<PAGE>
PROSPECTUS
CAPITAL INCOME BUILDER(R)
AN OPPORTUNITY FOR A YIELD WHICH
EXCEEDS THAT PAID BY U.S. STOCKS
GENERALLY TOGETHER WITH A GROWING
DIVIDEND AND, SECONDARILY, GROWTH
OF CAPITAL
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
March 1, 1995
CAPITAL INCOME BUILDER, INC.
333 South Hope Street
Los Angeles, CA 90071
The fund strives 1) to provide to shareholders a level of current income which
exceeds the average yield on U.S. stocks generally and 2) to provide to
shareholders a growing stream of income over the years. Secondarily, the fund
will seek growth of capital. The fund will invest in a diversified portfolio
of securities that include common stock and fixed-income securities. Up to 40%
of the fund's assets may be invested in non-U.S. securities.
This prospectus presents information you should know before investing in the
fund. It should be retained for future reference.
You may obtain the statement of additional information, dated March 1, 1995,
which contains the fund's financial statements, without charge, by writing to
the Secretary of the fund at the above address or telephoning 800/421-0180.
These requests will be honored within three business days of receipt.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, GUARANTEED,
OR ENDORSED BY THE U.S. GOVERNMENT, ANY BANK, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON.
THE PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
12-010-0395
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY
OF EXPENSES
Average annual
expenses paid over a
10-year period would
be approximately
$14 per year,
assuming a $1,000
investment and a 5%
annual return.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses........... 2
Financial Highlights.......... 3
Investment Objectives and
Policies.................... 3
Certain Securities and
Investment Techniques....... 4
Investment Results............ 7
Dividends, Distributions
and Taxes................... 8
Fund Organization and
Management.................. 9
The American Funds
Shareholder Guide............. 12-20
Purchasing Shares........... 12
Reducing Your Sales Charge.. 15
Shareholder Services........ 16
Redeeming Shares............ 18
Retirement Plans............ 20
</TABLE>
IMPORTANT PHONE NUMBERS
Shareholder Services:
800/421-0180 ext. 1
Dealer Services:
800/421-9900 ext. 11
American FundsLine(R):
800/325-3590
(24-hour information)
This table is designed to help you understand the costs of investing in the
fund. These are historical expenses; your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price).................................. 5.75%/1/
</TABLE>
The fund has no sales charge on reinvested dividends, deferred sales
charge,/2/ redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees....................................................... 0.39%
12b-1 expenses........................................................ 0.19%/3/
Other expenses (including audit, legal, shareholder services, transfer
agent and custodian expenses)........................................ 0.15%
Total fund operating expenses......................................... 0.73%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following cumulative
expenses on a $1,000 investment, assuming a 5%
annual return./4/ $65 $79 $96 $143
</TABLE>
/1/ Sales charges are reduced for certain large purchases. (See "The American
Funds Shareholder Guide: Purchasing Shares--Sales Charges.")
/2/ Any defined contribution plan qualified under Section 401(a) of the Internal
Revenue Code including a "401(k)" plan with 200 or more eligible employees
or any other purchaser investing at least $1 million in shares of the fund
(or in combination with shares of other funds in The American Funds Group
other than the money market funds) may purchase shares at net asset value;
however, a contingent deferred sales charge of 1% applies on certain
redemptions within 12 months following such purchases. (See "The American
Funds Shareholder Guide: Redeeming Shares--Contingent Deferred Sales
Charge.")
/3/ These expenses may not exceed 0.30% of the fund's average net assets
annually. (See "Fund Organization and Management--Plan of Distribution.")
Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers.
/4/ Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
RESULTS; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL The following information has been audited by Price
HIGHLIGHTS Waterhouse LLP, independent accountants, whose
(For a share unqualified report covering each of the most recent five
outstanding years is included in the statement of additional
throughout the information. This information should be read in
fiscal year) conjunction with the financial statements and
accompanying notes which appear in the statement of
additional information.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
----------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987/1/
------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $34.42 $30.77 $28.67 $23.37 $25.05 $22.63 $21.22 $22.62
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.73 1.53 1.44 1.37 1.39 1.30 1.15 .36
Net realized and
unrealized gain (loss)
on investments........ (1.62) 3.76 2.33 5.39 (1.76) 2.41 1.41 (1.40)
------ ------ ------ ------ ------ ------ ------ ------
Total income (loss)
from investment
operations........... .11 5.29 3.77 6.76 (.37) 3.71 2.56 (1.04)
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net in-
vestment income....... (1.73) (1.53) (1.44) (1.46) (1.31) (1.29) (1.15) (.36)
Distributions from net
realized gains........ (.12) (.11) (.23) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions... ( 1.85) ( 1.64) (1.67) (1.46) (1.31) (1.29) (1.15) (.36)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $32.68 $34.42 $30.77 $28.67 $23.37 $25.05 $22.63 $21.22
====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/......... .47% 17.58% 13.46% 29.27% (1.62)% 16.74% 12.27% (4.62)%/3/
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of pe-
riod (in millions).... $3,629 $2,826 $1,203 $ 563 $ 206 $ 195 $ 126 $ 53
Ratio of expenses to
average net
assets................ .73% .72% .81% .98% 1.01% 1.11% 1.16% .36%/3/
Ratio of net income to
average net
assets................ 5.29% 4.69% 4.71% 5.09% 5.70% 5.44% 5.24% 1.17%/3/
Portfolio turnover
rate.................. 36.2% 11.2% 16.6% 14.0% 24.7% 16.3% 35.9% 0%/3/
</TABLE>
- --------
/1/ The period ended October 31, 1987 represents the initial period of
operations which began July 30, 1987.
/2/ This was calculated without deducting a sales charge. The maximum sales
charge is 5.75% of the fund's offering price.
/3/ These figures are based on operations for the period shown and,
accordingly, are not representative of a full year's operations.
INVESTMENT The fund is an equity income mutual fund that strives
OBJECTIVE for the accomplishment of two primary investment objec-
AND POLICIES tives--1) to provide to shareholders a level of current
income which exceeds the average yield on stocks gener-
The fund's ally, using as a measure the yield on the Standard &
primarygoal is to Poor's 500 Stock Composite Index and 2) to provide to
provide you with a shareholders a growing stream of income over the years.
current yield Secondarily, the fund will seek growth of capital, in
which exceeds the sense that achieving the objective of growing income
thatpaid by U.S. implies that the fund will also, over time, achieve sig-
stocks generally nificant capital growth.
together with a
growing dividend. The fund will invest in a diversified portfolio of
It also aims to securities that includes common stocks and fixed-income
make your capital securities including preferred stocks and securities
grow. convertible into common stocks. Normally at least 50% of
its total assets will be invested in common stocks.
Under normal market conditions, at least 90% of the
fund's portfolio will be invested in income-producing
securities.
3
<PAGE>
- -------------------------------------------------------------------------------
Up to 40% of the fund's assets may be invested in secu-
rities of issuers which are not included in the Stan-
dard & Poor's Stock Composite Index (a broad measure of
the U.S. stock market) and which are domiciled outside
the U.S. (which are generally denominated in currencies
other than the U.S. dollar), although there is no re-
quirement that the fund maintain investments in these
securities.
The fund's investment restrictions (which are described
in the statement of additional information) and
objectives cannot be changed without shareholder
approval. All other investment practices may be changed
by the board of directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVES CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES AND THE SPECIAL RISKS ASSOCIATED WITH IN-
VESTING OUTSIDE THE U.S. DESCRIBED HEREIN.
CERTAIN SECURITIES INVESTING AROUND THE WORLD Up to 40% of the fund's
AND INVESTMENT assets may be invested in securities of issuers
TECHNIQUES domiciled outside the U.S. which, in the opinion of
Capital Research and Management Company, enhances
Investing outside the fund's ability to meet its primary objectives
the U.S. involves of providing shareholders a level of current income
expanded which exceeds the average yield on U.S. stocks
opportunities, generally and a growing stream of income over the
special risks and years and its secondary objective of growth of
increased costs. capital.
Of course, investing outside the U.S. involves
special risks caused by, among other things:
fluctuating currency values; different accounting,
auditing, and financial reporting regulations and
practices in some countries; changing local and
regional economic, political, and social
conditions; 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, global investing also can
reduce certain portfolio risks due to greater
diversification opportunities.
Additional costs could be incurred in connection with
the fund's investment activities outside the U.S.
Brokerage commissions are generally 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.
CURRENCY TRANSACTIONS The fund has the ability to hold
a portion of its assets in U.S. dollars and other
currencies and to enter into forward currency contracts
to protect against changes in currency exchange rates.
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 might purchase a
particular currency or enter into a forward currency
contract to preserve the U.S. dollar price of
securities it intends to or has contracted to purchase.
Alternatively, it might sell a particular currency on
either a spot or forward basis to hedge
4
<PAGE>
- -------------------------------------------------------------------------------
against an anticipated decline in the dollar value of
securities it intends to or has contracted to sell.
Although this strategy could reduce the risk of loss
due to a decline in the value of the hedged currency,
it could also limit any potential gain from an increase
in the value of the currency.
FIXED-INCOME SECURITIES The fund's fixed-income
investments will consist principally of bonds that are
rated BBB or better by Standard & Poor's Corporation or
Baa or better by Moody's Investors Service, Inc., or
that are unrated by these companies but determined by
Capital Research and Management Company to be of
equivalent credit quality. Securities rated BBB or Baa
have speculative characteristics. At no time will more
than 5% of the fund's assets be invested in fixed-
income securities rated below BBB or Baa, including
securities rated at the time of purchase as low as CC
by Standard & Poor's Corporation or Ca by Moody's
Investors Service, Inc. (or unrated but determined to
be of equivalent quality). (See the statement of
additional information for a description of the ratings
and for more information about the risks of lower rated
bonds.) The market values of fixed-income securities
tend to vary inversely with the level of interest
rates--when interest rates rise, their values generally
will decline; when interest rates decline, their values
generally will rise. The fund's investments in fixed-
income securities outside the U.S. will principally be
in securities issued or guaranteed as to principal and
interest by governments or their agencies or
instrumentalities or by multinational agencies.
MATURITY The maturity composition of the fund's
portfolio of fixed-income securities will be adjusted
in response to market conditions and expectations.
There are no restrictions on the maturity composition
of the portfolio. Under normal market conditions,
longer term securities yield more than shorter term
securities, but are subject to greater price
fluctuations.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREE-
MENTS The fund may purchase securities on a delayed de-
livery or "when-issued" basis and enter into firm com-
mitment agreements (transactions whereby the payment
obligation and interest rate are fixed at the time of
the transaction but the settlement is delayed). These
transactions may involve either corporate or government
securities. The fund as purchaser assumes the risk of
any decline in value of the security beginning on the
date of the agreement or purchase. As the fund's aggre-
gate commitments under these transactions increase, the
opportunity for leverage similarly may increase, howev-
er, it is not the intent of the fund to engage in these
transactions for leveraging purposes.
VARIABLE AND FLOATING RATE OBLIGATIONS The fund may
invest in variable and floating rate obligations which
have interest rates that are adjusted at designated
intervals, or whenever there are changes in the market
rates of interest on which the interest rates are
based. The rate
5
<PAGE>
- -------------------------------------------------------------------------------
adjustment feature tends to limit the extent to which
the market value of the obligation will fluctuate.
REPURCHASE AGREEMENTS The fund may enter into
repurchase agreements, under which it buys a security
and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and
price. The seller must maintain with the fund's
custodian collateral equal to at least 100% of the
repurchase price including accrued interest, as
monitored daily by Capital Research and Management
Company. If the seller under the repurchase agreement
defaults, the fund may incur a loss if the value of the
collateral securing the repurchase agreement has
declined and may incur disposition costs in connection
with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller,
liquidation of the collateral by the fund may be
delayed or limited.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values at
reasonable prices, using a system of multiple portfolio
counselors in managing mutual fund assets. Under this
system the portfolio of the fund is divided into
segments which are managed by individual counselors.
Each counselor decides how the segment will be invested
(within the limits provided by the fund's objectives
and policies and by Capital Research and Management
Company's investment committee). In addition, Capital
Research and Management Company's research
professionals make investment decisions with respect to
a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed
below.</R
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
WITH CAPITAL
RESEARCH AND
PORTFOLIO YEARS OF EXPERIENCE AS MANAGEMENT
COUNSELORS FOR PORTFOLIO COUNSELOR FOR COMPANY OR
CAPITAL INCOME CAPITAL INCOME BUILDER ITS TOTAL
BUILDER PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jon B. Chairman of the Board of the Since the fund began 43 years 43 years
Lovelace fund; Vice Chairman of the Board, operations in 1987
Capital Research and Management
Company
- ----------------------------------------------------------------------------------------------------
James B. Vice President of the fund; 7 years 12 years 12 years
Lovelace Vice President, Capital Research
and Management Company
- ----------------------------------------------------------------------------------------------------
Janet A. Vice President of the fund; Since the fund began 13 years 19 years
McKinley Senior Vice President, Capital operations in 1987
Research Company*
- ----------------------------------------------------------------------------------------------------
William R. Senior Vice President and Since the fund began 25 years 32 years
Grimsley Director, Capital Research and operations in 1987
Management Company
- ----------------------------------------------------------------------------------------------------
Theirry Chairman of the Board and Chief 7 years 32 years 32 years
Vandeventer Executive Officer, Capital
Research Company*
- ----------------------------------------------------------------------------------------------------
</TABLE>
The fund began operations on July 30, 1987.
* Company affiliated with Capital Research and Management Company.
6
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT The fund may from time to time compare its investment
RESULTS results to various unmanaged indices or other mutual
funds in reports to shareholders, sales literature and
The following advertisements. The results may be calculated on a to-
charts show that tal return and/or yield basis for various periods, with
the fund's or without sales charges. Results calculated without a
dividends have sales charge will be higher. Total returns assume the
increased in every reinvestment of all dividends and capital gain distri-
complete fiscal butions.
quarter--also that
the fund has As of December 31, 1994, the fund's yield for the past
demonstrated 30-day period was 4.85%, and total return over the past
unusual stability, 12 months and average annual total returns over the
and that the value past five-year and lifetime periods (operations com-
of its shares menced on July 30, 1987) were -7.87%, 8.81% and 9.55%,
compares favorably respectively. These results were calculated in accor-
with the broad dance with Securities and Exchange Commission rules
market averages. which require that the maximum sales charge be deduct-
ed. Of course, past results are not an indication of
future results. Further information regarding the
fund's investment results is contained in the fund's
annual report which may be obtained without charge by
writing to the Secretary of the fund at the address in-
dicated on the cover of this prospectus.
