SEC. File Nos. 2-12967
811-5085
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement
Under
the Securities Act of 1933
Post-Effective Amendment No. 11
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 13
CAPITAL INCOME BUILDER, INC.
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
Vincent P. Corti
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
MICHAEL J. FAIRCLOUGH, ESQ.
O'Melveny & Myers, LLP.
400 South Hope Street
Los Angeles, California 90071
(Counsel for the Registrant)
The Registrant has filed a declaration pursuant to rule 24f-2
registering an indefinite number of shares under the Securities Act of 1933.
On December 19, 1996, it filed its 24f-2 notice for fiscal 1996.
Approximate date of proposed public offering:
It is proposed that this filing become effective on January 1, 1997,
pursuant to paragraph (a) of rule 485.
<PAGE>
CAPITAL INCOME BUILDER, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER OF PART "A" OF FORM N-1A CAPTIONS IN PROSPECTUS (PART "A")
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights; Investment Results
4. General Description of Registrant Investment Policies and Risks; Securities and
Investment Techniques; Multiple Portfolio Counselor System;
Fund Organization and Management
5. Management of the Fund Fund Organization and Management; Securities and
Investment Techniques; Multiple Portfolio Counselor System
6. Capital Stock and Other Securities Investment Policies and Risks; Securities and Investment
Techniques; Fund Organization and Management;
Dividends, Distributions and Taxes
7. Purchase of Securities Being Offered Purchasing Shares; Fund Organization and Management
8. Redemption or Repurchase Selling Shares
9. Legal Proceedings N/A
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER OF PART "B" OF FORM N-1A CAPTIONS IN STATEMENT OF ADDITIONAL
INFORMATION (PART "B")
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Fund Organization and Management (Part "A")
13. Investment Objectives and Policies Description of Securities and Investment Techniques;
Investment Restrictions
14. Management of the Registrant Fund Directors and Officers; Management
15. Control Persons and Principal Holder of Fund Directors and Officers
Securities
16. Investment Advisory and Other Services Management
17. Brokerage Allocation and Other Practices Execution of Portfolio Transactions
18. Capital Stock and Other Securities Part "A"
19. Purchase, Redemption and Pricing of Purchase of Shares; Redeeming Shares; Shareholder
Securities Being Offered Account Services and Privileges; Redemption of Shares
20. Tax Status Dividends, Distributions and Federal Taxes
21. Underwriter Management -- Principal Underwriter
22. Calculation of Performance Data Investment Results
23. Financial Statements Financial Statements
</TABLE>
<TABLE>
<CAPTION>
ITEM IN PART "C"
<S> <C>
24. Financial Statements and Exhibits
25. Persons Controlled by or Under Common Control with Registrant
26. Number of Holders of Securities
27. Indemnification
28. Business and Other Connections of Investment Adviser
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
Signature Page
</TABLE>
<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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Capital Income
Builder(R)
Prospectus
JANUARY 1, 1997
<PAGE>
CAPITAL INCOME BUILDER, INC.
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3
......................................................
Financial Highlights 4
......................................................
Investment Policies and Risks 5
......................................................
Securities and Investment Techniques 5
......................................................
Multiple Portfolio Counselor System 8
......................................................
Investment Results 9
......................................................
Dividends,.Distributions.and.Taxes 10
......................................................
Fund.Organization.and.Management 11
......................................................
Shareholder Services 14
......................................................
</TABLE>
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The fund strives for the accomplishment of two primary investment
objectives -- 1) to provide to shareholders a level of current income which
exceeds the average yield on U.S. stocks generally and 2) to provide to
shareholders a growing stream of income over the years. Secondarily, the fund
will seek growth of capital. The fund will invest in a diversified portfolio of
securities that include common stocks and fixed-income securities. Up to 40% of
the fund's assets may be invested in non-U.S. securities.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
12-010-197
<PAGE>
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Annual fund operating expenses are paid out of the fund's
earned income.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price) 5.75%
................................................................................
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets for the fiscal period ended October 31,
1996)
<TABLE>
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<S> <C>
Management fees 0.37%
................................................................................
12b-1 expenses 0.22%/1/
................................................................................
Other expenses 0.12%
................................................................................
Total fund operating expenses 0.71%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
<TABLE>
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<S> <C>
One year $ 64
................................................................................
Three years $ 79
................................................................................
Five years $ 95
................................................................................
Ten years $141
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 3
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FINANCIAL HIGHLIGHTS
The following information has been audited by Price Waterhouse LLP,
independent accountants. This table should be read together with the
financial statements which are included in the statement of additional
information and annual report.
PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
.....................
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987/1/
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $36.27 $32.68 $34.42 $30.77 $28.67 $23.37 $25.05 $22.63 $21.22 $22.62
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INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 1.95 1.69 1.73 1.53 1.44 1.37 1.39 1.30 1.15 .36
..............................................................................................................
Net realized and
unrealized gain (loss)
on investments 3.92 3.69 (1.62) 3.76 2.33 5.39 (1.76) 2.41 1.41 (1.40)
..............................................................................................................
Total income from
investment operations 5.87 5.38 .11 5.29 3.77 6.76 (.37) 3.71 2.56 (1.04)
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LESS DISTRIBUTIONS:
Dividends from net
investment income (1.94) (1.69) (1.73) (1.53) (1.44) (1.46) (1.31) (1.29) (1.15) (.36)
..............................................................................................................
Distributions from net
realized gains (.50) (.10) (.12) (.11) (.23) -- -- -- -- --
..............................................................................................................
Total distributions (2.44) (1.79) (1.85) (1.64) (1.67) (1.46) (1.31) (1.29) (1.15) (.36)
..............................................................................................................
Net asset value,
end of year $39.70 $36.27 $32.68 $34.42 $30.77 $28.67 $23.37 $25.05 $22.63 $21.22
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Total return/2/ 16.76% 16.98% .47% 17.58% 13.46% 29.27% (1.62)% 16.74% 12.27% (4.62)%/3/
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions) $5,418 $4,533 $3,629 $2,826 $1,203 $ 563 $ 206 $ 195 $ 126 $ 53
..............................................................................................................
Ratio of expenses to
average net assets .71% .72% .73% .72% .81% .98% 1.01% 1.11% 1.16% .36%/3/
..............................................................................................................
Ratio of net income to
average net assets 5.19% 4.96% 5.29% 4.69% 4.71% 5.09% 5.70% 5.44% 5.24% 1.17%/3/
..............................................................................................................
