to a dealer in conjunction with the investment by the shareholders in the Funds retirement plan(s).

INDIVIDUAL RETIREMENT ACCOUNTS. The Fund makes available a model Individual Retirement Account (IRA) under Section 408(a) of the Code on IRS Form 5305-A. A qualified individual may invest annually in an IRA. Persons who are not eligible to make fully deductible contributions will be able to make non-deductible contributions to their IRAs, subject to limits specified in the Code, to the extent that deductible contributions are not allowed. IRA earnings on non-deductible, as well as deductible, contributions will accumulate tax deferred. An IRA account may also be established in a tax-free roll-over transfer within 60 days of receipt of a lump sum distribution from a qualified pension plan resulting from severance of employment or termination by the employer of such a plan.

The Code provides for penalties for violation of certain of its provisions including, but not limited to, contributions in excess of the stipulated limitations, improper distributions and certain prohibited transactions. To afford plan holders the right of revocation described in the IRA disclosure statements, investments made in a newly established IRA may be canceled within seven days of the date the plan holder signed the Custodial Agreement by writing the Fund’s retirement plan custodian.

SIMPLIFIED EMPLOYEE PENSION PLANS. The Fund makes available model Simplified Employee Pension Plans (SEPs) on IRS Form 5305-SEP and Salary Reduction Simplified Employee Pension Plans (SARSEPs) on IRS Form 5305A-SEP. By adopting a SEP, employers may contribute to each eligible employee’s own IRA. Commencing with tax years beginning after December 31, 1986, salary reduction contributions may be made to SEPs maintained by employers meeting certain qualifications specified in the Code.

TEACHER AND NON-PROFIT EMPLOYEE RETIREMENT PLAN. Employees of tax exempt, charitable, religious and educational organizations described in Section 501(c)(3) of the Code, and employees of public school systems and state and local educational institutions, may establish a retirement plan under Section 403(b) of the Code.

PROTOTYPE MONEY PURCHASE AND PROFIT-SHARING PENSION PLANS. Available generally to employers, including self-employed individuals, partnerships, subchapter S corporations and corporations.

DISTRIBUTION PLANS

Reference is made to Purchase of Shares - Distribution Plans in the Prospectuses for certain information with respect to separate distribution plans for Class E shares pursuant to Rule 12b-1 under the

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Investment Company Act of the Fund (each a "Distribution Plan") and with respect to the shareholder service and distribution fees paid by the Fund to the Distributor with respect to such classes.

Payments of the shareholder service fees and/or distribution fees are subject to the provisions of Rule 12b-1 under the Investment Company Act of 1940. Among other things, each Distribution Plan provides that the Distributor shall provide and the Directors shall review quarterly reports of the disbursement of the service fees and/or distribution fees paid to the Distributor. In their consideration of each Distribution Plan, the Directors must consider all factors they deem relevant, including information as to the benefits of the Distribution Plan to the Fund and its related class of shareholders. Each Distribution Plan further provides that, so long as the Distribution Plan remains in effect, the selection and nomination of Directors who are not interested persons of the Fund, as defined in the Investment Company Act (the Independent Directors), shall be committed to the discretion of the Independent Directors then in office. In approving each Distribution Plan in accordance with Rule 12b-1, the Independent Directors considered the potential benefits that the Distribution Plans could provide to the Fund and the respective classes and their shareholders, and concluded that there is reasonable likelihood that such Distribution Plan will benefit the Fund and its shareholders. Each Distribution Plan can be terminated at any time, without penalty, by the vote of a majority of the Independent Directors or by the vote of the holders of a majority of the outstanding voting securities of Class E. A Distribution Plan cannot be amended to increase materially the amount to be spent there under without the approval of the applicable class of shareholders, and all material amendments are required to be approved by the vote of Directors, including a majority of the Independent Directors who have no direct or indirect financial interest in such Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of each Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date of such Distribution Plan or such report, the first two years in an easily accessible place.