CIB's Growth of Capital Compared with the S&P 500
(excluding dividends from income and with
capital gains reinvested) July 31, 1987=100
[GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C>
CIB S&P 500
---------- ----------
Jul, 1987 100 100
Oct, 1987 93.8 79.2
Jan, 1988 97.8 80.8
Apr, 1988 97 82.2
Jul, 1988 98.3 85.5
Oct, 1988 100 87.7
Jan, 1989 102.8 93.5
Apr, 1989 104.7 97.4
Jul, 1989 110.8 108.8
Oct, 1989 110.7 107
Jan, 1990 109.5 103.5
Apr, 1990 107.4 104
Jul, 1990 110.4 112
Oct, 1990 103.3 95.6
Jan, 1991 116 108.1
Apr, 1991 122.9 118
Jul, 1991 124.4 121.9
Oct, 1991 126.7 123.4
Jan, 1992 131 128.5
Apr, 1992 134.4 130.5
Jul, 1992 139.4 133.4
Oct, 1992 137.1 131.6
Jan, 1993 140.4 138
Apr, 1993 144.2 138.4
Jul, 1993 146.3 140.9
Oct, 1993 153.9 147.1
Jan, 1994 156.6 151.4
Apr, 1994 144.9 141.8
Jul, 1994 145.8 144.1
Oct, 1994 146.7 148.5
</TABLE>
7
<PAGE>
- -------------------------------------------------------------------------------
CIB's Quarterly Dividends Compared with Inflation
(cents per share) (Index: December 1987=100)
[GRAPH APPEARS HERE]
<TABLE>
Additional
Income earned
if the capital
gain distributions
paid in December Inflation=
1991, 1992 and Consumer Price
1993 were Index (through
Dividend reinvested October 1994)
------------ ------------ -------------
<S> <C> <C> <C>
1st Qtr, 1988 28 - 100.0
2nd Qtr, 1988 28.5 - 101.0
3rd Qtr, 1988 29 - 102.3
4th Qtr, 1988 29.5 - 103.8
1st Qtr, 1989 30 - 104.4
2nd Qtr, 1989 30.5 - 105.9
3rd Qtr, 1989 31 - 107.5
4th Qtr, 1989 31.5 - 108.4
1st Qtr, 1990 32.5 - 109.2
2nd Qtr, 1990 33 - 111.5
3rd Qtr, 1990 33.5 - 112.6
4th Qtr, 1990 34 - 115.0
1st Qtr, 1991 34.5 - 116.0
2nd Qtr, 1991 35 - 117.0
3rd Qtr, 1991 35.5 - 117.8
4th Qtr, 1991 36 - 118.9
1st Qtr, 1992 36.5 - 119.5
2nd Qtr, 1992 37 37.3 120.7
3rd Qtr, 1992 37.5 37.8 121.5
4th Qtr, 1992 38 38.3 122.4
1st Qtr, 1993 38.5 38.8 123.0
2nd Qtr, 1993 39 39.5 124.4
3rd Qtr, 1993 39.5 40.0 125.1
4th Qtr, 1993 40 40.5 125.7
1st Qtr, 1994 40.5 41.0 126.4
2nd Qtr, 1994 41 41.6 127.6
3rd Qtr, 1994 41.5 42.1 128.2
4th Qtr, 1994 42 42.6 129.4
1st Qtr, 1995 42.5 43.1 129.7
</TABLE>
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS The fund declares dividends
DISTRIBUTIONS AND from its net investment income daily and usually
TAXES distributes such accrued dividends to shareholders in
March, June, September and December. Capital gains, if
Income any, are usually distributed in December. When a
distributions are capital gain is distributed, the net asset value per
usually made in share is reduced by the amount of the payment.
March, June,
September and FEDERAL TAXES The fund intends to operate as a
December. "regulated investment company" under the Internal
Revenue Code. In any fiscal year in which the fund so
qualifies and distributes to shareholders all of its
net investment income and net capital gains, the fund
itself is relieved of federal income tax.
All dividends and capital gains are taxable whether
they are reinvested or received in cash--unless you are
exempt from taxation or entitled to tax deferral. Early
each year, you will be notified as to the amount and
federal tax status of all dividends and capital gains
paid during the prior year. Such dividends and capital
gains may also be subject to state or local taxes.
IF YOU HAVE NOT FURNISHED A CERTIFIED CORRECT TAXPAYER
IDENTIFICATION NUMBER (GENERALLY YOUR SOCIAL SECURITY
NUMBER) AND HAVE NOT CERTIFIED THAT WITHHOLDING DOES
NOT APPLY, OR IF THE INTERNAL REVENUE SERVICE HAS
NOTIFIED THE FUND THAT THE TAXPAYER IDENTIFICATION
NUMBER LISTED ON YOUR ACCOUNT IS INCORRECT ACCORDING TO
THEIR RECORDS OR THAT YOU ARE SUBJECT TO BACKUP
WITHHOLDING, FEDERAL LAW GENERALLY REQUIRES THE FUND TO
WITHHOLD 31% FROM ANY DIVIDENDS AND/OR REDEMPTIONS
(INCLUDING EXCHANGE REDEMPTIONS). Amounts withheld are
applied to your federal tax liability; a refund may be
obtained from the Service if withholding results in
overpayment of
8
<PAGE>
- -------------------------------------------------------------------------------
taxes. Federal law also requires the fund to withhold
30% or the applicable tax treaty rate from dividends
paid to certain nonresident alien, non-U.S. partnership
and non-U.S. corporation shareholder accounts.
The fund may be required to pay withholding and other
taxes imposed by various countries in connection with
its investments outside the U.S. generally at rates
from 10% to 40%, which would reduce the fund's
investment income.
This is a brief summary of some of the tax laws that
affect your investment in the fund. Please see the
statement of additional information and your tax
adviser for further information.
FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was
AND MANAGEMENT organized as a Maryland corporation in 1987. The fund's
board supervises fund operations and performs duties
The fund is a required by applicable state and federal law. Members
member of The of the board who are not employed by Capital Research
American Funds and Management Company or its affiliates are paid
Group, which is certain fees for services rendered to the fund as
managed by one of described in the statement of additional information.
the largest and They may elect to defer all or a portion of these fees
most experienced through a deferred compensation plan in effect for the
investment fund. Shareholders have one vote per share owned and,
advisers. at the request of the holders of at least 10% of the
shares, the fund will hold a meeting at which any
member of the board could be removed by a majority
vote. There will not usually be a shareholder meeting
in any year except, for example, when the election of
directors is required to be acted upon by shareholders
under the Investment Company Act of 1940.
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los
Angeles, CA 90071 and at 135 South State College
Boulevard, Brea, CA 92621. (See "The American Funds
Shareholder Guide: Purchasing Shares-- Investment
Minimums and Fund Numbers" for a listing of funds in
The American Funds Group.) Capital Research and
Management Company manages the investment portfolio and
business affairs of the fund and receives a fee at the
annual rate of 0.24% of the first $1 billion of the
fund's net assets, plus 0.20% of net assets from $1
billion to $2 billion, plus 0.18% of net assets from $2
billion to $3 billion, plus 0.165% of net assets from
$3 billion to $5 billion, plus 0.155% of net assets
from $5 billion to $8 billion, plus 0.15% of net assets
in excess of $8 billion, plus 3% of the fund's annual
gross investment income. Assuming net assets of $3.5
billion and gross investment income levels of 4%, 5%,
6% and 7%, management fees would be 0.32%, 0.35%, 0.38%
and 0.41%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles,
9
<PAGE>
- -------------------------------------------------------------------------------
CA 90071. The research activities of Capital Research
and Management Company are conducted by affiliated
companies which have offices in Los Angeles, San
Francisco, New York, Washington, D.C., London, Geneva,
Singapore, Hong Kong and Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal investing
policy that is consistent with the recommendations
contained in the report dated May 9, 1994 issued by the
Investment Company Institute's Advisory Group on
Personal Investing. (See the statement of additional
information).
PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. In the over-the-counter
market, purchases and sales are transacted directly
with principal market-makers except in those
circumstances where it appears better prices and
executions are available elsewhere.
Subject to the above policy, when
two or more brokers are in a position to offer
comparable prices and executions, preference may be
given to brokers that have sold shares of the fund or
have provided investment research, statistical, and
other related services for the benefit of the fund
and/or of other funds served by Capital Research and
Management Company.
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors is located
at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92621, 8000 IH-
10 West, San Antonio, TX 78230, 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood
Road, Norfolk, VA 23513. Telephone conversations with
American Funds Distributors may be recorded or
monitored for verification, recordkeeping and quality
assurance purposes.
PLAN OF DISTRIBUTION The fund has a plan of
distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided
the categories of expenses are approved in advance by
the board and the expenses paid under the plan were
incurred within the last 12 months and accrued while
the plan is in effect. Expenditures by the fund under
the plan may not exceed 0.30% of its average net assets
annually (0.25% of which may be for service fees). See
"Purchasing Shares-- Sales Charges" below.
TRANSFER AGENT American Funds Service Company, a wholly
owned subsidiary of Capital Research and Management
Company, is the transfer agent and performs shareholder
service functions. It was paid a fee of
10
<PAGE>
- --------------------------------------------------------------------------------
$2,389,000 for the fiscal year ended October 31, 1994.
Telephone conversations with American Funds Service
Company may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
--------------------------------------------------------------
ADDRESS AREAS SERVED
--------------------------------------------------------------
WEST P.O. Box 2205 AK, AZ, CA, HI, ID,
Brea, CA 92622-2205 MT, NV, OR, UT, WA and
Fax: 714/671-7080 outside the U.S.
--------------------------------------------------------------
CENTRAL- P.O. Box 659522 AR, CO, IA, KS, LA,
WEST San Antonio, TX 78265-9522 MN, MO, ND, NE, NM,
Fax: 210/530-4050 OK, SD, TX, and WY
--------------------------------------------------------------
CENTRAL- P.O. Box 6007 AL, IL, IN, KY, MI,
EAST Indianapolis, IN 46206-6007 MS, OH, TN and WI
Fax: 317/735-6620
--------------------------------------------------------------
EAST P.O. Box 2280 CT, DE, FL, GA, MA,
Norfolk, VA 23501-2280 MD, ME, NC, NH, NJ,
Fax: 804/670-4773 NY, PA, RI, SC, VA,
VT, WV and Washington,
D.C.
--------------------------------------------------------------
ALL SHAREHOLDERS MAY CALL AMERICAN FUNDS SERVICE
COMPANY AT 800/421-0180 FOR SERVICE.
--------------------------------------------------------------
[MAP OF THE UNITED STATES OF AMERICA]
--------------------------------------------------------------
West (light grey); Central-West (white); Central-East
(dark grey), East (gold)
11
<PAGE>
THE AMERICAN FUNDS SHAREHOLDER GUIDE
PURCHASING SHARES METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
---------------------------------------------------------
See "Investment $50 minimum (except
Minimums and Fund where a lower
Numbers" for minimum is noted
initial under "Investment
investment Minimums and Fund
minimums. Numbers").
Your investment ---------------------------------------------------------
dealer can help By Visit any Mail directly to
you establish your contacting investment dealer your investment
account--and help your who is registered dealer's address
you add to it investment in the state printed on your
whenever you like. dealer where the account statement.
purchase is made
and who has a
sales agreement
with American
Funds
Distributors.
---------------------------------------------------------
By mail Make your check Fill out the account
payable to the additions form at the
fund and mail to bottom of a recent
the address account statement,
indicated on the make your check
account payable to the fund,
application. write your account
Please indicate number on your check,
an investment and mail the check
dealer on the and form in the
account envelope provided
application. with your account
statement.
---------------------------------------------------------
By wire Call 800/421-0180 Your bank should wire
to obtain your your additional
account investments in the
number(s), if same manner as
necessary. Please described under
indicate an "Initial Investment."
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.
SHARE PRICE Shares are purchased at the next offering
price after the order is received by the fund or
American Funds Service Company. In the case of orders
sent directly to the fund or American Funds Service
Company, an investment dealer MUST be indicated. This
price is the net asset value plus a sales charge, if
applicable. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
The net asset value per share is determined as of the
close of trading (currently 4:00 p.m., New York time) on
each day the New York Stock Exchange is open. The
current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share. The net asset value
per share of the money market funds normally will remain
constant at $1.00 based on the funds' current practice
of valuing their shares on the basis of the penny-
rounding method in accordance with rules of the
Securities and Exchange Commission.
SHARE CERTIFICATES Shares are credited to your account
and certificates are not issued unless specifically
requested. This eliminates the costly problem of lost or
destroyed certificates.
12
<PAGE>
- -------------------------------------------------------------------------------
If you would like certificates issued, please request
them by writing to American Funds Service Company.
There is usually no charge for issuing certificates in
reasonable denominations. CERTIFICATES ARE NOT
AVAILABLE FOR THE MONEY MARKET FUNDS.
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>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
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
SMALLCAP World Fund(SM)................ 1,000 35
Washington Mutual Investors Fund(SM)... 250 01
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
BOND FUNDS
American High-Income Municipal Bond
Fund(SM)............................. $1,000 40
American High-Income Trust(R).......... 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(R)... 1,000 23
Limited Term Tax-Exempt Bond Fund of
America(SM).......................... 1,000 43
The Tax-Exempt Bond Fund of
America(SM).......................... 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
</TABLE>
--------
* Available only in certain states.
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.)
13
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE NET AMOUNT OFFERING OFFERING
AT THE OFFERING PRICE INVESTED PRICE PRICE
--------------------- ---------- -------- -------------
<S> <C> <C> <C>
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 $250,000... 3.63 3.50 2.75
$250,000 but less than $500,000... 2.56 2.50 2.00
$500,000 but less than $1,000,000. 2.04 2.00 1.60
$1,000,000 or more................ none none (see below)
</TABLE>
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 defined
contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with
200 or more eligible employees (paid pursuant to the
fund's plan of distribution), and for purchases made at
net asset value by certain retirement plans of
organizations with collective retirement plan assets of
$100 million or more as set forth in the statement of
additional information (paid by American Funds
Distributors).
American Funds Distributors, at its expense (from a
designated percentage of its income), will provide
additional promotional incentives to dealers. Currently
these incentives are limited to the top one hundred
dealers who have sold shares of the fund or other funds
in The American Funds Group. These incentive payments
will be based on a pro rata share of a qualifying
dealer's sales.
Any defined contribution plan qualified under Section
401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees or
any other purchaser investing at least $1 million in
shares of the fund (or in combination with shares of
other funds in The American Funds Group other than the
money market funds) may purchase shares at net asset
value; however, a contingent deferred sales charge of
1% is imposed on certain redemptions within one year of
the purchase. (See "Redeeming Shares--Contingent
Deferred Sales Charge.")
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. (See "Fund
Organization and Management--
14
<PAGE>
- -------------------------------------------------------------------------------
Plan of Distribution.") These services include
processing purchase and redemption transactions,
establishing shareholder accounts and providing certain
information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES 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 or retired registered
representatives or full-time employees and their
spouses and minor children of dealers having sales
agreements with American Funds Distributors and plans
for such persons; (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 $100 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.
REDUCING AGGREGATION Sales charge discounts are available for
YOUR SALES certain aggregated investments. Qualifying investments
CHARGE include those by you, your spouse and your children
under the age of 21, if all parties are purchasing
You and your shares for their own account(s), which may include
immediate family purchases through employee benefit plan(s) such as an
may combine IRA, individual-type 403(b) plan or single-participant
investments to Keogh-type plan or by a business solely controlled by
reduce your costs. 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 Investment
Company Act of 1940, 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.
15
<PAGE>
- -------------------------------------------------------------------------------
CONCURRENT PURCHASES To qualify for a reduced sales
charge, you may combine concurrent purchases of two or
more funds in The American Funds Group, except direct
purchases of the money market funds. (Shares of the
money market funds purchased through an exchange,
reinvestment or cross-reinvestment from a fund having a
sales charge do qualify.) For example, if you
concurrently invest $25,000 in one fund and $25,000 in
another, the sales charge would be reduced to reflect a
$50,000 purchase.
RIGHT OF ACCUMULATION The sales charge for your invest-
ment may also be reduced by taking into account the
current value of your existing holdings in The American
Funds Group. Direct purchases of the money market funds
are excluded. (See account application.)