Average commissions paid
per share/4/ 2.20c 2.10c 3.63c 2.90c 2.48c 5.32c 3.44c 4.07c 6.39c 7.04c
..............................................................................................................
Portfolio
turnover rate 27.56% 18.06% 36.19% 11.22% 16.57% 13.99% 24.68% 16.30% 35.88% 0%/3/
</TABLE>
/1/ The period ended October 31, 1987 represents the initial period of
operations from July 30, 1987 to October 31, 1987.
/2/ Excludes maximum sales charge of 5.75%.
/3/ These figures are based on operations for the period shown and,
accordingly, are not representative of a full year's operations.
/4/ Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold and are not
reflected in the fund's statement of operations. Shares traded on a
principal basis are excluded. Generally, non-U.S. commissions are lower
than U.S. commissions when expressed as cents per share but higher when
expressed as a percentage of transactions because of the lower per-share
prices of many non-U.S. securities.
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4 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The fund is an equity-income mutual fund that strives for the accomplishment of
two primary investment objectives -- 1) to provide to shareholders a level of
current income which exceeds the average yield on U.S. stocks generally, using
as a measure the yield on the Standard & Poor's 500 Stock Composite Index and
2) to provide to shareholders a growing stream of income over the years.
Secondarily, the fund will seek growth of capital, in the sense that achieving
the objective of growing income implies that the fund will also, over time,
achieve significant capital growth.
The fund will invest in a diversified portfolio of securities that includes
common stocks and fixed-income securities including preferred stocks and
securities convertible into common stocks. Normally at least 50% of its total
assets will be invested in common stocks. Under normal market conditions, at
least 90% of the fund's portfolio will be invested in income-producing
securities. Up to 40% of the fund's assets may be invested in securities of
issuers that are domiciled outside the U.S. (which are generally denominated in
currencies other than the U.S. dollar), although there is no requirement that
the fund maintain investments in these securities. In addition, the fund may
invest in cash and cash equivalents. MORE INFORMATION ON THE FUND'S INVESTMENT
POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL INFORMATION.
The fund's investment restrictions (which are described in the statement of
additional information as fundamental) and objectives may not be changed
without shareholder approval. All other investment practices may be changed by
the fund's board of directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVES CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
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SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Equity securities represent an ownership position in a company. These
securities may include common stocks, preferred stocks, and securities with
equity conversion or purchase rights. The prices of equity securities fluctuate
based on changes in the financial condition of their issuers and on overall
market and economic conditions. The fund's results will be related to the
overall market for these securities.
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 5
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<PAGE>
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DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest, and must repay the amount borrowed at maturity. Some
debt securities, such as zero coupon bonds, do not pay current interest, but
are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality and maturity. In general their prices decline when
interest rates rise and vice versa.
The fund may invest up to 5% of its total assets in debt securities rated Ba
and BB or below by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or in unrated securities that are determined to be of equivalent
quality. These securities are commonly known as "high-yield, high-risk" or
"junk" bonds. The market prices of these securities may fluctuate more than
higher-quality securities and may decline significantly in periods of general
economic difficulty.
The fund's investments in debt securities outside the U.S. will principally be
in securities issued or guaranteed as to principal and interest by governments
or their agencies or instrumentalities or by multinational agencies.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
INVESTING IN VARIOUS COUNTRIES
The fund has the flexibility to invest outside the U.S. Investing outside the
U.S. involves special risks caused by, among other things: fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; greater market volatility; differing securities market
structures; and various administrative difficulties such as delays in clearing
and settling portfolio transactions or in receiving payment of dividends.
However, in the opinion of Capital Research and Management Company, investing
outside the U.S. also can reduce certain portfolio risks due to greater
diversification opportunities.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
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6 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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CURRENCY TRANSACTIONS
The fund can purchase and sell currencies to facilitate securities transactions
and enter into forward currency contracts to hedge against changes in currency
exchange rates. While entering into forward currency transactions could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain which might result from an increase in
the value of the currency. Due to the expenses involved, the fund will not
generally attempt to protect against all potential changes in exchange rates.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities for which
payment and delivery for the securities take place at a future date. When the
fund purchases such securities it assumes the risk of any decline in value of
the securities beginning on the date of the agreement or purchase. When the
fund sells such securities, it does not participate in further gains or losses
with respect to the securities. If the other party to such a transaction fails
to deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss.
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 7
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<PAGE>
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objectives and policies and by
Capital Research and Management Company's investment committee). In addition,
Capital Research and Management Company's research professionals make
investment decisions with respect to a portion of the fund's portfolio. The
primary individual portfolio counselors for the fund are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
..........................
WITH CAPITAL
YEARS OF EXPERIENCE RESEARCH AND
PORTFOLIO COUNSELORS AS PORTFOLIO COUNSELOR MANAGEMENT
FOR CAPITAL INCOME FOR CAPITAL INCOME COMPANY OR
BUILDER PRIMARY TITLE(S) BUILDER ITS AFFILIATES TOTAL YEARS
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<S> <C> <C> <C> <C>
JON B. Chairman of the Since the fund 45 years 45 years
LOVELACE Board of the began
fund; Vice operations*
Chairman of the
Board and
Chairman of the
Executive
Committee,
Capital
Research and
Management
Company
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JAMES B. Executive Vice 9 years 15 years 15 years
LOVELACE President of
the fund; Vice
President,
Capital
Research and
Management
Company
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JANET A. Senior Vice Since the fund 15 years 21 years
MCKINLEY President of began
the fund; operations*
Senior Vice
President,
Capital
Research
Company**
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WILLIAM R. Senior Vice Since the fund 27 years 34 years
GRIMSLEY President and began
Director, operations*
Capital
Research and
Management
Company
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THIERRY Chairman of the Since the fund 34 years 34 years
VANDEVENTER Board and Chief began
Executive operations*
Officer,
Capital
Research
Company**
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</TABLE>
* The fund began operations July 1987.
** Company affiliated with Capital Research and Management Company.
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8 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
X TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
X YIELD refers to the income the fund expects to earn based on its current
portfolio over a given period of time, expressed as an annual percentage
rate. Because yield is calculated using a formula mandated by the Securities
and Exchange Commission, this yield may be different than the income
actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the most recent quarterly
dividend and dividing by the average price per share over the last 3 months.