For the fiscal year ended July 31, 2018, the Fund paid the Distributor $2,126 (based on an average net assets relating to the Class E shares of approximately $709,039) pursuant to the Class E Distribution Plan, $1,772 of which was paid to other broker-dealers for providing account maintenance and distribution-related services in connection with the Class E shares and $354 was retained by the Distributor.

Net Asset Value Purchases of Class E Shares. Class E Shares of the Fund may be purchased at net asset value through certain organizations (which may be broker-dealers, banks or other financial organizations) (Processing Organizations) which have agreed with the Distributor to purchase and hold shares for their customers. A Processing Organization may require persons purchasing through it to meet the minimum initial or subsequent investments, which may be higher or lower than the Fund’s minimum investments, and may impose other restrictions, charges and fees in addition to or different from those applicable to other purchasers of shares of the Fund. Investors contemplating a purchase of Fund shares through a Processing Organization should consult the materials provided by the Processing Organization for further information concerning purchases, redemptions and transfers of Fund shares as well as applicable fees and expenses and other procedures and restrictions. Certain Processing Organizations may receive compensation from the Adviser and the Distributor.

Class E Shares of the Fund may also be purchased at net asset value by an investment adviser registered with the Securities and Exchange Commission or appropriate state authorities who clears such Fund transactions through a broker-dealer, bank or trust company (each of which may impose transaction fees with respect to such transactions) and who either purchases shares for its own account or for accounts for which the investment adviser is authorized to make investment decisions. Such investment

Statement of Additional Information Page 18


 

advisers may impose charges and fees on their clients for their services, which charges and fees may vary from investment adviser to investment adviser.

Class E Shares may be offered at net asset value in connection with the acquisition of assets of other investment companies. Class E Shares also are offered at net asset value, without sales charge, to an investor who has a business relationship with an American Growth Fund Distribution Plan, if certain conditions set forth in the Statement of Additional Information are met.

The Fund also sells its Class E shares at net asset value in connection with a qualified rollover of assets held in a previously existing tax-exempt retirement plan (including an IRA, 401(k) plan or 403(b) plan) through broker-dealers who have entered into an agreement with the Underwriter relating to such rollovers.

Additionally, IRC reserves the right to waive the front-end sales charge on purchases by IRC employees and members of the Board of Directors of The American Growth Fund.

BROKERAGE

Decisions to buy and sell securities for the Fund, assignment of its portfolio business, and negotiation of its commission rates, where applicable, are made by the Fund’s securities order department. The Fund does not have any agreement or arrangement to use any particular broker for its portfolio transactions. The Fund’s primary consideration in effecting a security transaction will be execution at the most favorable price. When selecting a broker-dealer to execute a particular transaction, the Fund will take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker-dealer; the size of and difficulty in executing the order; the value of the expected contribution of the broker-dealer to the investment performance of the Fund on a continuing basis; sales of Fund shares; and the value of brokerage, research and other services provided by the broker-dealer. The commission charged by a broker may be greater than the amount another firm might charge if the management of the Fund determines in good faith that the amount of such commissions is reasonable in relation to the value of the brokerage and research services provided by such broker.

Portfolio transactions placed through dealers serving as primary market makers are effected at net prices, without commission as such, but which include compensation to the dealer in the form of mark up or mark down. In certain instances the Fund may make purchases of underwritten issues at prices which include underwriting fees. When making purchases of underwritten issues with fixed underwriting fees, the Fund may designate broker-dealers who have agreed to provide the Fund with certain statistical, research, and other information, or services which are deemed by the Fund to be beneficial to the Fund’s investment program. With respect to money market instruments, the Fund anticipates the portfolio securities transactions will be effected with the issuer or with a primary market maker acting as principal for the securities on a net basis (without commissions).

Any statistical or research information furnished to the Adviser may be used in advising its other clients. Generally, no specific value can be determined for research and statistical services furnished without cost to the Fund by a broker-dealer. The Fund is of the opinion that the material is beneficial in supplementing research and analysis provided by the Fund’s Adviser.