STATEMENT OF INTENTION You may reduce sales charges on
all investments by meeting the terms of a statement of
intention, a non-binding commitment to invest a certain
amount in fund shares subject to a commission within a
13-month period. Five percent of the statement amount
will be held in escrow to cover additional sales
charges which may be due if your total investments over
the statement period are insufficient to qualify for a
sales charge reduction. (See account application.)
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 ABOVE.
AUTOMATIC INVESTMENT PLAN You may make regular monthly
SHAREHOLDER or quarterly investments through automatic charges to
SERVICES your bank account. Once a plan is established, your ac-
count will normally be charged by the 10th day of the
The fund offers month during which an investment is made (or by the
you a valuable 15th day of the month in the case of any retirement
array of services plan for which Capital Guardian Trust Company--another
designed to affiliate of The Capital Group Companies, Inc.--acts as
increase the trustee or custodian).
convenience and
flexibility of AUTOMATIC REINVESTMENT Dividends and capital gain dis-
your investment-- tributions are reinvested in additional shares at no
services you can sales charge unless you indicate otherwise on the
use to alter your account application. You also may elect to have divi-
investment program dends and/or capital gain distributions paid in cash by
as your needs and informing the fund, American Funds Service Company or
circumstances your investment dealer.
change.
CROSS-REINVESTMENT You may cross-reinvest dividends or
dividends and capital gain distributions paid by one
fund into another fund in The American Funds Group,
subject to conditions outlined in the statement of ad-
ditional information. Generally, to use this service
the value of your account in the paying fund must equal
at least $5,000.
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
16
<PAGE>
- -------------------------------------------------------------------------------
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)
(see "Shareholder Services--American FundsLine(R)" be-
low), or by telephoning 800/421-0180 toll-free, faxing
(see "Transfer Agent" above for the appropriate fax
numbers) or telegraphing American Funds Service Compa-
ny. (See "Telephone 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 simul-
taneously at the share prices next determined after the
exchange order is received. (See "Purchasing Shares--
Share Price.") 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 pre-
ceding 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 re-
ceiving 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 You may make automatic
withdrawals of $50 or more as follows: five or more
times per year if you have an account of $10,000 or
more, or four or fewer times per year if you have an
account of $5,000 or more. Withdrawals are made on or
about the 15th day of each month you designate, and
checks will be sent within seven days. (See "Other
Important Things to Remember.") Additional investments
in a withdrawal account must not be less than one
year's scheduled withdrawals or $1,200, whichever is
greater. However, additional investments in a
withdrawal account may be inadvisable due to sales
charges and tax liabilities.
THESE SERVICES ARE AVAILABLE ONLY IN STATES WHERE THE
FUND TO BE PURCHASED MAY BE LEGALLY OFFERED AND MAY BE
TERMINATED OR MODIFIED AT ANY TIME UPON 60 DAYS'
WRITTEN NOTICE.
ACCOUNT STATEMENTS Your account is opened in accordance
with your registration instructions. Transactions in
the account, such as additional investments and
dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service
Company.
17
<PAGE>
- -------------------------------------------------------------------------------
AMERICAN FUNDSLINE(R) You may check your share balance,
the price of your shares, or your most recent account
transaction, redeem shares (up to $10,000 per fund, per
account each day), or exchange shares around the clock
with American FundsLine(R). To use this service, call
800/325-3590 from a TouchTone(TM) telephone.
Redemptions and exchanges through American FundsLine(R)
are subject to the conditions noted above and in
"Redeeming Shares--Telephone Redemptions and Exchanges"
below. You will need your fund number (see the list of
funds in The American Funds Group under "Purchasing
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.
---------------------------------------------------------
REDEEMING By writing to Send a letter of instruction
SHARES American specifying the name of the fund, the
Funds Service number of shares or dollar amount to
You may take money Company (at be sold, your name and account
out of your the number. You should also enclose any
account whenever appropriate share certificates you wish to
you please. address redeem. For redemptions over $50,000
indicated and for certain redemptions of
under "Fund $50,000 or less (see below), your
Organization signature must be guaranteed by a
and bank, savings association, credit
Management-- union, or member firm of a domestic
Transfer stock exchange or the National
Agent") Association of Securities Dealers,
Inc., that is an eligible guarantor
institution. You should verify with
the institution that it is an
eligible guarantor prior to signing.
Additional documentation may be
required for redemption of shares
held in corporate, partnership or
fiduciary accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
---------------------------------------------------------
By contacting If you redeem shares through your
your investment dealer, you may be charged
investment for this service. SHARES HELD FOR YOU
dealer IN YOUR INVESTMENT DEALER'S STREET
NAME MUST BE REDEEMED THROUGH THE
DEALER.
--------------------------------------------------------
You may have You may use this option, provided the
a redemption account is registered in the name of
check sent to an individual(s), a UGMA/UTMA
you by using custodian, or a non-retirement plan
American trust. These redemptions may not
FundsLine(R) exceed $10,000 per day, per fund
or by account and the check must be made
telephoning, payable to the shareholder(s) of
faxing, or record and be sent to the address of
telegraphing record provided the address has been
American used with the account for at least 10
Funds Service days. See "Transfer Agent" and
Company "Exchange Privilege" above for the
(subject to appropriate telephone or fax number.
the
conditions
noted in this
section and
in "Telephone
Redemptions
and
Exchanges"
below)
--------------------------------------------------------
In the case Upon request (use the account
of the money application for the money market
market funds, funds) you may establish telephone
you may have redemption privileges (which will
redemptions enable you to have a redemption sent
wired to your to your bank account) and/or check
bank by writing privileges. If you request
telephoning check writing privileges, you will be
American provided with checks that you may use
Funds Service to draw against your account. These
Company checks may be made payable to anyone
($1,000 or you designate and must be signed by
more) or by the authorized number of registered
writing a shareholders exactly as indicated on
check ($250 your checking account signature card.
or more)
--------------------------------------------------------
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY
REDEMPTION OF $50,000 OR LESS PROVIDED THE REDEMPTION
CHECK IS MADE PAYABLE TO THE REGISTERED SHAREHOLDER(S)
AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE
ADDRESS HAS BEEN USED WITH THE ACCOUNT FOR AT LEAST 10
DAYS.
18
<PAGE>
- -------------------------------------------------------------------------------
THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND
ALL REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
TELEPHONE REDEMPTIONS AND EXCHANGES By using the
telephone (including American FundsLine(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 reinstate them at any time also 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.
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and on any investment made with no initial sales
charge by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 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 distributions from 403(b) plans or IRAs due
to death, disability or attainment of age 59 1/2; 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.
REINSTATEMENT PRIVILEGE You may reinvest proceeds from
a redemption or a dividend or capital gain distribution
without sales charge (any contingent deferred sales
charge paid will be credited to your account) in any
fund in The American Funds Group. Send a written
19
<PAGE>
- -------------------------------------------------------------------------------
request and a check to American Funds Service Company
within 90 days after the date of the redemption or
distribution. Reinvestment will be at the next
calculated net asset value after receipt. The tax
status of a gain realized on a redemption will not be
affected by exercise of the reinstatement privilege,
but a loss may be nullified if you reinvest in the same
fund within 30 days. If you redeem your shares within
90 days after purchase and the sales charge on the
purchase of other shares is waived under the
reinstatement privilege, the sales charge you
previously paid for the shares may not be taken into
account when you calculate your gain or loss on that
redemption.
OTHER IMPORTANT THINGS TO REMEMBER The net asset value
for redemptions is determined as indicated under
"Purchasing Shares--Share Price." Because each stock,
stock/bond and bond fund's net asset value fluctuates,
reflecting the market value of the fund's portfolio,
the amount a shareholder receives for shares redeemed
may be more or less than the amount paid for them.
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), redemption proceeds will be paid on or before
the seventh day following receipt of a proper
redemption request.
A fund may, with 60 days' written notice, close your
account if, due to a redemption, the account has a
value of less than the minimum required initial
investment. (For example, a fund may close an account
if a redemption is made shortly after a minimum initial
investment is made.)
RETIREMENT You may invest in the funds through various retirement
PLANS plans including the following plans for which Capital
Guardian Trust Company acts as trustee or custodian:
IRAs, Simplified Employee Pension plans, 403(b) plans
and Keogh- and corporate-type business retirement
plans. For further information about any of the plans,
agreements, applications and annual fees, contact
American Funds Distributors or your investment dealer.
To determine which retirement plan is appropriate for
you, please consult your tax adviser. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS INVESTMENTS FOR RETIREMENT PLANS.
FOR MORE INFORMATION, PLEASE REFER TO THE ACCOUNT
APPLICATION OR THE STATEMENT OF ADDITIONAL INFORMATION.
IF YOU HAVE ANY QUESTIONS ABOUT ANY OF THE SHAREHOLDER
SERVICES DESCRIBED HEREIN OR YOUR ACCOUNT, PLEASE
CONTACT YOUR INVESTMENT DEALER OR AMERICAN FUNDS
SERVICE COMPANY.
[RECYCLE LOGO] This prospectus has been printed on
recycled paper that meets the
guidelines of the United States
Environmental Protection Agency
20
<PAGE>
PROSPECTUS
for Eligible Retirement Plans
CAPITAL INCOME BUILDER(R)
AN OPPORTUNITY FOR A YIELD WHICH
EXCEEDS THAT PAID BY U.S. STOCKS
GENERALLY TOGETHER WITH A GROWING
DIVIDEND AND, SECONDARILY, GROWTH
OF CAPITAL
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
March 1, 1995
CAPITAL INCOME BUILDER, INC.
333 South Hope Street
Los Angeles, CA 90071
The fund strives 1) to provide to shareholders a level of current income which
exceeds the average yield on U.S. stocks generally and 2) to provide to
shareholders a growing stream of income over the years. Secondarily, the fund
will seek growth of capital. The fund will invest in a diversified portfolio
of securities that includes common stock and fixed-income securities. Up to
40% of the fund's assets may be invested in non-U.S. securities.
This prospectus relates only to shares of the fund offered without a sales
charge to eligible retirement plans. For a prospectus regarding shares of the
fund to be acquired otherwise, contact the Secretary of the fund at the
address indicated above.
This prospectus presents information you should know before investing in the
fund. It should be retained for future reference.
You may obtain the statement of additional information, dated March 1, 1995,
which contains the fund's financial statements, without charge, by writing to
the Secretary of the fund at the above address or telephoning 800/421-0180.
These requests will be honored within three business days of receipt.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, GUARANTEED,
OR ENDORSED BY, THE U.S. GOVERNMENT, ANY BANK, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON.
THE PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
RP 12-010-0395
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY
OF EXPENSES
Average annual
expenses paid over a
10-year period would
be approximately
$9 per year,
assuming a $1,000
investment and a 5%
annual return.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses.............. 2
Financial Highlights............. 3
Investment Objectives and
Policies....................... 3
Certain Securities and
Investment Techniques.......... 4
Investment Results............... 7
Dividends, Distributions and
Taxes.......................... 8
Fund Organization and
Management..................... 9
Purchasing Shares................ 11
Shareholder Services............. 12
Redeeming Shares................. 12
</TABLE>
This table is designed to help you understand the costs of investing in the
fund. These are historical expenses; your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
Certain retirement plans may purchase shares of the funds with no sales
charge./1/ The fund also has no sales charge on reinvested dividends, deferred
sales charge, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees....................................................... 0.39%
12b-1 expenses........................................................ 0.19%/2/
Other expenses (including audit, legal, shareholder services, transfer
agent and custodian expenses)........................................ 0.15%
Total fund operating expenses......................................... 0.73%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following cumulative
expenses on a $1,000 investment, assuming a 5%
annual return./3/ $7 $23 $41 $91
</TABLE>
/1/ Retirement plans of organizations with $100 million or more in collective
retirement plan assets may purchase shares of the fund with no sales charge.
In addition, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 200 or more
eligible employees or any other paln that invests at least $1 million in
shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares
at net asset value; however, a contingent deferred sales charge of 1%
applies on certain redemptions within 12 monoths following such purchases.
(See "Redeeming Shares--Contingent Deferred Sales Charge.")
/2/ These expenses may not exceed 0.30% of the fund's average net assets
annually. (See "Fund Organization and Management--Plan of Distribution.")
Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers.
/3/ Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
RESULTS; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL The following information has been audited by Price
HIGHLIGHTS Waterhouse LLP, independent accountants, whose
(For a share unqualified report covering each of the most recent five
outstanding years is included in the statement of additional
throughout the information. This information should be read in
fiscal year) conjunction with the financial statements and
accompanying notes which appear in the statement of
additional information.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
----------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987/1/
------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $34.42 $30.77 $28.67 $23.37 $25.05 $22.63 $21.22 $22.62
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.73 1.53 1.44 1.37 1.39 1.30 1.15 .36
Net realized and
unrealized gain (loss)
on investments........ (1.62) 3.76 2.33 5.39 (1.76) 2.41 1.41 (1.40)
------ ------ ------ ------ ------ ------ ------ ------
Total income (loss)
from investment
operations........... .11 5.29 3.77 6.76 (.37) 3.71 2.56 (1.04)
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net in-
vestment income....... (1.73) (1.53) (1.44) (1.46) (1.31) (1.29) (1.15) (.36)
Distributions from net
realized gains........ (.12) (.11) (.23) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions... ( 1.85) ( 1.64) (1.67) (1.46) (1.31) (1.29) (1.15) (.36)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $32.68 $34.42 $30.77 $28.67 $23.37 $25.05 $22.63 $21.22
====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/......... .47% 17.58% 13.46% 29.27% (1.62)% 16.74% 12.27% (4.62)%/3/
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of pe-
riod (in millions).... $3,629 $2,826 $1,203 $ 563 $ 206 $ 195 $ 126 $ 53
Ratio of expenses to
average net
assets................ .73% .72% .81% .98% 1.01% 1.11% 1.16% .36%/3/
Ratio of net income to
average net
assets................ 5.29% 4.69% 4.71% 5.09% 5.70% 5.44% 5.24% 1.17%/3/
Portfolio turnover
rate.................. 36.2% 11.2% 16.6% 14.0% 24.7% 16.3% 35.9% 0%/3/
</TABLE>
- --------
/1/ The period ended October 31, 1987 represents the initial period of
operations which began July 30, 1987.
/2/ Calculated with no sales charge.
/3/ These figures are based on operations for the period shown and,
accordingly, are not representative of a full year's operations.
INVESTMENT The fund is an equity income mutual fund that strives
OBJECTIVE for the accomplishment of two primary investment objec-
AND POLICIES tives--1) to provide to shareholders a level of current
income which exceeds the average yield on stocks gener-
The fund's ally, using as a measure the yield on the Standard &
primarygoal is to Poor's 500 Stock Composite Index and 2) to provide to
provide you with a shareholders a growing stream of income over the years.
current yield Secondarily, the fund will seek growth of capital, in
which exceeds the sense that achieving the objective of growing income
thatpaid by U.S. implies that the fund will also, over time, achieve sig-
stocks generally nificant capital growth.
together with a
growing dividend. The fund will invest in a diversified portfolio of
It also aims to securities that includes common stocks and fixed-income
make your capital securities including preferred stocks and securities
grow. convertible into common stocks. Normally at least 50% of
its total assets will be invested in common stocks.
Under normal market conditions, at least 90% of the
fund's portfolio will be invested in income-producing
securities.
3
<PAGE>
- -------------------------------------------------------------------------------
Up to 40% of the fund's assets may be invested in secu-
rities of issuers which are not included in the Stan-
dard & Poor's Stock Composite Index (a broad measure of
the U.S. stock market) and which are domiciled outside
the U.S. (which are generally denominated in currencies
other than the U.S. dollar), although there is no re-
quirement that the fund maintain investments in these
securities.