INVESTMENT RESULTS
(FOR PERIODS ENDED SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
THE FUND THE FUND
AT NET AT MAXIMUM
ASSET VALUE SALES CHARGE/1/ S&P 500/2/
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<S> <C> <C> <C>
AVERAGE ANNUAL
TOTAL RETURNS:
................................................................................
One year 13.40% 6.88% 20.32%
................................................................................
Five years 12.17% 10.85% 15.21%
................................................................................
Lifetime/3/ 11.93% 11.21% 12.16%
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</TABLE>
Yield/1/: 4.08%
Distribution Rate/1/: 4.60%
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds. The maximum sales charge has been
deducted.
/2/ The Standard & Poor's 500 Index represents stocks. This index is unmanaged
and does not reflect sales charges, commissions or expenses.
/3/ The Fund began investment operations on July 30, 1987.
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 9
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[CHART APPEARS HERE]
1988 12.45
1989 19.98
1990 3.89
1991 25.70
1992 10.00
1993 15.28
1994 -2.26
1995 25.05
Past results are not an indication of future results.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and usually
distributes such accrued dividends to shareholders in March, June, September
and December. Capital gains, if any, are usually distributed in December. When
a dividend or capital gain is distributed, the net asset value per share is
reduced by the amount of the payment.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all dividends and capital gains paid during
the prior year. Such
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10 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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distributions may also be subject to state or local taxes. The tax treatment of
redemptions from a retirement plan account may differ from redemptions from an
ordinary shareholder account.
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Maryland corporation in 1987. All fund operations are supervised by the
fund's board of directors who meet periodically and perform duties required by
applicable state and federal laws. Members of the board who are not employed by
Capital Research and Management Company or its affiliates are paid certain fees
for services rendered to the fund as described in the statement of additional
information. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund. The fund does not hold
annual meetings of shareholders. However, significant corporate matters which
require shareholder approval, such as certain elections of board members or a
change in a fundamental investment policy, will be presented to shareholders at
a meeting called for such purpose. Shareholders have one vote per share owned.
At the request of the holders of at least 10% of the shares, the fund will hold
a meeting at which any member of the board could be removed by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund.
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 11
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The management fee paid by the fund to Capital Research and Management Company
is composed of a management fee, which may not exceed 0.24% of the fund's
average net assets annually and declines at certain asset levels, and 3% of the
fund's gross investment income. The total management fee paid by the fund for
the previous fiscal year is listed earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's "code of ethics."
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
plan were incurred within the preceding 12 months and accrued while the plan is
in effect. The 12b-1 fee paid by the fund for the last fiscal year is listed
earlier under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the underwriter, generally referred to as a
concession or discount. On occasion, securities may be purchased directly from
an issuer, in which case no commissions or discounts are paid. In the over-the-
counter market, purchases and sales are transacted directly with principal
market-makers except in those circumstances where it appears better prices and
executions are available elsewhere.
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
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12 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421/0180
[MAP]
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
Fax: 714/671-7080
WESTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas 78265-9522
Fax: 210/530-4050
EASTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana 46206-6007
Fax: 317/735-6620
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia 23501-2280
Fax: 804/670-4773
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 13
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
The services described may not be available through some retirement plans. If
you are investing through a retirement plan, you should contact your plan
administrator/trustee about what services are available and with questions
about your account.
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PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, wire, or
bank debit. You may also establish or add to your account by exchanging shares
from any of your other accounts in The American Funds Group. The fund and
American Funds Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
X Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
X Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the
fund (with no sales charge). This will be done automatically unless you
elect to have the dividends and/or capital gain distributions paid to you
in cash.
X Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
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14 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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X Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to
automatically exchange shares among any of the funds in The American Funds
Group. Exchange requests may be made in writing, by telephone including
American FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
X Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 15
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<PAGE>
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INVESTMENT MINIMUMS
<TABLE>
- ----------------------------------------------------------------
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account $ 25
</TABLE>
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
..................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
.......................................................................
$50,000 but less than $100,000 4.50% 4.71% 3.75%
.......................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
.......................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
.......................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
.......................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital
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16 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
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Research and Management Company and its affiliated companies are not subject to
a sales charge.
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
X Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
X Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 17
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<PAGE>
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X Right of Accumulation
You may take into account the current value of your existing holdings in
The American Funds Group to determine your sales charge. Direct purchases
of the money market funds are excluded.
X Statement of Intention
You may enter into a non-binding commitment to invest a certain amount in
non-money market fund shares over a 13-month period. A portion of your
account may be held in escrow to cover additional sales charges which may
be due if your total investments over the statement period are insufficient
to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). In addition, you may sell shares in amounts of $50 or
more automatically. If you sell shares through your investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received and accepted by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 15 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's checks) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
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18 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
================================================================================
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made payable to the registered shareholder(s) and is
mailed to the address of record on the account, provided the address has been
used with the account for at least 15 days. Additional documentation may be
required for sale of shares held in corporate, partnership or fiduciary
accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
- --------------------------------------------------------------------------------
CAPITAL INCOME BUILDER, INC. / PROSPECTUS 19
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
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20 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
CAPITAL INCOME BUILDER, INC. / PROSPECTUS 21
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<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
22 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
================================================================================
NOTES
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CAPITAL INCOME BUILDER, INC. / PROSPECTUS 23
- --------------------------------------------------------------------------------
<PAGE>
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<TABLE>
<CAPTION>
FOR SHAREHOLDER FOR DEALER FOR 24-HOUR
SERVICES SERVICES INFORMATION
<S> <C> <C>
American Funds American Funds American
Service Company Distributors FundsLine(R)
800/421-0180 ext. 1 800/421-9900 ext. 11 800/325-3590
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
--------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial Contains more detailed
statements, detailed information on all aspects of
performance information, the fund, including the
portfolio holdings, a fund's financial statements.
statement from portfolio
management and the auditor's
report.
A current SAI has been filed
with the Securities and
CODE OF ETHICS Exchange Commission and is
incorporated by reference (is
legally part of the
prospectus).
Includes a description of the
fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary
Service Company of the Fund
800/421-0180 ext. 1 333 South Hope Street
Los Angeles, CA 90071
This prospectus has been printed on recycled paper.
