CAPITAL INCOME BUILDER, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
(AS AMENDED JUNE 22, 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
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ITEM PAGE NO.
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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
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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)#
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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
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+ 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
- - Foundation
Suite 1040
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 School; $14,550 $52,800 4
1700 Main Street Director, International Economic
Santa Monica, CA 90406 Studies, The RAND Corporation
Age: 70
</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 reported sale price prior to the time of valuation or,
lacking any sales, at the last reported bid price.
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
- -------
<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 - 1.65%
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 3.785 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.