The Fund may use affiliated brokers, as that term is defined in the Investment Company Act, if in the Adviser’s best judgment based on all relevant factors, the affiliated broker is able to implement the policy of the Fund to obtain, at reasonable expense, the best execution (prompt and reliable execution at the most favorable price obtainable) of such transactions. The Adviser need not seek competitive commission

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bidding but is expected to minimize the commissions paid to the extent consistent with the interest and policies of the Fund as established by its Board of Directors. Purchases of securities from underwriters include a commission or concession paid by the issuer to the underwriter, and purchases from dealers include a spread between the bid and asked price.

The Fund paid total brokerage commissions of $0, $0, and $0 in fiscal years 2016, 2017, and 2018, respectively. The Fund did not purchase securities issued by any broker-dealer that executed portfolio transactions during such fiscal year. The Fund paid brokerage commissions of $0, $0, and $0 in fiscal years 2016, 2017 and 2018 to World Capital Brokerage, the underwriter and an affiliate of the Fund. Commissions and sales charge paid by investors on the purchase of Fund shares totaled $13, $13 and $0 in fiscal years 2016, 2017, and 2018 respectively, of which $0, $0 and $0 were retained by World Capital Brokerage. The aggregate dollar amount of transactions effected through World Capital Brokerage involving the payment of commissions represented 100% of the aggregate dollar amount of all transactions involving the payment of commissions during fiscal year 2018.

While some stocks considered in the opinion of management to be least sensitive to business declines will be maintained as long term holdings, others considered most sensitive to such declines will be sold whenever in management’s judgment economic conditions may be in for a major decline. Resulting funds may be temporarily invested in United States Government securities, high-grade bonds and high-grade preferred stocks, until management believes business and market conditions indicate that reinvestment in common stocks is desirable. The portfolio turnover rate of the Fund for the fiscal years ended July 31, 2016, 2017, 2018 was 0%, 151% and 8%, respectively.

CALCULATION OF NET ASSET VALUE

The Fund offers its shares continuously to the public at their net asset value next computed after receipt of the order to purchase plus any applicable sales charge. Net asset value is determined as of the close of business on the New York Stock Exchange each day the Exchange is open for trading, and all purchase orders are executed at the next price that is determined after the order is received. Orders received and properly time-stamped by dealers and received by the Distributor prior to 2:00 p.m. Denver time on any business day will be confirmed at the public offering price effective at the close of the exchange on that day. Orders received after such time will be confirmed at the public offering price determined as of the close of the Exchange on the next business day. It is the responsibility of the dealers to remit orders promptly to the Distributor. The New York Stock Exchange is closed on the following holidays: New Year’s Day, Martin Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

In determining net asset value, securities traded on the New York Stock Exchange or other stock exchange approved for this purpose by the board of directors will be valued on the basis of the closing sale thereof on such stock exchange, or, if such sale is lacking, at the mean between closing bid and asked prices on such day. If no bid and asked prices are quoted for such day or information as to New York or other approved exchange transactions is not readily available, the security will be valued by reference to recognized composite quotations or such other method as the board of directors in good faith deems will reflect its fair market value. Securities not traded on any stock exchange but for which market quotations are readily available are valued on the basis of the mean of the last bid and asked prices. Short-term securities are valued at the mean between the closing bid and asked prices or by such other method as the board of directors determines to reflect their fair market value. The board of directors in good faith determines the manner of ascertaining the fair market value of other securities and assets.

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The net asset price of Fund shares will be computed by deducting total liabilities from total assets. The net asset value per share will be ascertained by dividing the Fund’s net assets by the total number of shares outstanding, exclusive of treasury shares and shares tendered for redemption the redemption price of which has been determined. Adjustment for fractions will be made to the nearest cent.

DIVIDENDS, DISTRIBUTIONS AND TAXES

As a “regulated investment company” under the Code, the Fund is subject to three tests: the income test, the asset diversification test, and the distribution test. In some circumstances, the character and timing of income realized by the Fund for purposes of the income test or the identification of the issuer for purposes of the asset diversification test is uncertain under current law with respect to a particular investment, and an adverse determination or future guidance by the IRS with respect to such type of investment may adversely affect the Fund’s ability to satisfy these tests. In other circumstances, the Fund may be required to sell portfolio holdings in order to meet the income test, the asset diversification test, or the distribution test, which may have a negative impact on the Fund’s income and performance. In lieu of potential disqualification, the Fund is permitted to pay a tax for certain failures to satisfy the asset diversification test or the income test, which, in general, are limited to those due to reasonable cause and not willful neglect.