[RECYCLE
LOGO]
- --------------------------------------------------------------------------------
24 CAPITAL INCOME BUILDER, INC. / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
CAPITAL INCOME BUILDER, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1997
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
January 1, 1997. 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
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
Description of Securities and Investment Techniques
2
Certain Risk Factors Relating to High-Yield Bonds
4
Investment Restrictions
5
Fund Directors and Officers
7
Management
12
Dividends, Distributions and Federal Taxes
14
Purchase of Shares
17
Redeeming Shares
24
Shareholder Account Services and Privileges
26
Redemption of Shares
28
Execution of Portfolio Transactions
28
General Information
29
Investment Results
30
Description of Commercial Paper and Bond Ratings
35
Financial Statements Attached
</TABLE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
THE DESCRIPTIONS BELOW ARE INTENDED TO SUPPLEMENT THE MATERIAL IN THE
PROSPECTUS UNDER "INVESTMENT POLICIES AND RISKS."
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.
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.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities for which payment and delivery for the securities take place at a
future date. When the fund purchases such securities it assumes the risk of
any decline in value of the securities beginning on the date of the agreement
or purchase. When the fund sells such securities, it does not participate in
further gains or losses with respect to the securities. If the other party to
such a transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases.
The fund will segregate liquid assets which will be marked to market daily 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 segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values 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. The fund will not
borrow money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
securities together with a commitment (for which the fund typically receives a
fee) to purchase similar, but not identical, securities at a later date. The
fund intends to to treat roll transactions as two separate transactions: one
involving the purchase of a security and a separate transaction involving the
sale of a security. Since the fund does not intend to enter into roll
transactions for financing purposes, it may treat these transactions as not
falling within the definition of "borrowing" set forth in Section 2(a)(23) of
the Investment Company Act of 1940.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. The seller must
maintain with the fund's custodian collateral equal to at least 100% of the
repurchase price including accrued interest as monitored daily by Capital
Research and Management Company. If the seller under the repurchase agreement
defaults, the fund may incur a loss if the value of the collareral securing the
repurchase agreement has declined and may occur disposition costs in connection
with liquidating the collateral. If bankruptcy proceedings are commenced with
respect to the seller, liquidation of the collateral by the fund may be delayed
or limited.
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.
MATURITY - There are no restrictions on the maturity composition of the
portfolio. Under normal market conditions, longer term securities yield more
than shorter term securities, but are subject to greater price
fluctuations.
VARIABLE AND FLOATING RATE OBLIGATIONS - The fund may invest in securities with
interest rates that are not fixed but fluctuate based upon changes in market
rates or designated indexes. Variable rate obligations have interest rates
that are adjusted at designated intervals, and interest rates on floating rate
obligations are adjusted whenever there are exchanges in the indexes or market
rates on which their interest rates are based. In some cases the fund has the
ability to demand payment from the dealer or issuer at par plus accrued
interest on short notice (seven days or less). The effective maturity of a
floating or variable rate obligation is deemed to be the longer of (i) the
notice period required before the fund is entitled to receive payment of the
obligation upon demand or (ii) the period remaining until the obligation's next
interest rate adjustment. If not sold or redeemed by the fund through the
demand feature, these obligations would mature on a specified date which may
range up to 30 years or more from the date of issuance.
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.
Notwithstanding investment restriction number 4, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
FUND DIRECTORS AND OFFICERS
DIRECTORS AND DIRECTOR COMPENSATION
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AGE WITH OCCUPATION(S) DURING COMPENSATION COMPENSATION NUMBER
REGISTRANT PAST 5 YEARS (INCLUDING FROM ALL FUNDS OF FUND
(POSITIONS WITHIN VOLUNTARILY MANAGED BY BOARDS
THE ORGANIZATIONS DEFERRED CAPITAL ON
LISTED MAY HAVE COMPENSATION RESEARCH AND WHICH
CHANGED DURING THIS /1/) FROM THE MANAGEMENT DIRECTOR
PERIOD) COMPANY COMPANY/2/ SERVES
DURING FISCAL
YEAR ENDED
10/31/96
<S> <C> <C> <C> <C> <C>
+H. Frederick Director Private investor; $13,450/4/ $145,850 18
Christie former President and
P.O. Box 144 Chief Executive
Palos Verdes Officer, The Mission
Estates, CA Group (non-utility
90274 holding company,
Age: 63 subsidiary of
Southern California
Edison Company);
former President,
Southern California
Edison Company
++Paul G. Haaga, President Capital Research and None/3/ None/3/ 14
Jr. and Management Company,
333 South Hope Director Senior Vice
Street President and
Los Angeles, CA Director
90071
Age: 48
Mary Myers Director Founder and $14,250/4/ $74,350 4
Kauppila President, Energy
One Winthrop Investment, Inc.
Square
Boston, MA 02110
Age: 42
++Jon B. Chairman Capital Research and None/3/ None/3/ 4
Lovelace of the Management Company,
333 South Hope Board Vice Chairman of the
Street Board and Chairman
Los Angeles, CA of the Executive
90071 Committee
Age: 69
Gail L. Neale Director Executive Vice $13,450/4/ $51,750 4
Salzburg Seminar President of the
P.O. Box 616 Salzburg Seminar;
The Marbleworks former Director of
Middlebury, VT Development and the
052753 Capital Campaign,
Age: 61 Hampshire College;
former Special
Advisor, The
Commonwealth Fund
and Mount Holyoke
College
Robert J. O'Neill Director Professor and $14,250 $33,550 3
St. Mary's Close Fellow, All Souls
27 Church Green College, University
Whitney, OXON of Oxford
United Kingdom
Age: 60
Donald E. Director Retired; former $12,700/4/ $58,600 4
Petersen chairman of the
255 East Brown Board and Chief
Birmingham, MI Executive Officer,
48009 Ford Motor Company
Age: 70
Frank Stanton Director President Emeritus, $14,750 $27,850 2
25 W 52nd Street CBS, Inc.; Chairman
New York, NY Emeritus, The
10019 American Red Cross
Age: 88
Charles Wolf, Jr. Director Dean, The RAND $13,450 $26,050 4
1700 Main Street Graduate School;
Santa Monica, CA Director,
90401 International
Age: 72 Economic Studies,
The RAND Corporation
</TABLE>
# Positions within the organizations may have changed during this period.
+ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
++ Directors who are considered "interested persons as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), on the basis of
their affiliation with the fund's Investment Adviser, Capital Research and
Management Company.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund Inc. Capital Research and Management
Company also manages American Variable Insurance Series and Anchor Pathway Fund
which serve as the underlying investment vehicles for certain variable
insurance contracts.