The fund's investment restrictions (which are described
in the statement of additional information) and objec-
tives cannot be changed without shareholder approval.
All other investment practices may be changed by the
fund's board of directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVES CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES AND THE SPECIAL RISKS ASSOCIATED WITH IN-
VESTING OUTSIDE THE U.S. DESCRIBED HEREIN.
CERTAIN SECURITIES INVESTING AROUND THE WORLD Up to 40% of the fund's
AND INVESTMENT assets may be invested in securities of issuers
TECHNIQUES domiciled outside the U.S. which, in the opinion of
Capital Research and Management Company, enhances
Investing outside the fund's ability to meet its primary objectives
the U.S. involves of providing shareholders a level of current income
expanded which exceeds the average yield on U.S. stocks
opportunities, generally and a growing stream of income over the
special risks and years and its secondary objective of growth of
increased costs. capital.
Of course, investing outside the U.S. involves
special risks caused by, among other things:
fluctuating currency values; different accounting,
auditing, and financial reporting regulations and
practices in some countries; changing local and
regional economic, political, and social
conditions; 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, global investing also can
reduce certain portfolio risks due to greater
diversification opportunities.
Additional costs could be incurred in connection with
the fund's investment activities outside the U.S.
Brokerage commissions are generally 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.
CURRENCY TRANSACTIONS The fund has the ability to hold
a portion of its assets in U.S. dollars and other
currencies and to enter into forward currency contracts
to protect against changes in currency exchange rates.
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 might purchase a
particular currency or enter into a forward currency
contract to preserve the U.S. dollar price of
securities it intends to or has contracted to purchase.
Alternatively, it might sell a particular currency on
either a spot or forward basis to hedge
4
<PAGE>
- -------------------------------------------------------------------------------
against an anticipated decline in the dollar value of
securities it intends to or has contracted to sell.
Although this strategy could reduce the risk of loss
due to a decline in the value of the hedged currency,
it could also limit any potential gain from an increase
in the value of the currency.
FIXED-INCOME SECURITIES The fund's fixed-income
investments will consist principally of bonds that are
rated BBB or better by Standard & Poor's Corporation or
Baa or better by Moody's Investors Service, Inc., or
that are unrated by these companies but determined by
Capital Research and Management Company to be of
equivalent credit quality. Securities rated BBB or Baa
have speculative characteristics. At no time will more
than 5% of the funds's assets be invested in fixed-
income securities rated below BBB or Baa, including
securities rated at the time or purchase as low as CC
by Standard & Poor's Corporation or Ca by Moody's
Investors Service, Inc. (or unrated but determined to
be of equivalent quality). (See the statement of
additional information for a description of the ratings
and for more information about the risks of lower rated
bonds.) the market values of fixed-income securities
tend to vary inversely with the level of interest
rates--when interest rates rise, their values generally
will decline; when interest rates decline, their values
generally will rise. The fund's investments in fixed-
income securities outside the U.S. will principally be
in securities issued or guaranteed as to principal and
interest by governments or their agencies or
instrumentalities or by multinational agencies.
MATURITY The maturity composition of the fund's
portfolio of fixed-income securities will be adjusted
in response to market conditions and expectations.
There are no restrictions on the maturity composition
of the portfolio. Under normal market conditions,
longer term securities yield more than shorter term
securities, but are subject to greater price
fluctuations.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT
AGREEMENTS The fund may purchase securities on a
delayed delivery or "when-issued" basis and enter into
firm commitment agreements (transactions whereby the
payment obligation and interest rate are fixed at the
time of the transaction but the settlement is delayed).
These transactions may involve either corporate or
government securities. The fund as purchaser assumes
the risk of any decline in value of the security
beginning on the date of the agreement or purchase. As
the fund's aggregate commitments under these
transactions increase, the opportunity for leverage
similarly may increase, however, it is not the intent
of the fund to engage in these transactions for
leveraging purposes.
VARIABLE AND FLOATING RATE OBLIGATIONS The fund may in-
vest in variable and floating rate obligations which
have interest rates that are adjusted at designated in-
tervals, or whenever there are changes in the market
rates of interest on which the interest rates are
based. The rate
5
<PAGE>
- -------------------------------------------------------------------------------
adjustment feature tends to limit the extent to which
the market value of the obligation will fluctuate.
REPURCHASE AGREEMENTS The fund may enter into repur-
chase agreements, under which it buys a security and
obtains a simultaneous commitment from the seller to
repurchase the security at a specified time and price.
The seller must maintain with the fund's custodian col-
lateral equal to at least 100% of the repurchase price
including accrued interest, as monitored daily by Capi-
tal Research and Management Company. If the seller un-
der the repurchase agreement defaults, the fund may in-
cur a loss if the value of the collateral securing the
repurchase agreement has declined and may incur dispo-
sition costs in connection with liquidating the collat-
eral. If bankruptcy proceedings are commenced with re-
spect to the seller, liquidation of the collateral by
the fund may be delayed or limited.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic invest-
ment philosophy of Capital Research and Management Com-
pany is to seek fundamental values at reasonable pric-
es, using a system of multiple portfolio counselors in
managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which
are managed by individual counselors. Each counselor
decides how the segment will be invested (within the
limits provided by the fund's objectives and policies
and by Capital Research and Management Company's in-
vestment committee). In addition, Capital Research and
Management Company's research professionals make in-
vestment decisions with respect to a portion of the
fund's portfolio. The primary individual portfolio
counselors for the fund are listed below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
WITH CAPITAL
RESEARCH AND
PORTFOLIO YEARS OF EXPERIENCE AS MANAGEMENT
COUNSELORS FOR PORTFOLIO COUNSELOR FOR COMPANY OR
CAPITAL INCOME CAPITAL INCOME BUILDER ITS TOTAL
BUILDER PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jon B. Chairman of the Board of the Since the fund began 43 years 43 years
Lovelace fund; Vice Chairman of the Board, operations in 1987
Capital Research and Management
Company
- -----------------------------------------------------------------------------------------------------
James B. Vice President of the fund; 7 years 12 years 12 years
Lovelace Vice President, Capital Research
and Management Company
- -----------------------------------------------------------------------------------------------------
Janet A. Vice President of the fund; Since the fund began 13 years 19 years
McKinley Senior Vice President, Capital operations in 1987
Research Company*
- -----------------------------------------------------------------------------------------------------
William R. Senior Vice President and Since the fund began 25 years 32 years
Grimsley Director, Capital Research and operations in 1987
Management Company
- -----------------------------------------------------------------------------------------------------
Thierry Chairman of the Board and Chief 7 years 32 years 32 years
Vandeventer Executive Officer,
Capital Research Company*
- -----------------------------------------------------------------------------------------------------
</TABLE>
The fund began operations on May 28, 1974.
* Company affiliated with Capital Research and Management Company.
6
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT RESULTS The fund may from time to time compare its investment
results to various unmanaged indices or other mutual
The following funds in reports to shareholders, sales literature and
charts show that advertisements. The results may be calculated on a
the fund's total return and/or yield basis for various periods,
dividends have with or without sales charges. Results calculated
increased in every without a sales charge will be higher. Total returns
complete fiscal assume the reinvestment of all dividends and capital
quarter--also that gain distributions.
the fund has
demonstrated As of December 31, 1994, the fund's yield for the past
unusual stability, 30-day period was 5.15%, and total return over the past
and that the value 12 months and average annual total returns over the
of its shares past five-year and lifetime periods (operations com-
compares favorably menced on July 30, 1987) were -2.26%, 10.11% and
with the broad 10.43%, respectively. These results were calculated in
market averages. accordance with Securities and Exchange Commission re-
quirements with no sales charge. Of course, past re-
sults are not an indication of future results. Further
information regarding the fund's investment results is
contained in the fund's annual report which may be ob-
tained without charge by writing to the Secretary of
the fund at the address indicated on the cover of this
prospectus.
CIB's Growth of Capital Compared with the S&P 500
(excluding dividends from income and with
capital gains reinvested) July 31, 1987=100
[GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C>
CIB S&P 500
---------- ----------
Jul, 1987 100 100
Oct, 1987 93.8 79.2
Jan, 1988 97.8 80.8
Apr, 1988 97 82.2
Jul, 1988 98.3 85.5
Oct, 1988 100 87.7
Jan, 1989 102.8 93.5
Apr, 1989 104.7 97.4
Jul, 1989 110.8 108.8
Oct, 1989 110.7 107
Jan, 1990 109.5 103.5
Apr, 1990 107.4 104
Jul, 1990 110.4 112
Oct, 1990 103.3 95.6
Jan, 1991 116 108.1
Apr, 1991 122.9 118
Jul, 1991 124.4 121.9
Oct, 1991 126.7 123.4
Jan, 1992 131 128.5
Apr, 1992 134.4 130.5
Jul, 1992 139.4 133.4
Oct, 1992 137.1 131.6
Jan, 1993 140.4 138
Apr, 1993 144.2 138.4
Jul, 1993 146.3 140.9
Oct, 1993 153.9 147.1
Jan, 1994 156.6 151.4
Apr, 1994 144.9 141.8
Jul, 1994 145.8 144.1
Oct, 1994 146.7 148.5
</TABLE>
7
<PAGE>
- -------------------------------------------------------------------------------
CIB's Quarterly Dividends Compared with inflation
(cents per share) (Index: December 1987=100)
[GRAPH APPEARS HERE]
<TABLE>
Additional
Income earned
if the capital
gain distributions
paid in December Inflation=
1991, 1992 and Consumer Price
1993 were Index (through
Dividend reinvested October 1994)
------------ ------------ -------------
<S> <C> <C> <C>
1st Qtr, 1988 28 - 100.0
2nd Qtr, 1988 28.5 - 101.0
3rd Qtr, 1988 29 - 102.3
4th Qtr, 1988 29.5 - 103.8
1st Qtr, 1989 30 - 104.4
2nd Qtr, 1989 30.5 - 105.9
3rd Qtr, 1989 31 - 107.5
4th Qtr, 1989 31.5 - 108.4
1st Qtr, 1990 32.5 - 109.2
2nd Qtr, 1990 33 - 111.5
3rd Qtr, 1990 33.5 - 112.6
4th Qtr, 1990 34 - 115.0
1st Qtr, 1991 34.5 - 116.0
2nd Qtr, 1991 35 - 117.0
3rd Qtr, 1991 35.5 - 117.8
4th Qtr, 1991 36 - 118.9
1st Qtr, 1992 36.5 - 119.5
2nd Qtr, 1992 37 37.3 120.7
3rd Qtr, 1992 37.5 37.8 121.5
4th Qtr, 1992 38 38.3 122.4
1st Qtr, 1993 38.5 38.8 123.0
2nd Qtr, 1993 39 39.5 124.4
3rd Qtr, 1993 39.5 40.0 125.1
4th Qtr, 1993 40 40.5 125.7
1st Qtr, 1994 40.5 41.0 126.4
2nd Qtr, 1994 41 41.6 127.6
3rd Qtr, 1994 41.5 42.1 128.2
4th Qtr, 1994 42 42.6 129.4
1st Qtr, 1995 42.5 43.1 129.7
</TABLE>
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS The fund declares dividends
DISTRIBUTIONS AND from its net investment income daily and distributes
TAXES such accrued dividends to shareholders in March, June,
September and December. Dividends begin accruing one
Income day after shares are purchased and paid for. Capital
distributions are gains, if any, are usually distributed in December.
made in March, When a capital gain is distributed, the net asset value
June, September per share is reduced by the amount of the payment.
and December.
FEDERAL TAXES The fund intends to operate as a "regu-
lated investment company" under the Internal Revenue
Code. In any fiscal year in which the fund so qualifies
and distributes to shareholders all of its net invest-
ment income and net capital gains, the fund itself is
relieved of federal income tax. The tax treatment of
redemptions from a retirement plan may differ from re-
demptions from an ordinary shareholder account.
PLEASE SEE THE STATEMENT OF ADDITIONAL INFORMATION AND
YOUR TAX ADVISER FOR FURTHER INFORMATION.
8
<PAGE>
- -------------------------------------------------------------------------------
FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was
AND MANAGEMENT organized as a Maryland corporation in 1987. The fund's
board supervises fund operations and performs duties
The fund is a required by applicable state and federal law. Members
member of The of the board who are not employed by Capital Research
American Funds and Management Company or its affiliates are paid
Group, which is certain fees for services rendered to the fund as
managed by one of described in the statement of additional information.
the largest and They may elect to defer all or a portion of these fees
most experienced through a deferred compensation plan in effect for the
investment fund. Shareholders have one vote per share owned and,
advisers. at the request of the holders of at least 10% of the
shares, the fund will hold a meeting at which any
member of the board could be removed by a majority
vote. There will not usually be a shareholder meeting
in any year except, for example, when the election of
the directors is required to be acted upon by
shareholders under the Investment Company Act of 1940.
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los
Angeles, CA 90071 and at 135 South State College
Boulevard, Brea, CA 92621. Capital Research and
Management Company manages the investment portfolio and
business affairs of the fund and receives a fee at the
annual rate of 0.24% of the first $1 billion of the
fund's net assets, plus 0.20% of net assets from $1
billion to $2 billion, plus 0.18% of net assets from $2
billion to $3 billion, plus 0.165% of net assets from
$3 billion to $5 billion, plus 0.155% of net assets
from $5 billion to $8 billion, plus 0.15% of net assets
in excess of $8 billion, plus 3% of the fund's annual
gross investment income. Assuming net assets of $3.5
billion and gross investment income levels of 4%, 5%,
6%, and 7%, management fees would be 0.32%, 0.35%,
0.38%, 0.41%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its affili-
ated companies have adopted a personal investing policy
that is consistent with the recommendations contained
in the report dated May 9, 1994 issued by the Invest-
ment Company Institute's Advisory Group on Personal In-
vesting. (See the statement of additional information).
9
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. In the over-the-counter mar-
ket, purchases and sales are transacted directly with
principal market-makers except in those circumstances
where it appears better prices and executions are
available elsewhere.
Subject to the above policy, when
two or more brokers are in a position to offer compara-
ble prices and executions, preference may be given to
brokers that have sold shares of the fund or have pro-
vided investment research, statistical, and other re-
lated services for the benefit of the fund and/or of
other funds served by Capital Research and Management
Company.
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors is located
at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92621, 8000 IH-
10 West, San Antonio, TX 78230, 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240 and 5300 Robin Hood
Road, Norfolk, VA 23513. Telephone conversations with
American Funds Distributors may be recorded or moni-
tored for verification, recordkeeping and quality as-
surance purposes.
PLAN OF DISTRIBUTION The fund has a plan of distribu-
tion or "12b-1 Plan" under which it may finance activi-
ties primarily intended to sell shares, provided the
categories of expenses are approved in advance by the
board and the expenses paid under the plan were in-
curred within the last 12 months and accrued while the
plan is in effect. Expenditures by the fund under the
plan may not exceed 0.30% of its average net assets an-
nually (0.25% of which may be for service fees).
TRANSFER AGENT American Funds Service Company, 800/421-
0180, a wholly owned subsidiary of Capital Research and
Management Company, is the transfer agent and performs
shareholder service functions. American Funds Service
Company is located at 333 South Hope Street, Los Ange-
les, CA 90071, 135 South State College Boulevard, Brea,
CA 92621, 8000 IH-10 West, San Antonio, TX 78230, 8332
Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. It was
paid a fee of $2,389,000 for the fiscal year ended Oc-
tober 31, 1994. Telephone conversations with American
Funds Service Company may be recorded or monitored for
verification, recordkeeping and quality assurance pur-
poses.