If for any taxable year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for dividends paid to shareholders, and the dividends would be taxable to the shareholders as ordinary income (or possibly as qualified dividend income) to the extent of the Fund’s current and accumulated earnings and profits. Failure to qualify as a regulated investment company, subject to savings provisions for certain qualification failures, which, in general, are limited to those due to reasonable cause and not willful neglect, would thus have a negative impact on the Fund’s income and performance. In that case, the Fund would be liable for federal, and possibly state, corporate taxes on its taxable income and gains, and distributions to you would be taxed as dividend income to the extent of the Fund’s earnings and profits. Even if such savings provisions apply, the Fund may be subject to a monetary sanction of $50,000 or more. Moreover, the Board of Directors reserves the right not to maintain the qualification of the Fund as a regulated investment company if it determines such a course of action to be beneficial to shareholders.

As a regulated investment company, the Fund will not be subject to U.S. federal income tax on its income and gains which it distributes as dividends or capital gains distributions provided that it distributes to shareholders at least 90% of its investment company taxable income for the taxable year. The Fund intends to distribute sufficient income to meet this test.

Net capital gains (which consist of the excess of net long-term capital gains over net short-term capital losses) are not included in the definition of investment company taxable income. The Board of Directors will determine at least once a year whether to distribute any net capital gains. A determination by the Board of Directors to retain net capital gains will not affect the ability of the Fund to qualify as a regulated investment company. If the Fund retains for investment its net capital gains, it will be subject to a tax of 21% of the amount retained. In that event, the Fund expects to designate the retained amount of undistributed net capital gains in a notice to its shareholders who (i) if subject to U.S. federal income tax on long-term capital gains, will be required to include in income for tax purposes as long term-capital gain, their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the 21% tax paid by the Fund against their U.S. federal income tax liabilities and to claim refunds to the extent the credit exceeds such liabilities. For U.S. federal income tax purposes, the tax basis of shares

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owned by a shareholder of the Fund will be increased by an amount equal to 79% of the amount of undistributed capital gains included in the shareholder’s gross income.

Under the Code, amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To avoid the tax, the Fund must distribute during each calendar year (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98.2% of its capital gains in excess of its capital losses for the twelve-month period ending on October 31 of the calendar year, and (3) all ordinary income and net capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, the Fund intends to make distributions in accordance with the calendar year distribution requirement. A distribution will be treated as paid on December 31 of the calendar year if it is paid during the calendar year or if declared by the Fund in October, November or December of such year, payable to shareholders of record on a date in such month and paid by the Fund during January of the following year. Any such distributions paid during January of the following year will be taxable to shareholders as of December 31, rather than the date on which the distributions are received.

Distributions of net investment income (which includes interest, dividend income other than qualified dividend income, and the excess of net short-term capital gains over net long-term capital losses) are taxable to a shareholder as ordinary income, whether paid in cash or shares. Certain distributions made to you may be from qualified dividend income and net capital gain (which consists of the excess of long-term capital gains over net short-term capital losses), if any, and are taxable as long-term capital gains, whether paid in cash or in shares, regardless of how long the shareholder has held the Fund shares, and are not eligible for the dividends received deduction.

Upon a sale or exchange of its shares, a shareholder will realize a taxable gain or loss depending upon its basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands and such capital gain or loss will be long-term capital gain or loss if the shares have been held for more than one year. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced within a period of 61 days, beginning 30 days before and ending 30 days after disposal of the shares. Any loss realized by a shareholder on the sale of shares of the Fund held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares.

Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the fair market value of a share of the Fund on the distribution date. Shareholders will be notified annually as to the U.S. federal income tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the fair market value of the shares received. If the net asset value of shares is reduced below a shareholder’s cost as a result of a distribution by the Fund, such distribution will be taxable even though it represents a return of invested capital. Investors should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which will nevertheless be taxable to them.