/3/ Paul G. Haaga, Jr. and Jon B. Lovelace are affiliated with the Investment
Adviser and, accordingly, receive no compensation from the fund.
/4/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: H. Frederick Christie ($27,152), Mary Myers Kauppila ($52,339), Gail
L. Neale ($41,632) and Donald E. Petersen ($38,604). 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
Senior Vice President and Director, Capital Research and Management Company.
President, The Capital Group Companies, Inc.
* JAMES B. LOVELACE, Vice President.
Executive Vice President, Capital Research and Management Company.
JANET A. MCKINLEY, Vice President. 630 Fifth Avenue, New York, NY 10111.
Senior Vice President, Capital Research Company.
* CATHERINE M. WARD, Vice President.
Senior Vice President and Director, Capital Research and Management Company.
* VINCENT P. CORTI, Secretary.
Vice President - Fund Business Management Group, Capital Research and
Management Company.
** R. MARCIA GOULD, 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 92821.
All of the Directors and Officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Managment Company serves as Investment Adviser. No compensation is paid by the
fund to any Director or Officer who is a director, officer or employee of the
Investment Adviser or affiliated companies. 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. As of December
1, 1996, 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 (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel. The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
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 on 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 serves over five million investors of
all types. These investors include privately owned businesses and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser, dated
March 1, 1995, will continue in effect until October 31, 1996 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 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 Agreement. The 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 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, all necessary 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. The
management fee is based on an annual rate of 0.24% of the first $1 billion of
average net assets; 0.20% of such assets in excess of $1 billion but not
exceeding $2 billion; 0.18% of such assets in excess of $2 billion but not
exceeding $3 billion; 0.165% of such assets in excess of $3 billion but not
exceeding $5 billion; 0.155% of such assets in excess of $5 billion but not
exceeding $8 billion; and 0.15% of such assets in excess of $8 billion; plus
3.0% of the fund's gross investment income. Assuming net assets of $4.5
billion and gross investment income levels of 4%, 5%, 6%, 7% and 8%, management
fees would be 0.31%, 0.34%, 0.37%, 0.40% and 0.43%, respectively.
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, 1996, 1995 and 1994, the Investment
Adviser's total fees amounted to $18,213,000, $14,623,000, and $12,937,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (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, 1996 amounted to $4,007,000 after allowance of
$20,341,000 to dealers. During the fiscal years ended October 31, 1995 and
1994 the Principal Underwriter retained $3,768,000 and $6,152,000
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
Directors and Officers who are "interested persons" of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund are improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Directors who
are not "interested persons" of the fund are committed to the discretion of the
Directors who are not "interested persons" during the existence of the Plan.
The Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.30% 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 (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees). Only expenses incurred
during the preceding 12 months and accrued while the Plan is in effect may be
paid by the fund. During the fiscal year ended October 31, 1996, the fund paid
$10,741,000 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 gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends, to the extent practicable, to meet these
distribution requirements to minimize or avoid the excise tax liability.
Distributions of investment company taxable income, including short-term
capital gains, generally are taxable to the shareholder as ordinary income,
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the fund. The fund also intends to continue distributing
to shareholders all of the excess of net long-term capital gain over net
short-term capital loss on sales of securities. A capital gain distribution,
whether paid in cash or reinvested in shares, is taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has
held the shares or whether such gain was realized by the fund before the
shareholder acquired such shares and was reflected in the price paid for the
shares.
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 substantially identical
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%. (However, to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have income in
excess of $100,000 for a taxable year will be required to pay an additional
amount of tax up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of tax up to $100,000). 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
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums $50 minimum (except where a lower
and Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer Mail directly to your investment dealer's
your investment who is registered in the state address printed on your account
dealer where the purchase is made statement.
and who has a sales
agreement with American
Funds Distributors.
By mail Make your check payable to Fill out the account additions form at
the fund and mail to the the bottom of a recent account
address indicated on the statement, make your check payable to
account application. Please the fund, write your account number on
indicate an investment dealer your check, and mail the check and
on the account application. form in the envelope provided with your
account statement.
By telephone Please contact your Complete the "Investments by Phone"
investment dealer to open section on the account application or
account, then follow the American FundsLink Authorization
procedures for additional Form.
investments. Once you establish the privilege, you,
your financial advisor or any person
with your account information can call
American FundsLine(R) and make
investments by telephone (subject to
conditions noted in "Telephone
Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate described under "Initial Investment."
an
investment dealer on the
account. Instruct your bank
to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE
ORDER.
</TABLE>
Investment Minimums and Fund Numbers - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(R) (see description
below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) 02
$1,000
American Balanced Fund(R) 11
500
American Mutual Fund(R) 03
250
Capital Income Builder(R) 12
1,000
Capital World Growth and Income Fund(SM) 33
1,000
EuroPacific Growth Fund(R) 16
250
Fundamental Investors(SM) 10
250
The Growth Fund of America(R) 05
1,000
The Income Fund of America(R) 06
1,000
The Investment Company of America(R) 04
250
The New Economy Fund(R) 14
1,000
New Perspective Fund(R) 07
250
SMALLCAP World Fund(R) 35
1,000
Washington Mutual Investors Fund(SM) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(R) 40
1,000
American High-Income Trust(SM) 21
1,000
The Bond Fund of America(SM) 08
1,000
Capital World Bond Fund(R) 31
1,000
Intermediate Bond Fund of America(SM) 23
1,000
Limited Term Tax-Exempt Bond Fund of 43
America(SM) 1,000
The Tax-Exempt Bond Fund of America(R) 19
1,000
The Tax-Exempt Fund of California(R)* 20
1,000
The Tax-Exempt Fund of Maryland(R)* 24
1,000
The Tax-Exempt Fund of Virginia(R)* 25
1,000
U.S. Government Securities Fund(SM) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 09
2,500
The Tax-Exempt Money Fund of America(SM) 39
2,500
The U.S. Treasury Money Fund of America(SM) 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000
6.10% 5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND
FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more
none none (see below)
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, 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.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees or any other purchaser investing at least $1 million
in shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares at
net asset value; however, a contingent deferred sales charge of 1% is imposed
on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
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 subject to the following statement of intention (the
"Statement") terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize 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 45 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.