10
<PAGE>
- -------------------------------------------------------------------------------
PURCHASING SHARES ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
RETIREMENT PLAN. FOR MORE INFORMATION ABOUT HOW TO PUR-
CHASE SHARES OF THE COMPANY THROUGH YOUR EMPLOYER'S
PLAN OR LIMITATIONS ON THE AMOUNT THAT MAY BE PUR-
CHASED, PLEASE CONSULT WITH YOUR EMPLOYER. Shares are
sold to eligible retirement plans at the net asset
value per share next determined after receipt of an or-
der by the fund or American Funds Service Company. Or-
ders must be received before the close of regular trad-
ing on the New York Stock Exchange in order to receive
that day's net asset value. Plans of organizations with
collective retirement plan assets of $100 million or
more may purchase shares at net asset value. In addi-
tion, any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees or
any other plan that invests at least $1 million in
shares of the fund (or in combination with shares of
other funds in The American Funds Group other than the
money market funds) may purchase shares at net asset
value; however, a contingent deferred sales charge of
1% is imposed on certain redemptions within one year of
such purchase. (See "Redeeming Shares-- Contingent De-
ferred Sales Charge.") Plans may also qualify to pur-
chase $1 million over a maximum of 13 consecutive
months. Certain redemptions of such shares may also be
subject to a contingent deferred sales charge as de-
scribed above. (See the statement of additional infor-
mation.)
American Funds Distributors, at its expense (from a
designated percentage of its income), will provide ad-
ditional promotional incentives to dealers. Currently
these incentives are limited to the top one hundred
dealers who have sold shares of the fund or other funds
in The American Funds Group. The incentive payments
will be based on a pro rata share of a qualifying deal-
er's sales.
Qualified dealers currently are paid a continuing serv-
ice 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. (See "Fund Organi-
zation and Management--Plan of Distribution.") These
services include processing purchase and redemption
transactions, establishing shareholder accounts and
providing certain information and assistance with re-
spect to the fund.
Shares of the fund are offered to other shareholders
pursuant to another prospectus at public offering
prices that may include an initial sales charge.
SHARE PRICE Shares are offered to eligible retirement
plans at the net asset value after the order is
received by the fund or American Funds Service Company.
In the case of orders sent directly to the company or
American Funds Service Company, an investment dealer
MUST be indicated. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
11
<PAGE>
- -------------------------------------------------------------------------------
The fund's net asset value per share is determined as
of the close of trading (currently 4:00 p.m., New York
time) on each day the New York Stock Exchange is open.
The current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share.
SHAREHOLDER Subject to any restrictions contained in your plan, you
SERVICES can exchange your shares for shares of other funds in
The American Funds Group which are offered through the
plan at net asset value. In addition, again depending
on any restrictions in your plan, you may be able to
exchange shares automatically or cross-reinvest
dividends in shares of other funds. Contact your plan
administrator/trustee regarding how to use these
services. Also, see the fund's statement of additional
information for a description of these and other
services that may be available through your plan. These
services are available only in states where the fund to
be purchased may be legally offered and may be
terminated or modified at any time upon 60 days'
written notice.
REDEEMING Subject to any restrictions imposed by your employer's
SHARES plan, you can sell your shares through the plan to the
fund any day the New York Stock Exchange is open. For
more information about how to sell shares of the fund
through your retirement plan, including any charges
that may be imposed by the plan, please consult with
your employer.
--------------------------------------------------------
By contacting Your plan administrator/trustee must
your plan send a letter of instruction
administrator/ specifying the name of the fund, the
trustee number of shares or dollar amount to
be sold, and, if applicable, your
name and account number. For your
protection, if you redeem more than
$50,000, the signatures of the
registered owners or their legal
representatives must be guaranteed by
a bank, savings association, credit
union, or member firm of a domestic
stock exchange or the National
Association of Securities Dealers,
Inc., that is an eligible guarantor
institution. Your plan
administrator/trustee should verify
with the institution that it is an
eligible guarantor prior to signing.
Additional documentation may be
required to redeem shares from
certain accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
--------------------------------------------------------
By contacting Shares may also be redeemed through
your an investment dealer; however you or
investment your plan may be charged for this
dealer service. SHARES HELD FOR YOU IN AN
INVESTMENT DEALER'S STREET NAME MUST
BE REDEEMED THROUGH THE DEALER.
--------------------------------------------------------
THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND
ALL REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and on any investment made with no initial sales
charge by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a
"401(k)" plan
12
CAPITAL INCOME BUILDER, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
This document is not a prospectus but should be read in conjunction with the
current Prospectus of Capital Income Builder, Inc. (the fund or CIB) dated
March 1, 1995. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
CAPITAL INCOME BUILDER, INC.
ATTENTION: SECRETARY
333 SOUTH HOPE STREET
LOS ANGELES, CA 90071
(213) 486-9200
The fund has two forms of prospectuses. Each reference to the prospectus in
this Statement of Additional Information includes both of the fund's
prospectuses. 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
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
1
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD BONDS
3
INVESTMENT RESTRICTIONS
4
FUND DIRECTORS AND OFFICERS
7
MANAGEMENT
11
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
13
PURCHASE OF SHARES
15
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
17
REDEMPTION OF SHARES
17
EXECUTION OF PORTFOLIO TRANSACTIONS
18
GENERAL INFORMATION
18
INVESTMENT RESULTS
20
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
24
FINANCIAL STATEMENTS ATTACHED
</TABLE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
Prospectus under "Investment Objectives and Policies."
CURRENCY TRANSACTIONS - The fund may enter into forward currency contracts
("forward contracts") in connection with its investments in securities of
non-U.S. issuers. A forward contract is an obligation to purchase or sell a
currency against another currency at a future date and price as agreed upon by
the parties. The fund may either accept or make delivery of the currency at
the maturity of the forward contract or, prior to maturity, enter into a
closing transaction involving the purchase or sale of an offsetting contract.
The fund engages in forward contracts in anticipation of, or to protect itself
against, fluctuations in exchange rates. The fund might sell a particular
currency forward, for example, when it wanted to hold securities denominated in
that currency but anticipated, and wished to be protected against, a decline in
the currency against the U.S. dollar. Similarly it might purchase a currency
forward to "lock in" the U.S. dollar price of securities denominated in that
currency which it anticipated purchasing. Although forward contracts typically
will involve the purchase and sale of a non-U.S. currency against the U.S.
dollar, the fund also may purchase or sell one non-U.S. currency forward
against another non-U.S. currency.
PORTFOLIO TRADING - The fund intends to engage in portfolio trading when
Capital Research and Management Company (the "Investment Adviser") believes
that the sale of a security owned by the fund and the purchase of another
security of better value can enhance principal and/or increase income. A
security may be sold to avoid any prospective decline in market value in light
of what is evaluated as an expected rise in prevailing yields, or a security
may be purchased in anticipation of a market rise (a decline in prevailing
yields). A security also may be sold and a comparable security purchased
coincidentally in order to take advantage of what is believed to be a disparity
in the normal yield and price relationship between the two securities, or in
connection with a "roll" transaction as described below.
WARRANTS OR RIGHTS - As a condition of its continuing registration in a state,
the fund has undertaken that its investments in warrants or rights, valued at
the lower of cost or market, will not exceed 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the fund's net assets, may
be warrants or rights that are not listed on either the New York Stock Exchange
or the American Stock Exchange. Warrants or rights acquired by the fund in
units or attached to securities will be deemed to be without value for purposes
of this restriction. These limits are not fundamental policies of the fund and
may be changed by the Board of Directors without shareholder approval.
LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to lend portfolio
securities to selected securities dealers or to other institutional investors
whose financial condition is monitored by the Investment Adviser. The borrower
must maintain with the fund's custodian collateral consisting of cash, cash
equivalents or U.S. Government securities equal to at least 100% of the value
of the borrowed securities, plus any accrued interest. The Investment Adviser
will monitor the adequacy of the collateral on a daily basis. The fund may at
any time call a loan of its portfolio securities and obtain the return of the
loaned securities. The fund will receive any interest paid on the loaned
securities and a fee or a portion of the interest earned on the collateral.
The fund will limit its loans of portfolio securities to an aggregate of
one-third of the value of its total assets, measured at the time any such loan
is made.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND "ROLL" TRANSACTIONS -
The fund may purchase securities on a delayed delivery or "when-issued" basis
and enter into firm commitment agreements (transactions whereby the payment
obligation and interest rate are fixed at the time of the transaction but the
settlement is delayed). The fund as a purchaser assumes the risk of any
decline in value of the security beginning on the date of the agreement or
purchase. Although the fund has no current intention to do so during the next
12 months, the fund may engage in "roll" transactions. A "roll" transaction is
the sale of securities together with a commitment to purchase similar, but not
identical, securities at a future date. Under the Investment Company Act of
1940 (the "1940 Act"), these transactions may be considered borrowings by the
fund; accordingly, the fund will limit its use of these transactions, together
with any other borrowings, to no more than one-third of its total assets.
The fund will segregate liquid assets such as cash, U.S. Government securities
or other high grade debt obligations in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its holdings of cash and securities
that do not fluctuate in value (such as short-term money market instruments),
the fund temporarily will be in a leveraged position (i.e., it will have an
amount greater than its net assets subject to market risk). Should market
value of the fund's portfolio securities decline while the fund is in a
leveraged position, greater depreciation of its net assets would likely occur
than were it not in such a position. As the fund's aggregate commitments under
these transactions increase, the opportunity for leverage similarly increases.
REVERSE REPURCHASE AGREEMENTS - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to enter into
reverse repurchase agreements. A reverse repurchase agreement is the sale of a
security by a fund and its agreement to repurchase the security at a specified
time and price. The fund will maintain in a segregated account with its
custodian cash, cash equivalents or U.S. Government securities in an amount
sufficient to cover its obligations under reverse repurchase agreements with
broker-dealers (but no collateral is required on reverse repurchase agreements
with banks). Under the 1940 Act, reverse repurchase agreements may be
considered borrowings by the fund; accordingly, the fund will limit its
investments in reverse repurchase agreements, together with any other
borrowings, to no more than one-third of its total assets. The use of reverse
repurchase agreements by the fund creates leverage which increases the fund's
investment risk. If the income and gains on securities purchased with the
proceeds of reverse repurchase agreements exceed the costs of the agreements,
the fund's earnings or net asset value will increase faster than otherwise
would be the case; conversely if the income and gains fail to exceed the costs,
earnings or net asset value would decline faster than otherwise would be the
case.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD BONDS
The fund is currently authorized to invest up to 5% of its assets in bonds
rated below Baa by Moody's Investors Service, Inc. or BBB by Standard and
Poor's Corporation (or unrated but determined to be equivalent by the
Investment Adviser). 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 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 defaulted on its obligations to pay
interest or principal or entered 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 of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk 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 it will with all bonds.
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.
INVESTMENT RESTRICTIONS
The fund has adopted the following fundamental policies and investment
restrictions which may not be changed without a majority vote of its
outstanding shares. Such majority is defined within the 1940 Act as the vote
of the lesser of (i) 67% or more of the outstanding voting securities present
at a meeting, if the holders of more than 50% of the outstanding voting
securities are present in person or by proxy, or (ii) more than 50% of the
outstanding voting securities. All percentage limitations expressed in the
following investment restrictions are measured immediately after and giving
effect to the relevant transaction. These restrictions provide that the fund
may not:
1. Purchase any security (other than securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) if immediately after and
as a result of such investment, more than 5% of the fund's total assets would
be invested in securities of the issuer; except that, as to 25% of the fund's
total assets, up to 10% of its total assets may be invested in securities
issued or guaranteed as to payment of interest and principal by a foreign
government or its agencies or instrumentalities or by a multinational agency;
2. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry;
3. Invest in companies for the purpose of exercising control or management;
4. Knowingly purchase securities of other management investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
5. Buy or sell real estate or commodities or commodity contracts; however, the
fund may invest in debt securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein,
including real estate investment trusts, and may purchase or sell currencies
(including forward currency contracts);
6. Acquire securities subject to restrictions on disposition or securities for
which there is no readily available market, or enter into repurchase agreements
or purchase time deposits maturing in more than seven days, if, immediately
after and as a result, the value of such securities would exceed, in the
aggregate, 10% of the fund's total assets;
7. Engage in the business of underwriting securities of other issuers, except
to the extent that the disposal of an investment position may technically cause
it to be considered an underwriter as that term is defined under the Securities
Act of 1933;
8. Make loans, except that the fund may purchase debt securities, enter into
repurchase agreements and make loans of portfolio securities;
9. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;
10. Purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
11. Borrow money, except from banks for temporary or emergency purposes not in
excess of 5% of the value of the fund's total assets (in the event that the
asset coverage for such borrowings falls below 300%, the fund will reduce,
within three days, the amount of its borrowings in order to provide for 300%
asset coverage), and except that the fund may enter into reverse repurchase
agreements and engage in "roll" transactions, provided that reverse repurchase
agreements, "roll" transactions and any other transactions constituting
borrowing by the fund may not exceed one-third of the fund's total assets;
12. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in connection with
any permissible borrowing;
13. Purchase or retain the securities of any issuer, if those individual
officers and Directors of the fund, its investment adviser, or distributor,
each owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
14. Invest in interests in oil, gas, or other mineral exploration or
development programs;
15. Invest more than 5% of its total assets in securities of companies having,
together with their predecessors, a record of less than three years of
continuous operation;
16. Write, purchase or sell put options, call options or combinations thereof;
A further investment policy of the fund, which may be changed by action of the
Board of Directors without shareholder approval, is that the fund will not
invest in securities of an issuer if the investment would cause the fund to own
more than 10% of any class of securities of any one issuer.
With respect to investment restriction number 2, in determining industry
classifications for issuers domiciled outside the U.S., the fund will use
reasonable classifications that are not so broad that the primary economic
characteristic of the companies in a single class are materially different.
The fund will determine such classifications of issues domiciled outside the
U.S. based on the issuer's principal or major business activities.
To the extent consistent with investment restriction number 6, the fund does
not currently intend (at least for the next 12 months) to acquire securities
subject to restrictions on disposition or securities for which there is no
readily available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if, immediately after and as a
result, the value of such securities would exceed, in the aggregate, 15% of the
fund's net assets.
Notwithstanding investment restriction number 4, 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.