Income received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Income tax treaties between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine in advance the effective rate of foreign tax to which the Fund will be subject, since the amount of the Fund assets to be invested in

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various countries is not known. It is not anticipated that shareholders will be entitled to claim foreign tax credits with respect to their share of foreign taxes paid by the Fund.

Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder’s particular situation. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the shares of the Fund.

If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder’s address of record, such shareholder’s distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks.

The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and the Treasury Regulations are subject to change by legislative or administrative action either prospectively or retroactively.

In some circumstances, the character and timing of income realized by the Fund for purposes of the income requirement or the identification of the issuer for purposes of the asset diversification test is uncertain under current law with respect to a particular investment, and an adverse determination or future guidance by the IRS with respect to such type of investment may adversely affect the Fund’s ability to satisfy these requirements. In other circumstances, the Fund may be required to sell portfolio holdings in order to meet the income requirement, distribution requirement, or asset diversification test, which may have a negative impact on the Fund’s income and performance. In lieu of potential disqualification, the Fund is permitted to pay a tax for certain failures to satisfy the asset diversification test or income requirement, which, in general, are limited to those due to reasonable cause and not willful neglect.

If for any taxable year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for dividends paid to shareholders, and the dividends would be taxable to the shareholders as ordinary income (or possibly as qualified dividend income) to the extent of the Fund’s current and accumulated earnings and profits. Failure to qualify as a regulated investment company, subject to savings provisions for certain qualification failures, which, in general, are limited to those due to reasonable cause and not willful neglect, would thus have a negative impact on the Fund’s income and performance. In that case, the Fund would be liable for federal, and possibly state, corporate taxes on its taxable income and gains, and distributions to you would be taxed as dividend income to the extent of the Fund’s earnings and profits. Even if such savings provisions apply, the Fund may be subject to a monetary sanction of $50,000 or more. Moreover, the board reserves the right not to maintain the qualification of the Fund as a regulated investment company if it determines such a course of action to be beneficial to shareholders.

PERFORMANCE DATA

See the discussion of performance information in the Fund’s prospectuses under the heading, Performance Information. The average annual total returns are calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period at the end of the 1, 5 or 10 year periods).

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various countries is not known. It is not anticipated that shareholders will be entitled to claim foreign tax credits with respect to their share of foreign taxes paid by the Fund.

Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder’s particular situation. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the shares of the Fund.

If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder’s address of record, such shareholder’s distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks.

The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and the Treasury Regulations are subject to change by legislative or administrative action either prospectively or retroactively.

In some circumstances, the character and timing of income realized by the Fund for purposes of the income requirement or the identification of the issuer for purposes of the asset diversification test is uncertain under current law with respect to a particular investment, and an adverse determination or future guidance by the IRS with respect to such type of investment may adversely affect the Fund’s ability to satisfy these requirements. In other circumstances, the Fund may be required to sell portfolio holdings in order to meet the income requirement, distribution requirement, or asset diversification test, which may have a negative impact on the Fund’s income and performance. In lieu of potential disqualification, the Fund is permitted to pay a tax for certain failures to satisfy the asset diversification test or income requirement, which, in general, are limited to those due to reasonable cause and not willful neglect.

If for any taxable year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for dividends paid to shareholders, and the dividends would be taxable to the shareholders as ordinary income (or possibly as qualified dividend income) to the extent of the Fund’s current and accumulated earnings and profits. Failure to qualify as a regulated investment company, subject to savings provisions for certain qualification failures, which, in general, are limited to those due to reasonable cause and not willful neglect, would thus have a negative impact on the Fund’s income and performance. In that case, the Fund would be liable for federal, and possibly state, corporate taxes on its taxable income and gains, and distributions to you would be taxed as dividend income to the extent of the Fund’s earnings and profits. Even if such savings provisions apply, the Fund may be subject to a monetary sanction of $50,000 or more. Moreover, the board reserves the right not to maintain the qualification of the Fund as a regulated investment company if it determines such a course of action to be beneficial to shareholders.