Existing holdings eligible for rights of accumulation (see the prospectus and
account application) may be credited toward satisfying the Statement. During
the Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
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 regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
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. In case of orders sent directly to
the fund or American Funds Service Company, an investment dealer MUST be
indicated. The dealer is responsible for promptly transmitting purchase orders
to the Principal Underwriter. Orders received by the investment dealer, the
Transfer Agent, or the fund after the time of the determination of the net
asset value will be entered at the next calculated offering price. 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, President's Day, 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.
REDEEMING SHARES
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<CAPTION>
<S> <C>
By writing to American Send a letter of instruction specifying the name of the fund,
Funds Service Company (at the number of shares or dollar amount to be sold, your
the appropriate address name and account number. You should also enclose any
indicated under "Principal share certificates you wish to redeem. For redemptions
Underwriter and Transfer over $50,000 and for certain redemptions of $50,000 or less
Agent" in the prospectus) (see below), your signature must be guaranteed by a bank,
savings association, credit union, or member firm of a
domestic stock exchange or the National Association of
Securities Dealers, Inc. that is an eligible guarantor
institution. You should verify with the institution that it is an
eligible guarantor prior to signing. Additional documentation
may be required for redemption of shares held in corporate,
partnership or fiduciary accounts. Notarization by a Notary
Public is not an acceptable signature guarantee.
By contacting your If you redeem shares through your investment dealer, you
investment dealer may be charged for this service. SHARES HELD FOR YOU IN
YOUR INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED
THROUGH THE DEALER.
You may have a You may use this option, provided the account is registered
redemption check sent to in the name of an individual(s), a UGMA/UTMA custodian,
you by using American or a non-retirement plan trust. These redemptions may not
FundsLine(R) or by exceed $10,000 per day, per fund account and the check
telephoning, faxing, or must be made payable to the shareholder(s) of record and
telegraphing American be sent to the address of record provided the address has
Funds Service Company been used with the account for at least 10 days. See
(subject to the conditions "Principal Underwriter and Transfer Agent" in the prospectus
noted in this section and in and "Exchange Privilege" below for the appropriate
"Telephone Purchases, telephone or fax number.
Redemptions and
Exchanges" below)
In the case of the money Upon request (use the account application for the money
market funds, you may market funds) you may establish telephone redemption
have redemptions wired to privileges (which will enable you to have a redemption sent
your bank by telephoning to your bank account) and/or check writing privileges. If you
American Funds Service request check writing privileges, you will be provided with
Company ($1,000 or more) checks that you may use to draw against your account.
or by writing a check ($250 These checks may be made payable to anyone you
or more) designate and must be signed by the authorized number of
registered shareholders exactly as indicated on your
checking account signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed.
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, 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).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) (see "American FundsLine(R)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Principal Underwriter and Transfer Agent"
in the prospectus for the appropriate fax numbers) or telegraphing American
Funds Service Company. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(R). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone. Redemptions and exchanges through American
FundsLine(R) are subject to the conditions noted above and in "Redeeming
Shares--Telephone Redemptions and Exchanges" below. You will need your fund
number (see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(R)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
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 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
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker is in a position to obtain the
best price and execution, the order is placed with that broker. This may or
may not be a broker who has provided investment research, statistical, or other
related services to the Investment Adviser or has sold shares of the fund or
other funds served by the Investment Adviser. The fund does not consider that
it has an obligation to obtain the lowest available commission rate to the
exclusion of price, service and qualitative considerations.
The fund is required to disclose information regarding investments in the
securities of broker-dealers which have certain relationships with the fund.
During the last fiscal year, the fund held certain debt securities of some of
its regular brokers and dealers or their parents that derive more than 15% of
gross revenues from securities-related activities which included securities of
American Express Credit Corp. ($46,101,000) and General Electric Capital Corp.
($68,506,000).
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, 1996, 1995
and 1994 amounted to $2,365,000, $1,244,000, and $2,234,000 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, 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.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $3,396,000 for the fiscal year ended October 31, 1996.
INDEPENDENT ACCOUNTANTS - Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, has served as the fund's independent accountants since the
fund's 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. You may obtain a summary of
the personal investing policy by contacting the Secretary of the fund.
The financial statements including the investment portfolio and report of
Independent Accountants contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
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DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- OCTOBER 31, 1996
<S> <C>
Net asset value and redemption price per share $ 39.70
(Net assets divided by shares outstanding)
Maximum offering price per share (100/94.25 of per share $ 42.12
net asset value, which takes into account the
fund's current maximum sales charge)
</TABLE>
INVESTMENT RESULTS
The fund's 3.94% yield is based on a 30-day (or one month) period ended October
31, 1996 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, 1996 was 10.05% and 11.52%, respectively. In addition, the
lifetime average annual total return was 11.51%. 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 reinvested at net asset value
on the reinvestment date determined by the Board of Directors. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the period. Total return may be calculated for one year, five years 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 calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.
The fund may 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 nine common stock funds that are at least 10 years old. In the 10-year
periods since January 1, 1966 (121 in all), those funds have had better total
returns than the Standard and Poor's 500 Stock Composite Index in 94 of the
121 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*- 10/31/96 +174.1% +215.5% +194.0%
</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, 1996)
<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 13,617 267 6,052 19,936
1995 1,079 6,210 16,210 15,112 367 7,888 23,367
1996 1,199 7,409 17,409 16,669 757 9,983 27,409
</TABLE>
# From July 30, 1987
The dollar amount of capital gain distributions during the period was $631.
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."