FUND DIRECTORS AND OFFICERS
DIRECTORS AND DIRECTOR COMPENSATION
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION FROM ALL FUNDS OF FUND
ORGANIZATIONS LISTED MAY HAVE (INCLUDING MANAGED BY CAPITAL BOARDS ON
CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED RESEARCH AND WHICH
COMPENSATION/1/) FROM MANAGEMENT COMPANY/2/ DIRECTOR
THE COMPANY DURING SERVES
FISCAL YEAR ENDED
10/31/94
<S> <C> <C> <C> <C> <C>
+ H. Frederick Christie Director Private investor; former President $14,550 $144,183 18
P.O. Box 144 and Chief Executive Officer, The
Palos Verdes Estates, CA Mission Group (non-utility holding
90274 company, subsidiary of Southern
Age: 61 California Edison Company);
former President, Southern
California Edison Company
++ Paul G. Haaga, Jr. President and Capital Research and Management None/3/ None/3/ 14
333 South Hope Street Director Company, Senior Vice President
Los Angeles, CA 90071 and Director
Age: 46
Mary Myers Kauppila Director Founder and President, Energy $15,350/4/ $67,800 4
286 Congress Street Investment, Inc.
Boston , MA 02110
Age: 40
++ Jon B. Lovelace Chairman of Capital Research and Management None/3/ None/3/ 4
333 South Hope Street the Board Company, Vice Chairman of the
Los Angeles, CA 90071 Board and Chairman of the
Age: 68 Executive Committee
Gail L. Neale Director Executive Vice President of the $14,450 $52,300 4
Salzburg Seminar Salzburg Seminar; former Director
P.O. Box 616 of Development and the Capital
The Marbleworks Campaign, Hampshire College;
Middlebury, VT 052753 former Special Advisor, The
Age: 60 Commonwealth Fund and Mount
Holyoke College
Robert J. O'Neill Director Professor and Fellow, All Souls $15,350 $35,000 3
St. Mary's Close College, University of Oxford
27 Church Green
Whitney, OXON
United Kingdom
Age: 58
Donald E. Petersen Director Retired; former chairman of the $13,050/4/ $30,550 3
255 East Brown Board and Chief Executive Officer,
Birmingham, MI 48009 Ford Motor Company
Age: 68
Stefanie Powers Director Actor; Founder and President, The $11,150 $20,100 2
1901 Avenue of the Stars William Holden Wildlife
- - Suite 1040 Foundation
Los Angeles, CA 90067
Age: 52
Frank Stanton Director President Emeritus, CBS, Inc.; $15,750 $30,900 2
630 Fifth Avenue Chairman Emeritus, The American
New York, NY 10111 Red Cross
Age: 86
Charles Wolf, Jr. Director Dean, The RAND Graduate $14,550 $52,800 4
1700 Main Street School; Director, International
Santa Monica, CA 90406 Economic Studies, The RAND
Age: 70 Corporation
</TABLE>
# Positions within the organizations may have changed during this period.
+ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
++ Directors who are considered "interested persons as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), on the basis of
their affiliation with the fund's Investment Adviser, Capital Research and
Management Company.
/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
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, 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., 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.
/3/ Paul G. Haaga, Jr. and Jon B. Lovelace are affiliated with the Investment
Adviser and, accordingly, receive no compensation from the fund.
/4/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: Mary Myers Kauppila ($10,445) and Donald E. Petersen ($8,489).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the company until paid to the Director.
OFFICERS
JON B. LOVELACE, Chairman of the Board (see above).
PAUL G. HAAGA, JR., President (see above).
* LARRY P. CLEMMENSEN, Senior Vice President and Treasurer.
Senior Vice President and Director, Capital Research and Management Company.
Executive Vice President and Principal Financial Officer, The Capital Group
Companies, Inc.
JAMES B. LOVELACE, Vice President. 11100 Santa Monica Boulevard, Los Angeles,
CA 90025.
Vice President, Capital Research and Management Company.
JANET A. MC KINLEY, Vice President. 630 Fifth Avenue, New York, NY
10111.
Senior Vice President, Capital Research Company.
* CATHERINE M. WARD, Vice President.
Vice President and Director, Capital Research and Management Company.
* VINCENT P. CORTI, Secretary.
Vice President - Fund Business Management Group, Capital Research and
Management Company.
** MARY C. CREMIN, Assistant Treasurer.
Senior Vice President - Fund Business Management Group, Capital Research and
Management Company.
** R. MARCIA GOULD, Assistant Treasurer.
Vice President - Fund Business Management Group, Capital Research and
Management Company.
__________________________________
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is 135 South State College Boulevard, Brea, CA 92621.
All of the Directors and Officers listed are also officers and/or directors
and/or trustees of one or more of the other funds for which Capital Research
and Managment company serves as investment adviser. The compensation paid by
the fund to unaffiliated Directors is $9,000 per annum, plus $750 for each
Board of Directors meeting attended, plus $400 for each meeting attended as a
member of a committee of the Board of Directors. No pension or retirement
benefits are accrued as part of fund expenses. The Directors may elect, on a
voluntary basis, to defer all or a portion of their fees through a deferred
compensation plan in effect for the fund. The fund also reimburses certain
expenses of the Directors who are not affiliated with the Investment Adviser.
The total compensation paid by the fund to unaffiliated Directors during the
fiscal year ended October 31, 1994 was $114,000. As of February 1, 1995, the
Directors and Officers and their families as a group, owned beneficially or of
record less than 1% of the outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have a number of years of investment experience. The Investment
Adviser's 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 more than $100 billion of stocks,
bonds and money market instruments and serve over five million investors of all
types throughout the world. 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 "Advisory Agreement") between the fund and the Investment
Adviser, dated November 1, 1992, will continue in effect until October 31, 1995
unless sooner terminated 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, 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 Advisory Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement provides that the Investment Adviser has no liability to the
fund for its acts or omissions in the performance of its obligations to the
fund not involving willful misconduct, bad faith, gross negligence or reckless
disregard of its obligations under the Advisory Agreement. The Advisory
Agreement also provides that either party has the right to terminate, without
penalty, upon 60 days' written notice to the other party and that the Advisory
Agreement automatically terminates in the event of its assignment (as defined
in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of
qualified persons to perform the executive, and related administrative
functions of the fund, provides necessary office space, small office equipment
and telephone facilities and utilities, and general purpose forms, supplies,
stationery and postage used at the office of the fund relating to the services
furnished by the Investment Adviser. The fund will pay all expenses not
expressly assumed by the Investment Adviser, including, but not limited to,
compensation and expenses of Directors who are not affiliated persons of the
Investment Adviser; fees and expenses of the transfer agent, dividend
disbursing agent, legal counsel and independent public accountants and
custodian, including charges of such custodian for the preparation and
maintenance of the books of account and records of the fund and the daily
determination of the fund's net asset value per share, costs of designing,
printing, and mailing reports, prospectuses, proxy statements and notices to
shareholders; fees and expenses of sale (including federal and state
registration and qualification), issuance (including costs of any share
certificates) and redemption of shares; expenses pursuant to the fund's Plan of
Distribution (described below); association dues; interest; and taxes.
Only one state (California) continues to impose expense limitations on funds
registered for sale therein. The California provision currently limits annual
expenses to the sum of 2-1/2% of the first $30 million of average net assets,
2% of the next $70 million and 1-1/2% of the remaining average net assets.
Rule 12b-1 distribution plan expenses would be excluded from this limit.
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. The fund might be eligible
to exclude certain additional expenses, such as expenses of maintaining foreign
custody of certain of its portfolio securities, or to obtain a waiver of such
limit in its entirety.
During the fiscal years ended October 31, 1994, 1993 and 1992, the Investment
Adviser's total fees amounted to $12,937,000, $7,859,000 and $3,815,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares and uses its
best efforts to distribute such shares. The fund has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act (see
"Principal Underwriter" in the Prospectus). The Principal Underwriter receives
amounts payable pursuant to the Plan (described 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 October 31,
1994 amounted to $6,152,000 after allowance of $31,979,000 to dealers. During
the fiscal years ended October 31, 1993 and 1992 the Principal Underwriter
retained $8,037,000 and $3,525,000, respectively.
As required by rule 12b-1, 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, due to
present or past affiliations with the Investment Adviser and related companies,
be considered to have a direct or indirect financial interest in the operation
of the Plan. 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 fund's Directors receive and review quarterly a report of the expenditures
and the purpose of such expenditures made under the fund's Plan of
Distribution. The Plan must be renewed annually by the Board of Directors.
Under the Plan the fund may expend up to 0.30% of its average 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. During the fiscal year ended October
31, 1994, the fund paid or accrued $6,234,000 under the Plan.
The Glass-Stegall 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 of 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
might 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 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its investment
company taxable income it will be taxed only on that portion, if any, of the
investment company taxable income which 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; (b) derive less than 30% of its gross income from the
sale or other disposition of stock or securities held for less than three
months; and (c) 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, U.S. Government securities 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 (generally net investment income)
for the calendar year, (ii) 98% of capital gain net income (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 the extent practicable, to meet these
distribution requirements to minimize or avoid the excise tax liability.
The fund also intends to distribute 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.
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 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 shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.
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, non-U.S. corporation, or non-U.S.
partnership (a "non-U.S. 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 non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens or domestic corporations will apply.
Distributions of capital gains not effectively connected with a U.S. trade or
business are not subject to the withholding, but if the non-U.S. shareholder
was an individual who was physically present in the U.S. during the tax year
for more than 182 days and such shareholder is nonetheless treated as a
nonresident alien, the distributions would be subject to a 30% tax.
Under the Code, a fund's taxable income for each year will be computed without
regard to any net foreign currency loss attributable to transactions after
October 31, and any such net foreign currency loss will be treated as arising
on the first day of the following 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 gain is 28%; and the maximum corporate tax applicable
to ordinary income and net capital gain is 35%. Naturally, the amount of tax
payable by an individual 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 that 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 discussion 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. Shareholders should consult their own tax
advisers for additional details as to their particular tax status.
PURCHASE OF SHARES
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company (the "Transfer Agent"). 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. 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. Any prices which appear in the newspaper are not
always indicative of prices at which you will be purchasing and redeeming
shares of the fund, since share 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 close of trading
(currently 4:00 p.m., New York Time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The
net asset value per share is determined as follows:
1. Equity securities, including ADR's and EDR's, which are traded on stock
exchanges, are valued at the last sale price on the exchange 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 determined by the officers of the fund to
be the primary market. Equity securities traded in the over-the-counter market
are valued at the last available bid price prior to the time of valuation.
2. Fixed-income obligations with remaining maturities in excess of 60 days are
valued at the mean of representative quoted bid or asked prices for such
securities or, if such prices are not available, at prices for securities of
comparable maturity, quality and type; however, in circumstances where the
Investment Adviser deems it appropriate to do so, prices obtained for the day
of valuation from a bond pricing service will be used. Short-term securities
with 60 days or less remaining to maturity are amortized to maturity based on
their cost to the fund if acquired within 60 days of maturity or, if already
held by the fund on the 60th day, based on the value determined on the 61st
day.
3. Where market quotations or prices obtained from a pricing service are not
readily available, securities are valued at fair value pursuant to methods
approved by the Board of Directors. Where the primary market for a security
has closed prior to the close of the New York Stock Exchange, events that might
affect the values of portfolio securities occurring between the time its price
has been determined and the close of the New York Stock Exchange need not be
reflected in the fund's valuation unless the Board of Directors has determined
that the particular event would materially affect net asset value, in which
case an adjustment will be made. The fair value of all other assets is added
to the value of securities and options to arrive at total assets.
4. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market rate as
determined by the fund's officers.
5. There are deducted from the total assets, thus determined, the liabilities,
including proper accruals of taxes and other expense items.
6. The net assets so obtained are then divided by the total number of shares
of capital stock outstanding (excluding treasury shares), 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 by the
fund. The fund will not knowingly sell shares (other than for the reinvestment
of dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially directly, indirectly, or through a unit investment trust more than
4.5% of the outstanding shares of the fund without the consent of a majority of
the Board of Directors.
STATEMENT OF INTENTION - 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 pursuant to the terms of a written statement of intention (the
"Statement") in the form provided by the Principal Underwriter and signed by
the purchaser. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder signs a 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 remit 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 within 20 days after written request by
the Principal Underwriter or the securities dealer, 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.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The investment made the first
month of the 13-month period will be multiplied by 13 and then multiplied by
1.5. On the first investment and all other investments made pursuant to the
Statement, 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.
DEALER COMMISSIONS - The following commissions will be paid to dealers who
initiate and are responsible for purchases of $1 million or more and for
purchases made at net asset value by certain retirement plans of organizations
with collective retirement plan assets of $100 million or more: 1.00% on
amounts of $1 million to $2 million, 0.80% on amounts over $2 million to $3
million, 0.50% on amounts over $3 million to $50 million, 0.25% on amounts over
$50 million to $100 million, and 0.15% on amounts over $100 million. The level
of dealer commissions will be determined based on sales made over a 12-month
period commencing from the date of the first sale at net asset value. See "The
American Funds Shareholder Guide" in the fund's Prospectus for more
information.
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 10th day of the month (or on or about the
15th day of the month in the case of accounts for retirement plans where
Capital Guardian Trust Company serves as custodian or trustee). 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 showing the current transaction. 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 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.
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, automatically to 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).
REDEMPTION OF SHARES
The fund's Articles of Incorporation permit the fund to direct the Transfer
Agent to redeem the shares of any shareholder if the shares owned by such
shareholder through redemptions, market decline or otherwise, have a value of
less than $1,000 (determined, for this purpose only as the greater of the
shareholder's cost or the current net asset value of the shares, including any
shares acquired through the reinvestment of income dividends and capital gain
distributions). Prior notice of at least 60 days will be given to a
shareholder before the involuntary redemption provision is made effective with
respect to the shareholder's account. The shareholder will have not less than
30 days from the date of such notice within which to bring the account up to
the minimum determined as set forth above. While payment of redemptions
normally will be in cash, the fund's Articles of Incorporation permit payment
of the redemption price wholly or partly in securities or other property
included in the assets belonging to the fund when in the opinion of the fund's
Board of Directors, which shall be conclusive, conditions exist which make
payment wholly in cash unwise or undesirable.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other of the 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 transactioins.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended October 31, 1994, 1993
and 1992 amounted to $3,242,000, $2,646,000 and $1,037,000, respectively.
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 The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New
York, NY 10081, 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.
INDEPENDENT ACCOUNTANTS - Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, has served as the fund's independent accountants since its
inception, providing audit services, preparation of tax returns and review of
certain documents to be filed with the Securities and Exchange Commission. The
financial statements, included in this Statement of Additional Information from
the Annual Report, have been so included in reliance on the report of Price
Waterhouse LLP given on the authority of said firm as experts in auditing and
accounting.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - 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. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on October 31.
Shareholders are provided, at least semiannually, with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent accountants,
Price Waterhouse LLP, whose selection is determined annually by the Board of
Directors.
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 contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- OCTOBER 30, 1994
<S> <C>
Net asset value and redemption price per share $32.68
(Net assets divided by shares outstanding)
Maximum offering price per share (100/94.25 of per share $34.67
net asset value, which takes into account the
fund's current maximum sales charge)
</TABLE>
INVESTMENT RESULTS
The fund's yield is 4.79% based on a 30-day (or one month) period ended
October 31, 1994, 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 return for the one- and five-year periods
ending October 31, 1994 was -5.31% and 9.93%, respectively. In addition, the
lifetime average annual total return was 10.08%. The average annual total
return ("T") is computed by equating the value at the end of the period ("ERV")
with 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.
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 revised 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 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 following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales charge 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.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. Total return for the
unmanaged indices will be calculated assuming reinvestment of dividends and
interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may include 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 and Poor's 500 Composite Stock
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also refer to results compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services and
Wiesenberger Investment Companies Services. Additionally, the fund may, from
time to time, refer to results published in various periodicals, including
Barron's, Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance
Magazine, Money, U.S. News and World Report, and The Wall Street Journal.
The fund may from time to time illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may also from time to time compare its investment results with the
following:
(1) Average of Savings Institutions deposits, which is a measure of all kinds
of savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings deposits offer a
guaranteed rate of return on principal, but no opportunity for capital growth.
The period shown may include periods during which the maximum rates paid on
some savings deposits were fixed by law.
(2) 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, shelter and fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines and other goods and services that
people buy for day-to-day living).
The fund may also, from time to time, refer to statistics compiled by the U.S.
Department of Commerce.
EXPERIENCE OF THE INVESTMENT ADVISER - Capital Research and Management Company
manages seven common stock funds that are at least 10 years old. In the
10-year periods since 1963 (109 in all), those funds have had better total
returns than the Standard and Poor's 500 Stock Composite Index in 91 of the 109
periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than some of 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.