PERFORMANCE DATA

See the discussion of performance information in the Fund’s prospectuses under the heading, Performance Information. The average annual total returns are calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period at the end of the 1, 5 or 10 year periods).

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additional distribution charges as outlined in the prospectus, which would have, if the Class was in effect, produced a lower rate of return.

        Dividends       Cumulative           Purchased    
                    Acquired with Accepted as        
    Total of initial from   Cumulative   cost           through    
                    initial &   capital gains        
Year Ended   & annual   investment   reinvested   including           reinvestment   Ended Value
                    annual   distributions        
    investments   income   dividends   reinvested           of income    
                    investments   (Cumulative)        
        reinvested       dividends           (Cumulative)    
 
08/01/11 $ 1,000 $ 0 $ 0 $ 1,000 $ 943 $ 0 $ 0 $ 943
 
07/31/12   1,000   0   0   2,000   1,832   0   0   1,852
 
07/31/13   1,000   0   0   3,000   3,058   0   0   3,058
 
07/31/14   1,000   0   0   4,000   4,327   0   0   4,327
 
07/31/15   1,000   0   0   5,000   5,631   0   0   5,631
 
07/31/16   1,000   0   0   6,000   6,036   0   0   6,036
 
07/31/17   1,000   3,135   3,135   10,135   6,880   2,369   2,369   5,473
 
07/31/18   1,000   0   3,135   11,135   7,802   2,369   2,369   6,145

 

The table below illustrates the effect of an automatic withdrawal program on an initial hypothetical investment of $10,000 on August 1, 2011 in the Fund for the life of the Fund. The illustration assumes that a sales load of 5.75% was deducted from the initial investment, that $800 was withdrawn annually and withdrawals were made first from income for the year, then from principal. Withdrawals from principal representing the sale of shares were assumed to have been in the order shares were acquired. Continued withdrawals in excess of current income can eventually exhaust principal, particularly in a period of declining market prices. That portion of the total amount withdrawn designated "From Investment Income Dividends" should be regarded as income; the remainder represents a withdrawal of principal. While this illustration assumes that $800 was withdrawn annually, the Fund may in other illustrations select any percentage or dollar amount to be withdrawn.

    Withdrawn   Withdrawn           Value of   Accepted    
    from   from       Cumulative            
Period           Annual total       remaining   as Capital    
    investment   principal       total           Total Value
Ended           withdrawn       original   Gains    
    income   and capital       withdrawn            
    dividends   gains           shares   distributions    
08/01/11 $ 0 $ 800 $ 800 $ 800 $ 8,629 $ 0 $ 8,629
07/31/12   0   800   800   1,600   7,251   0   7,251
07/31/13   0   800   800   2,400   7,566   0   7,566
07/31/14   0   800   800   3,200   7,625   0   7,625
07/31/15   0   800   800   4,000   7,501   0   7,501
07/31/16   0   800   800   4,800   6,011   0   6,011
07/31/17   800   0   800   5,600   2,509   1,968   4,477
07/31/17   800   0   800   6,400   2,075   727   2,803
TOTAL $ 1,600 $ 4,800 $ 6,400                

 

Performance information for the Fund reflects only the performance of a hypothetical investment in the Fund during the particular time period on which the calculations are based. Performance information

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should be considered in light of the Fund’s investment objectives and policies, characteristics and quality of the portfolio and the market conditions during the given time period and should not be considered as a representation of what may be achieved in the future.

CUSTODIAN AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

All securities and cash of the Fund are held by its custodian, UMB Bank NA Investment Services Group, 928 Grand Blvd, Fifth Floor, Kansas City, MO 64106. Tait, Weller & Baker LLP, Two Liberty Place 50 South 16th Street, Suite 2900, Philadelphia PA 19102-2529 provides auditing and tax services to the Fund.

TRANSFER AGENT

The Fund’s transfer agent is Fund Services, Inc. 8730 Stony Point Parkway, Stony Point Bldg. III, Suite 205, Richmond, VA 23235.

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