<PAGE>
<TABLE>
<S> <C> <C> <C>
CAPITAL INCOME BUILDER
Investment Portfolio October 31, 1996
Percent of
Largest Individual Holdings Net Assets
- -------------------------------------------------- ----------
American Home Products 3.44%
Telecom Corp. of New Zealand 2.33
Banc One 1.80
United Utilities 1.76
CoreStates Financial 1.61
Philip Morris 1.55
Comerica 1.53
Bristol-Myers Squibb 1.48
Chevron 1.41
Ameritech 1.35
Equity-Type
Securities Shares or Market Percent
Principal Value of Net
Energy Amount (Millions) Assets
- ---------------------------------------------- ------------- ----------- ----------
Energy Sources - 3.80%
Amoco Corp. 555,000 $42.041 .78
Atlantic Richfield Co. 135000 17.888 .33
Chevron Corp. 1165000 76.599 1.41
Phillips Petroleum Co. 650000 26.650 .49
Royal Dutch Petroleum Co. (New York Registered
Shares) 260000 42.998 .79
- ---------------------------------------------- ------------- ----------- ----------
Utilities: Electric & Gas - 6.33%
Australian Gas Light Co. 372662 2.043 .04
Brooklyn Union Gas Co. 200,000 5.800 .11
Central and South West Corp. 2000000 53.000 .98
DTE Energy Co. (formerly Detroit Edison Co.) 450000 13.556 .25
East Midlands Electricity PLC 3183300 28.235 .52
Entergy Corp. 760000 21.280 .39
GPU Inc. (formerly General Public Utilities Corp.) 850000 27.944 .52
Hongkong Electric Holdings Ltd. 10,231,500 32.752 .60
Houston Industries Inc. 200,000 4.575 .08
Long Island Lighting Co. 2125000 38.516 .71
National Grid Group PLC 10323000 30.409 .56
National Power PLC 4205000 27.922 .52
PECO Energy Co. 100000 2.525 .05
Southern Electric PLC 5145350 53.929 1.00
------------- ----------- ----------
548.662 10.13
----------- ----------
Materials
- ---------------------------------------------- ------------- ----------- ----------
Chemicals - 0.17%
E.I. du Pont de Nemours and Co. 100000 9.275 .17
- ---------------------------------------------- ------------- ----------- ----------
Forest Products & Paper - 0.73%
James River Corp. of Virginia, DECS convertible
preferred shares 375000 11.062 .20
Potlatch Corp. 332500 14.214 .26
Union Camp Corp. 300000 14.625 .27
------------- ----------- ----------
Metals: Nonferrous - 0.15%
Aluminum Co. of America 140000 8.208 .15
- ---------------------------------------------- ------------- ----------- ----------
57.384 1.05
----------- ----------
Consumer Goods
- ---------------------------------------------- ------------- ----------- ----------
Automobiles - 1.12%
Ford Motor Co., Class A 1950000 60.937 1.12
- ---------------------------------------------- ------------- ----------- ----------
Beverages & Tobacco - 2.64%
Philip Morris Companies Inc. 905,000 83.826 1.55
RJR Nabisco Holdings Corp. 700,000 20.213 .37
UST Inc. 1,350,000 38.981 .72
- ---------------------------------------------- ------------- ----------- ----------
Health & Personal Care - 5.74%
American Home Products Corp. 3,040,000 186.200 3.44
Bristol-Myers Squibb Co. 757500 80.106 1.48
Merck & Co., Inc. 250000 18.531 .34
Pharmacia & Upjohn, Inc. 145000 5.220 .10
Schering-Plough Corp. 130000 8.320 .15
Warner-Lambert Co. 200000 12.725 .23
----------- ----------
515.059 9.50
----------- ----------
Services
- ---------------------------------------------- ------------- ----------- ----------
Broadcasting & Publishing - 0.24%
Golden Books Family Entertainment Inc., 8.75% convertible
TOPrS/1/ 100000 5.587 .10
South China Morning Post (Holdings) Ltd. 3600000 3.073 .06
Time Warner Inc., 10.25% Series K/1/ 3,931 4.172 .08
- ---------------------------------------------- ------------- ----------- ----------
Business & Public Services - 5.23%
American Water Works Co., Inc. 1661200 33.847 .62
Autopistas del Mare Nostrum, SA Concesionaria del Estado 1580000 22.503 .42
Consumers Water Co. 229000 4.179 .08
Dun & Bradstreet Corp. 275000 15.916 .29
Hutchison Delta Finance Ltd., 7.00% convertible
debentures 2002/1/ $11,000,000 12.045 .22
Hyder PLC 3951688 45.534 .84
Thames Water PLC 6000000 54.098 1.00
United Utilities PLC 10294309 95.330 1.76
- ---------------------------------------------- ------------- ----------- ----------
Telecommunications - 10.41%
ALLTEL Corp. 350,000 10.675 .20
Ameritech Corp. 1,337,900 73.250 1.35
GTE Corp. 1300000 54.763 1.01
Hong Kong Telecommunications Ltd. (American
Depositary Receipts) 1,442,478 25.424 .47
Koninklijke PTT Nederland NV 1,259,700 45.500 .84
Pacific Telesis Group 1,700,000 57.800 1.07
Portugal Telecom, SA 2,293,000 59.648 1.10
Telecom Corp. of New Zealand Ltd. 15,784,160 82.010
Telecom Corp. of New Zealand Ltd./1/ 8,380,000 43.540 2.33
Telecom Corp. of New Zealand Ltd. (American
Depositary Receipts) 12,500 1.041
Telecom Italia SpA 28,962,100 54.781 1.01
Telefonica de Espana, SA 1,700,000 34.056 .63
U S WEST Communications Group 704,707 21.405 .40
- ---------------------------------------------- ------------- ----------- ----------
Transportation: Airlines - 0.04%
British Airways PLC (American Depositary Receipts) 25800 2.328 .04
- ---------------------------------------------- ------------- ----------- ----------
862.505 15.92
----------- ----------
Finance
- ---------------------------------------------- ------------- ----------- ----------
Banking - 21.69%
AmSouth Bancorporation 800,000 37.100 .68
Banc One Corp. 2,300,000 97.463 1.80
Bank of Nova Scotia 1,358,700 42.852 .79
BankAmerica Corp. 304000 27.816 .51
Barclays PLC 3500000 54.883 1.01
Boatmen's Bancshares, Inc. 400000 24.300 .45
Central Fidelity Banks, Inc. 2062500 52.336 .97
Chase Manhattan Corp. 850000 72.888 1.34
Comerica Inc. 1560000 82.875 1.53
CoreStates Financial Corp 1800000 87.525 1.61
First Chicago NBD Corp. 1210000 61.710 1.14