The investment results set forth below were calculated as described in the
fund's prospectus.
<TABLE>
<CAPTION>
CIB VS. VARIOUS UNMANAGED INDICES
Lifetime CIB DJIA/1/ S&P 500/2/
<S> <C> <C> <C>
1987*- 10/31/94 +100.7% +94.5% +87.4%
</TABLE>
(*Since inception 7/30/87)
/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.
Illustration of a $10,000 investment in CIB with
dividends reinvested and capital gain distributions taken in shares
(for the period July 30, 1987 through October 31, 1994)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Year Total From From
Ended Annual Dividends Investment From Initial Capital Gains Dividends Total
October 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 # $92 $92 $10,092 $8,842 - $87 $8,929
1988 494 586 10,586 9,429 - 600 10,029
1989 556 1,142 11,142 10,437 - 1,252 11,689
1990 633 1,775 11,775 9,737 - 1,765 11,502
1991 708 2,483 12,483 11,946 - 2,912 14,858
1992 792 3,275 13,275 12,821 $130 3,942 16,893
1993 881 4,156 14,156 14,342 212 5,343 19,897
1994 975 5,131 15,131 13,706 269 6,091 20,066
</TABLE>
# From July 30, 1987
The dollar amount of capital gain distributions during the period was $248.
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER RATINGS - MOODY'S INVESTORS SERVICE, INC. employs the
designations "Prime-1," "Prime-2" and "Prime-3" to indicate commercial paper
having the highest capacity for timely repayment. Issuers rated Prime-1 have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong capacity for repayment
of short-term promissory obligations. This will normally be evidenced by many
of the characteristics cited above, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION'S ratings of commercial paper are graded into
four categories ranging from "A" for the highest quality obligations to "D" for
the lowest. A -- Issues assigned its highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 --
This designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation. A-2 -- Capacity for timely payments on issues with this
designation is strong; however, the relative degree of safety is not as high
as for issues designated "A-1."
CORPORATE DEBT SECURITIES - MOODY'S INVESTORS SERVICE, INC. rates the long-term
debt securities issued by various entities from "Aaa" to "C".
"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."
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."
Portfolio Overview as of
October 31, 1994
<TABLE>
<CAPTION>
Equity- Bonds,
Type Notes, & Cash
CIB's Investment Mix Securities Debentures Equivalents Total
- ------------------------ -------------- -------------- -------------- ------
---- ---- -----
<S> <C> <C> <C> <C>
United States 38.36% 21.44% 14.39% 74.19%
United Kingdom 16.48 - - 16.48
New Zealand 2.34 0.82 - 3.16
Hong Kong 2.55 - - 2.55
Netherlands 1.46 - - 1.46
Australia 0.6 0.34 - 0.94
Belgium 0.49 - - 0.49
Spain 0.38 - - 0.38
Canada - 0.27 - 0.27
Finland - 0.08 - 0.08
--------- ---------- ----------- -------
62.66% 22.95% 14.39% 100%
========= ========== =========== =======
</TABLE>
Portfolio Overview as of October 31, 1994
CIB's Largest Equities by Country
<TABLE>
<CAPTION>
Hong New Nether-
U.S. U.K. Kong Zealand lands Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Utilities:
Electric & Gas 5.96% 6.74% .59% - - .52% A,B .0%
Banking 11.28 - - - - 0.44 A 11.72
Telecommunications 3.58 - 0.82 .2.34% .53% - 4.4
Business &
Public Services 0.79 5.11 - - - 0.38 S 6.28
Health &
Personal Care 5.00 - - - - - 5.00
Five Largest 20.65 5.11 0.82 0 0 0.82 27.4
Industries
Other Industries 11.75 4.63 1.14 - 0.93 0.13 A 18.58
Total Equities 32.40% 9.74% 1.96% .0% .93% .95% 45.98%
</TABLE>
A = Australia
B = Belgium
S = Spain
Portfolio Overview as of October 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Country Percent of
Largest Individual Holdings of Domicile Industry Net Assets
- -------------------------------- ------------------ -------------------- ----------
Telecom Corp. of New Zealand New Zealand Telecommunications 2.34%
American Home Products United States Health & Personal Care 2.31
Entergy United States Utilities: Electric & Gas 1.88
Hanson United Kingdom Multi-Industry 1.69
Southern Electric United Kingdom Utilities: Electric & Gas 1.68
Thames Water United Kingdom Business & Public Services 1.60
Bristol-Myers Squibb United States Health & Personal Care 1.47
Eastern Group United Kingdom Utilities: Electric & Gas 1.42
Banc One United States Banking 1.40
Ameritech United States Telecommunications 1.39
</TABLE>
CAPITAL INCOME BUILDER
Investment Portfolio October 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Equity-Type
Securities Shares or Market
Principal Value Percent of
Energy Amount (Millions) Net Assets
- ---------------------------------------------- ------------- ----------- ----------
Energy Sources - 2.40%
Amoco Corp. 430,000 27.251 .75%
British Petroleum Co. PLC (American Depositary
Receipts) 125,984 10.709 0.3
Burmah Castrol PLC 639,405 8.855 0.24
Royal Dutch Petroleum Co. (New York Registered
Shares) 290,000 33.785 0.93
Williams Companies, Inc., preferred shares 263,158 6.645 0.18
- ---------------------------------------------- ------------- ----------- ----------
Utilities: Electric & Gas - 13.81%
Australian Gas Light Co. 340,065 1.098 0.03
British Gas PLC 900,000 4.287
British Gas PLC (American Depositary Receipts) 60,000 2.843 0.2
Brooklyn Union Gas Co. 200,000 4.6 0.13
Central and South West Corp. 1,400,000 31.5 0.87
China Light & Power Co., Ltd. 2,064,500 10.741 0.3
East Midlands Electricity PLC 2,955,000 33.208 0.91
Eastern Group PLC 3,950,000 51.503 1.42
Electrabel SA 100,000 17.796 0.49
Entergy Corp. 2,925,000 68.372 1.88
General Public Utilities Corp. 900,000 23.175 0.64
Hongkong Electric Holdings Ltd. 3,381,500 10.634 0.29
Houston Industries Inc. 125,000 4.359 0.12
Long Island Lighting Co. 2,125,000 37.719 1.04
National Power PLC 2,610,000 21.277 0.59
NORWEB PLC 890,000 11.845 0.32
Pacific Gas and Electric Co. 1,495,000 33.638 0.93
SEEBOARD PLC 4,000,000 28.255 0.78
South Wales Electricity PLC 2,210,000 29.81 0.82
Southern Electric PLC 4,645,000 60.869 1.68
Texas Utilities Co. 409,167 13.349 0.37
----------- ----------
588.123 16.21
----------- ----------
Materials
- ---------------------------------------------- ------------- ----------- ----------
Chemicals - 0.47%
E.I. du Pont de Nemours and Co. 200,000 11.925 0.33
RPM, Inc. 270,000 5.063 0.14
- ---------------------------------------------- ------------- ----------- ----------
Forest Products & Paper - 0.13%
James River Corp. of Virginia, DECS
convertible preferred shares 225,000 4.95 0.13
----------- ----------
21.938 0.6
----------- ----------
Capital Equipment
- ---------------------------------------------- ------------- ----------- ----------
Data Processing & Reproduction - 0.38%
MacNeal-Schwendler Corp. 615,000 6.688 0.19
Unisys Corp., convertible preferred shares,
Series A 200,000 6.925 0.19
----------- ----------
13.613 0.38
----------- ----------
Consumer Goods
- ---------------------------------------------- ------------- ----------- ----------
Automobiles - 0.29%
Ford Motor Co., Class A 360,000 10.62 0.29
- ---------------------------------------------- ------------- ----------- ----------
Beverages & Tobacco - 2.44%
American Brands, Inc. 800,000 27.8 0.77
Philip Morris Companies Inc. 620,000 37.975 1.04
UST Inc. 860,000 22.79 0.63
- ---------------------------------------------- ------------- ----------- ----------
Food & Household Products - 0.12%
Clorox Co. 82,000 4.428 0.12
- ---------------------------------------------- ------------- ----------- ----------
Health & Personal Care - 5.00%
American Home Products Corp. 1,320,000 83.82 2.31
Bristol-Myers Squibb Co. 915,000 53.413 1.47
Merck & Co., Inc. 500,000 17.875 0.49
Upjohn Co. 250,000 8.25 0.23
Warner-Lambert Co. 235,000 17.919 0.5
----------- ----------
284.89 7.85
----------- ----------
Services
- ---------------------------------------------- ------------- ----------- ----------
Broadcasting & Publishing - 0.13%
South China Morning Post (Holdings) Ltd. 7,601,000 4.746 0.13
- ---------------------------------------------- ------------- ----------- ----------
Business & Public Services - 6.28%
American Water Works Co., Inc. 425,000 11.422 0.31
Autopistas, Concesionaria Espanola, SA 1,669,500 13.879 0.38
Consumers Water Co. 229,000 4.007 0.11
Dun & Bradstreet Corp. 230,000 13.484 0.37
North West Water Group PLC 4,420,000 40.808 1.12
Southern Water PLC 4,085,533 40.462 1.12
Thames Water PLC 6,630,000 57.957 1.6
Welsh Water PLC 4,357,000 46.04 1.27
- ---------------------------------------------- ------------- ----------- ----------
Telecommunications - 7.27%
Ameritech Corp. 1,250,000 50.469 1.39
GTE Corp. 1,450,000 44.588 1.23
Hong Kong Telecommunications Ltd. (American
Depositary Receipts) 1,395,000 29.644 0.82
Koninklijke PTT Nederland NV 609,700 19.44 0.53
Pacific Telesis Group 800,000 25.3 0.7
Telecom Corp. of New Zealand Ltd. 15,784,160 54.979
Telecom Corp. of New Zealand Ltd. 1 8,380,000 29.189 2.34
Telecom Corp. of New Zealand Ltd. (American
Depositary Receipts) 12,500 0.695
U S WEST, Inc. 254,707 9.583 0.26
- ---------------------------------------------- ------------- ----------- ----------
Transportation: Airlines - 0.55%
British Airways PLC (American Depositary
Receipts) 340,000 19.89 0.55
- ---------------------------------------------- ------------- ----------- ----------
Transportation: Shipping - 0.42%
Shun Tak Holdings Ltd. 17,120,184 15.066 0.42
----------- ----------
531.648 14.65
----------- ----------
Finance
- ---------------------------------------------- ------------- ----------- ----------
Banking - 11.72%
Banc One Corp. 1,765,000 50.964 1.4
BankAmerica Corp. 454,000 19.749 0.54
Central Fidelity Banks, Inc. 435,000 12.506 0.34
Citicorp, convertible preferred shares, Series
13 75,000 9.834 0.27
Comerica Inc. 1,020,000 28.177 0.78
CoreStates Financial Corp. 900,000 23.287 0.64
First Chicago Corp. 500,000 24.5 0.68
First Hawaiian Bank 465,000 12.671 0.35
First Interstate Bancorp 260,000 20.8 0.57
First Security Corp. (Utah) 760,000 19.57 0.54
First Union Corp. 875,000 39.375 1.09
Great Western Financial Corp. 247,000 4.415 0.12
J.P Morgan & Co. Inc. 180,000 11.138 0.31
National Australia Bank Ltd. 2,019,443 15.952 0.44
National City Corp. 850,000 23.056 0.64
NBD Bancorp, Inc. 390,000 11.993 0.33
Old Kent Financial Corp. 360,000 11.52 0.32
Signet Banking Corp. 800,000 27.2 0.75
U.S. Bancorp 670,000 16.415 0.45
Wachovia Corp. 660,000 22.11 0.61
Washington Federal Savings and Loan Assn. 500,000 8.875 0.24
Washington Mutual Savings Bank 620,875 11.098 0.31
- ---------------------------------------------- ------------- ----------- ----------
Financial Services - 0.15%
Beneficial Corp. 140,000 5.478 0.15
- ---------------------------------------------- ------------- ----------- ----------
Insurance - 1.60%
American General Corp. 160,000 4.4 0.12
Lincoln National Corp. 550,000 19.938 0.55
Ohio Casualty Corp. 492,000 14.391 0.4
Prudential Corp. PLC 3,500,000 18.163 0.5
SAFECO Corp. 25,000 1.247 0.03
- ---------------------------------------------- ------------- ----------- ----------
Real Estate - 4.19%
Camden Property Trust 140,000 2.975
Camden Property Trust, 7.33% convertible
debentures 2001 $6,240,000 5.616 0.23
Hysan Development Co. Ltd. 950,000 2.533 0.07
Kimco Realty Corp. 333,000 12.196 0.34
New Plan Realty Trust 300,000 5.925 0.16
Property Trust of America 1,858,571 29.969
Property Trust of America, convertible
preferred shares, Series A 300,000 6.488 1.01
Security Capital Industrial Trust 151,996 2.318 0.06
Security Capital Realty Inc. 1 24,900 22.519
Security Capital Realty Inc. 12.00%
convertible debentures 2014 1 $18,862,000 16.308 1.07
Sun Hung Kai Properties Ltd. 1,486,000 11.346 0.31
Tucker Properties Corp. 540,000 8.977 0.25
Washington Real Estate Investment Trust 145,500 2.528 0.07
Weingarten Realty Investors 504,000 17.262 0.48
Western Investment Real Estate Trust 412,500 5.053 0.14
----------- ----------
640.835 17.66
----------- ----------
Multi-Industry & Miscellaneous
- ---------------------------------------------- ------------- ----------- ----------
Multi-Industry - 3.48%
B$A$T Industries PLC 6,495,597 46.786
B$A$T Industries PLC (American Depositary
Receipts) 150,000 2.128 1.35
Hanson PLC (American Depositary Receipts) 3,300,000 61.463 1.69
Hutchison Whampoa Ltd. 1,680,000 7.762 0.21
Lend Lease Corp. Ltd. 390,281 4.81 0.13
Tenneco Inc., preferred equity redemption
cumulative stock 82,100 3.417 0.1
- ---------------------------------------------- ------------- ----------- ----------
Miscellaneous - 1.83%
Equity-type securities in initial period of
acquisition 1608800 66.281 1.83
----------- ----------
192.647 5.31
----------- ----------
TOTAL EQUITY-TYPE SECURITIES (cost:
$2,055.115 million) 2273.694 62.66
----------- ----------
Principal
Bonds and Notes Amount
- ---------------------------------------------- ------------- ----------- ----------
Corporate
- ---------------------------------------------- ------------- ----------- ----------
Ann Taylor, Inc. 8.75% June 2000 $2,000,000 1.95 0.05
California Energy Co., Inc. 0%/10.25%
January 2004 2 4,300,000 3.134 0.09
Century Communications Corp. 9.75% February
2002 1,000,000 0.97 0.03
Circus Circus Enterprises, Inc. 10.625% June
1997 1,000,000 1.055 0.03
Consumers Power Co. 6.375% September 2003 5,000,000 4.195 0.12
Container Corp. of America 9.75% April 2003 3,500,000 3.378 0.09
Continental Cablevision, Inc. 9.50% August
2013 1,000,000 0.9
Continental Cablevision, Inc. 9.00% September
2008 1,000,000 0.88
Continental Cablevision, Inc. 11.00% June 2007 1,000,000 1.012 0.12
Continental Cablevision, Inc. 8.875% September
2005 2,000,000 1.775
Embassy Suites, Inc. 10.875% April 2002 3,000,000 3.135 0.09
Enquirer/Star Group, Inc. 0% May 1997 2,500,000 2.012 0.06
Fort Howard Paper Co. 10.00% March 2003 1,000,000 0.92
Fort Howard Paper Co. 8.25% February 2002 3,000,000 2.67 0.09
Host Marriott Corp. 10.375% June 2011 1,749,000 1.749 0.05
Hyster-Yale Materials Handling, Inc. 12.375%
August 1999 1,166,000 1.224 0.03
MagneTek, Inc. 10.75% November 1998 2,500,000 2.525 0.07
McDermott Inc. 8.75% May 2023 5,000,000 4.46
McDermott Inc. 9.375% March 2002 4,000,000 4.094 0.23
Midland Cogeneration Venture LP, secured lease
obligation bonds, 10.33% July 2002 8,352,142 8.081 0.28
Midland Cogeneration Venture LP 10.33% July
2002 2,366,696 2.26
News America Holdings Inc. 9.25% February 2013 2,000,000 1.931
News America Holdings Inc. 10.125% October
2012 5,000,000 5.096 0.33
News America Holdings Inc. 9.125% October 1999 5,000,000 5.116
Paging Network, Inc. 8.875% February 2006 2,000,000 1.69 0.05
Riggs National Corp. 8.50% February 2006 2,600,000 2.392 0.07
Rogers Cantel Mobile Communications Inc.
10.75% November 2001 2,000,000 2.055 0.06
Rykoff-Sexton, Inc. 8.875% November 2003 3,000,000 2.82 0.08
Smith's Food & Drug Centers, Inc.,
pass-through certificates, Series 1994-A2,
0%/8.64% July 2012 2,3 5,000,000 4.446 0.12
Time Warner Inc. 8.875% October 2012 2,000,000 1.853
Time Warner Inc. 10.15% May 2012 5,000,000 5.189 0.38
Time Warner Inc. 7.45% February 1998 7,000,000 6.874
TKR Cable I, Inc. 10.50% October 2007 7,000,000 7.337 0.2
Transco Energy Co. 9.375% August 2001 1,000,000 0.98
Transco Energy Co. 9.625% June 2000 4,000,000 3.98 0.14
Treasure Island Finance Corp. 9.875% October
2000 3,000,000 3.21 0.09
Vons Companies, Inc. 9.625% April 2002 8,700,000 8.613 0.24
WestPoint Stevens Inc. 8.75% December 2001 2,000,000 1.825 0.05
Williams Companies, Inc. 8.25% November 1998 4,900,000 4.973 0.14
----------- ----------
122.669 3.38
----------- ----------
Federal Agency Obligations - Mortgage Pass-
Through
- ---------------------------------------------- ------------- ----------- ----------
Government National Mortgage Assn. 4.50% 2024 3 4,785,871 4.457 0.12
----------- ----------
Governments and Governmental
Authorities
- ---------------------------------------------- ------------- ----------- ----------
Canada 10.75% March 1998 C$10,000,000 7.915 0.22
Finland 9.50% March 2004 FIM14,000,000 2.925 0.08
New Zealand 8.00% July 1998 NZ$50,000,000 29.868 0.82
----------- ----------
40.708 1.12
----------- ----------
U.S. Treasury Notes
- ---------------------------------------------- ------------- ----------- ----------
7.875% November 1999 $25,000,000 25.414 0.7
8.875% February 1999 50,000,000 52.64 1.45
9.25% August 1998 50,000,000 53.125 1.46
6.00% November 1997 60,000,000 58.097 1.6
6.375% June 1997 50,000,000 49.266 1.36
8.50% May 1997 90,000,000 93.08 2.57
6.875% April 1997 50,000,000 49.875 1.37
6.75% February 1997 50,000,000 49.789 1.37
8.00% January 1997 90,000,000 91.983 2.54
6.875% October 1996 50,000,000 50.047 1.38
7.875% July 1996 90,000,000 91.715 2.53
----------- ----------
665.031 18.33
----------- ----------
TOTAL BONDS AND NOTES (cost: $867.726
million) 832.865 22.95
----------- ----------
TOTAL INVESTMENT SECURITIES (cost:
$2,922.841 million) 3106.559 85.61
----------- ----------
SHORT-TERM SECURITIES
- ---------------------------------------------- ------------- ----------- ----------
Corporate Short-Term Notes
- ---------------------------------------------- ------------- ----------- ----------
Beneficial Corp. 5.10%-5.16% due 12/12-12/16/94 30,950,000 30.755 0.85
Central and South West Corp. 4.95%-5.00% due
11/2-12/2/94 25,000,000 24.931 0.69
Chevron Oil Finance Co. 4.90% due 11/30/94 45,000,000 44.816 1.24
Coca-Cola Co. 4.90% due 11/29/94 12,900,000 12.849 0.36
CPC International Inc. 5.02% due 12/16/94 32,000,000 31.795 0.88
John Deere Capital Corp. 5.10% due 12/13/94 21,860,000 21.727 0.6
H.J. Heinz Co. 4.75%-5.03% due 11/4-12/20/94 33,500,000 33.331 0.92
National Rural Utilities Cooperative Finance
Corp. 4.92%-5.08% due 12/5-12/6/94 20,800,000 20.697 0.57
J.C. Penney Funding Corp. 4.85%-5.03% due
11/14-11/28/94 20,000,000 19.942 0.55
PepsiCo, Inc. 4.90%-4.92% due 11/7-11/29/94 34,250,000 34.158 0.94
Union Pacific Corp. 4.97% due 12/9/94 13,900,000 13.825 0.38
U.S. Borax & Chemical Corp. 5.10% due 11/9/94 20,000,000 19.974 0.55
U S WEST Communications, Inc. 4.79%-4.80% due
11/15-11/17/94 34,300,000 34.224 0.94
Vermont American Corp. 4.90%-4.92% due
11/14-12/1/94 30,000,000 29.882 0.82
----------- ----------
372.906 10.29
----------- ----------
Federal Agency Discount Notes
- ---------------------------------------------- ------------- ----------- ----------
Federal Home Loan Mortgage Corp. 4.91%-5.00%
due 12/2-12/27/94 45,370,000 45.135 1.24
Federal National Mortgage Assn. 4.69%-4.95%
due 11/1-12/22/94 75,600,000 75.472 2.08
Tennessee Valley Authority 4.71%-4.81% due
11/9-11/16/94 16,600,000 16.572 0.46
----------- ----------
137.179 3.78
----------- ----------
U.S. Treasury Short-Term Notes
- ---------------------------------------------- ------------- ----------- ----------
8.375% due 4/15/95 12,000,000 12.139 0.33
----------- ----------
TOTAL SHORT-TERM SECURITIES (cost:
$522.429 million) 522.224 14.4
EXCESS OF PAYABLES OVER CASH AND RECEIVABLES 0.247 0.01
----------- ----------
TOTAL SHORT-TERM SECURITIES, CASH AND
RECEIVABLES, NET OF PAYABLES 521.977 14.39
----------- ----------
NET ASSETS 3628.536 100.00%
=========== ==========
</TABLE>
1 Purchased in a private placement transaction;
resale to the public may require registration.
2 Represents a zero coupon bond which will
convert to an interest-bearing security at a
later date.
3 Pass-through securities backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore,
the effective maturity of these securities
is shorter than the stated maturity.
See Notes to Financial Statements
Capital Income Builder
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
at October 31, 1994 (dollars in millions)
Assets:
<S> <C> <C>
Investment securities at market (cost: $3,106.559
$2,922.841)
Short-term securities (cost: $522.429) 522.224
Cash 3.793
Receivables for-
Sales of investments $10.975
Sales of fund's shares 8.613
Dividends and accrued interest 30.045 49.633
------------ ------------
3,682.209
Liabilities:
Payables for-
Purchases of investments 22.911
Repurchases of fund's shares 5.183
Management services 1.087
Dividends payable 23.388
Accrued expenses 1.104 53.673
------------ ------------
Net Assets at October 31, 1994-Equivalent to
$32.68 per share on 111,033,881 shares of $0.01
par value capital stock outstanding
(authorized capital stock - 200,000,000 shares) $3,628.536
============
Statement of Operations
for the year ended October 31, 1994
(dollars in millions)
Investment Income:
Income:
Dividends $103.92
Interest 93.852 $197.772
------------
Expenses:
Management services fee 12.937
Distribution expenses 6.234
Transfer agent fee 2.389
Reports to shareholders 0.42
Registration statement and prospectus 0.683
Postage, stationery and supplies 0.537
Directors' fees 0.114
Auditing and legal fees 0.046
Custodian fee 0.568
Taxes other than federal income tax 0.044
Other expenses 0.048 24.02
------------ ------------
Net investment income 173.752
------------
Realized Gain and Unrealized Appreciation on
Investments:
Net realized gain 3.96
Net change in unrealized appreciation on
investments:
Beginnning of year 335.738
End of year 183.513 (152.225)
------------ ------------
Net realized gain and change in unrealized
appreciation on investments (148.265)
------------
Net Increase in Net Assets Resulting from $25.487
Operations
============
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in millions) Year ended
October 31
------------ ------------
1994 1993
------------ ------------
Operations:
Net investment income $173.752 $92.791
Net realized gain on investments 3.96 9.99
Net change in unrealized appreciation on (152.225) 226.07
investments
------------ ------------
Net increase in net assets resulting from
operations 25.487 328.851
------------ ------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (172.829) (92.092)
Distributions from net realized gain on (10.434) (4.884)
investments
------------ ------------
Total dividends and distributions (183.263) (96.976)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold: 36,309,395 and
45,370,765 shares, respectively 1,203.126 1,467.936
Proceeds from shares issued in reinvestment of
net
investment income dividends and distributions of
net realized gain on investments: 4,271,454 and
2,281,737 shares, respectively 139.279 74.209
Cost of shares repurchased: 11,660,048 and
4,641,225
shares, respectively (382.19) (151.252)
------------ ------------
Net increase in net assets resulting from
capital
share transactions 960.215 1,390.893
------------ ------------
Total Increase in Net Assets 802.439 1,622.768
Net Assets:
Beginning of year 2,826.097 1,203.329
------------ ------------
End of year (including undistributed net
investment
income: $1.405 and $.948, respectively) $3,628.536 $2,826.097
============ ============
</TABLE>
See Notes to Financial Statements
Notes to Financial Statements
1. Capital Income Builder, Inc. ("the fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities are stated at market value based upon closing sales
prices reported on recognized securities exchanges on the last business day of
the year or, for listed securities having no sales reported and for unlisted
securities, upon last-reported bid prices on that date.
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at the mean of such
prices for securities of comparable maturity, quality, and type. Securities
denominated in non-U.S. currencies are generally valued on the basis of bid
quotations.
Short-term securities with original or remaining maturities in excess of 60
days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Valuation Committee of 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.
Dividends to shareholders are declared daily from net investment income.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income, and expenses are
calculated using the prevailing exchange rate as accrued. The fund does not
identify the portion of each amount shown in the fund's Statement of Operations
under the caption "Realized Gain and Unrealized Appreciation on Investments"
that arises from changes in non-U.S. currency exchange rates.
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 $568,000 includes $83,000 that was paid by these credits
rather than in cash.
During the current year, the fund adopted Statement of Position 93-2,
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies."
Accordingly, book and tax basis differences relating to shareholder
distributions are reclassified to or from additional paid-in capital. As of
November 1, 1993, the cumulative effect of such differences totaling $129,000
was reclassified to undistributed net investment income from additional paid-in
capital, and $65,000 was reclassified to additional paid-in capital from
undistributed net realized gains. During the year ended October 31, 1994,
$594,000 was reclassified from undistributed net investment income to
undistributed net realized gains. Net investment income, net realized gains,
and net assets were not affected by this change.
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 October 31, 1994, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $183,513,000, of which $308,397,000
related to appreciated securities and $124,884,000 related to depreciated
securities. During the year ended October 31, 1994, the fund realized, on a
tax basis, a net capital gain of $4,554,000 on securities transactions. Net
losses related to non-U.S. currency transactions of $594,000 were treated as an
adjustment to ordinary income. The cost of portfolio securities for book and
federal income tax purposes was $3,445,270,000 at October 31, 1994.
3. The fee of $12,937,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $100 million of average net assets;
0.225% of such assets in excess $100 million but not exceeding $300 million;
and 0.18% of such assets in excess of $300 million; plus 5.0% on the first $30
million of the fund's gross investment income; 3.5% of such income from $30
million to $90 million; and 3.0% of such income in excess of $90 million. For
purposes of the advisory agreement, gross investment income means gross income,
computed without taking account of gains or losses from sales of securities.
Pursuant to a Plan of Distribution, the fund may expend up to 0.30% 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 October 31, 1994,
distribution expenses under the plan were $6,234,000. As of October 31, 1994,
accrued and unpaid distribution expenses were $975,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,389,000 under the terms of a contract that provides for
transfer agency services to be performed for the fund. American Funds
Distributors, Inc. (AFD), the principal underwriter of the fund's shares,
received $6,152,000 (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.
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 AFS and AFD.
4. As of October 31, 1994, accumulated undistributed net realized gain on
investments was $2,393,000 and additional paid-in capital was $3,440,115,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,653,031,000 and $1,123,029,000, respectively,
during the year ended October 31, 1994.
Dividend and interest income is recorded net of foreign taxes paid. For the
year ended October 31, 1994, such foreign taxes were $6,801,000.
Per-Share Data and Ratios
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year
Ended
October
31
1994 1993 1992 1991 1990
Net Asset Value, Beginning of Year $34.42 $30.77 $28.67 $23.37 $25.05
------ ------ ------ ------ ------
Income From Investment Operations:
Net investment income 1.73 1.53 1.44 1.37 1.39
Net realized and unrealized gain
(loss) on investments (1.62) 3.76 2.33 5.39 (1.76)
------- ------- ------- ------- -------
Total income (loss) from investment operations 0.11 5.29 3.77 6.76 (.37)
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income (1.73) (1.53) (1.44) (1.46) (1.31)
Distributions from net realized gains (.12) (.11) (.23) - -
------- ------- ------- ------- -------
Total distributions (1.85) (1.64) (1.67) (1.46) (1.31)
------- ------- ------- ------- -------
Net Asset Value, End of Year $32.68 $34.42 $30.77 $28.67 $23.37
======= ======= ======= ======= =======
Total Return /1/ .47% 17.58% 13.46% 29.27% (1.62)%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $3,629 $2,826 $1,203 $563 $206
Ratio of expenses to average net assets .73% .72% .81% .98% 1.01%
Ratio of net income to average net assets 5.29% 4.69% 4.71% 5.09% 5.70%
Portfolio turnover rate 36.2% 11.2% 16.6% 14.0% 24.7%
</TABLE>
/1/ Does not take into account effect of sales charge, at a maximum rate of
5.75%.
Report of Independent Accountants
To the Board of Directors and Shareholders of Capital Income Builder, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the per-share data and ratios present fairly, in all
material respects, the financial position of Capital Income Builder, Inc. (the
"Fund") at October 31, 1994, the results of its operations, the changes in its
net assets and the per-share data and ratios for the years indicated in
conformity with generally accepted accounting principles. These financial
statements and per-share data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1994 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Los Angeles, California
November 30, 1994
U.S. Tax Information (Unaudited)
Thirty-six percent of the dividends paid by the fund from investment income
earned in the year ended October 31, 1994 qualifies for the corporate
dividends-received deduction. Forty-two percent of the dividends paid to
shareholders was derived from interest on direct U.S. Treasury obligations.
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the information
supplied with the 1099 form you receive from the fund's transfer agent.