First Hawaiian Bank 400000 12.400 .23
First Security Corp. (Utah) 1637500 48.102 .89
First Union Corp. 967500 70.386 1.30
Huntington Bancshares Inc. 1,674,750 40.194 .74
KeyCorp 1,035,000 48.257 .89
Keystone Financial, Inc. 827,550 21.516 .40
J.P Morgan & Co. Inc. 180,000 15.548 .29
National Australia Bank Ltd. 2407694 26.420 .49
National City Corp. 800000 34.700 .64
Old Kent Financial Corp. 551250 24.875 .46
PNC Bank Corp. 800000 29.000 .53
Royal Bank of Canada 1715000 56.714 1.05
Wachovia Corp. 660000 35.475 .65
Westpac Banking Corp. 6,050,000 34.513 .64
Wilmington Trust Corp. 950,000 35.862 .66
- ---------------------------------------------- ------------- ----------- ----------
Financial Services - 0.58%
Beneficial Corp. 340,000 19.890 .37
Manhattan Card Co. Ltd. 23,200,000 11.477 .21
- ---------------------------------------------- ------------- ----------- ----------
Insurance - 2.21%
American General Corp. 160000 5.960 .11
Lincoln National Corp. 1230000 59.655 1.10
Ohio Casualty Corp. 717,500 23.319 .43
Prudential Corp. PLC 3557546 26.865 .50
SAFECO Corp. 100,000 3.775 .07
- ---------------------------------------------- ------------- ----------- ----------
Real Estate - 5.13%
Bradley Real Estate, Inc. 1,045,000 17.373 .32
Camden Property Trust 353,200 9.625 .18
CarrAmerica Realty Corp. 1,720,000 43.215 .80
Pacific Retail Trust/1/ 190,909 2.100 .04
Security Capital Atlantic, Inc. 334,800 7.952
Security Capital Atlantic, Inc./1/,/2/ 1,391,303 33.043 .75
Security Capital Industrial Trust 1210855 21.947 .41
Security Capital Pacific Trust 3037560 68.345 1.26
Security Capital Realty Inc./1/,/2/,/3/ 24900 27.130
Security Capital Realty Inc. 12.00% .87
convertible debentures 2014/1/,/2/ $18,862,000 19.648
Washington Real Estate Investment Trust 145,500 2.310 .04
Weingarten Realty Investors 504,000 19.341 .36
Western Investment Real Estate Trust 412500 5.259 .10
----------- ----------
1,603.939 29.61
----------- ----------
Multi-Industry & Miscellaneous
- ---------------------------------------------- ------------- ----------- ----------
Multi-Industry - 1.19%
B A T Industries PLC 5,895,597 41.067 .76
Hutchison Whampoa Ltd. 1960000 13.689 .25
Lend Lease Corp. Ltd. 411257 6.969 .13
Thermo Instrument Systems Inc., 4.50% convertible
debentures 2003 $3,000,000 2.970 .05
- ---------------------------------------------- ------------- ----------- ----------
Miscellaneous - 1.31%
Equity-type securities in initial period of
acquisition 70.600 1.31
----------- ----------
135.295 2.50
----------- ----------
TOTAL EQUITY-TYPE SECURITIES (cost:
$2,730.239 million) 3,722.844 68.71
----------- ----------
Principal
Bonds and Notes Amount
- ---------------------------------------------- ------------- ----------- ----------
Corporate
- ---------------------------------------------- ------------- ----------- ----------
ADT Operations 9.25% 2003 $2,000,000 2.105 .04
Airplanes Pass Through Trust, pass-through certificates,
Class C, 8.15% 2019 /4/ 5000000 5.181 .10
Allegiance Corp. 7.80% 2016 3000000 3.040 .06
Ann Taylor, Inc. 8.75% 2000 4802000 4.610 .09
California Energy Co., Inc. 0%/10.25% 2004 /5/ 4300000 4.407 .08
Columbia Gas System, Inc., Series G, 7.62% 2025 3000000 2.926
Columbia Gas System, Inc., Series C, 6.80% 2005 2000000 1.973 .09
Container Corp. of America 9.75% 2003 3500000 3.587 .07
Delta Air Lines, Inc., 1991 Equipment
Certificates Trust, Series K, 10.00% 2014/1/ 2000000 2.341 .04
Falcon Drilling Company, Inc., Series B, 9.75% 2001 2750000 2.819
Falcon Drilling Company, Inc., Series B, 8.875% 2003 4000000 3.900 .12
Fort Howard Corp. 8.25% 2002 3000000 2.970 .05
Infinity Broadcasting Corp. 10.375% 2002 4500000 4.770 .09
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
2015/1/,4 5000000 5.608 .10
Long Island Lighting Co. 8.90% 2019 10000000 9.736
Long Island Lighting Co. 7.30% 1999 23000000 22.827 .60
McDermott Inc. 9.375% 2002 5000000 5.223
McDermott Inc. 9.375% 2006 8000000 8.240 .25
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds, Series C-91, 10.33% 2002 6844715.24 7.238 .13
News America Holdings Inc. 9.25% 2013 2000000 2.246
News America Holdings Inc. 9.125% 1999 3000000 3.217 .14
News America Holdings Inc. 8.625% 2003 2000000 2.165
Occidental Petroleum Corp. 8.50% 2004 8000000 8.460 .16
The Price REIT, Inc. 7.50% 2006 4000000 3.991 .07
Riggs National Corp. 8.50% 2006 2600000 2.688 .05
Rykoff-Sexton, Inc. 8.875% 2003 4500000 4.162 .08
Security Capital Pacific Trust 7.25% 2004 5000000 5.056 .09
Smith's Food & Drug Centers, Inc.,
pass-through certificates, Series 1994-A2,
8.64% 2012/2/,/4/ 6000000 4.965 .09
360 Communications Co. 7.125% 2003 2500000 2.478 .05
Time Warner Inc. 10.15% 2012 5000000 5.985
Time Warner Inc. 7.45% 1998 4000000 4.059 .18
TKR Cable I, Inc. 10.50% 2007 7000000 7.803 .14
Wellsford Residential Property Trust 7.75% 2005 2500000 2.537 .05
WestPoint Stevens Inc. 8.75% 2001 2000000 2.020 .04
Woolworth Corp., Series A, 7.00% 2002 2000000 1.981
Woolworth Corp., Series A, 6.98% 2001 2750000 2.736 .09
----------- ----------
170.050 3.14
----------- ----------
Principal
Governments and Governmental Authorities Amount
- ---------------------------------------------- ------------- ----------- ----------
New Zealand 8.00% July 1998 NZ$40,000,000 28.695 .51
----------- ----------
U.S. Treasury Notes
- ---------------------------------------------- ------------- ----------- ----------
6.00% November 1997 $90,000,000 90.393 1.68
5.625% January 1998 70,000,000 69.989 1.29
----------- ----------
160.382 2.97
----------- ----------
TOTAL BONDS AND NOTES (cost: $350.040 million) 359.127 6.62
----------- ----------
TOTAL INVESTMENT SECURITIES (cost: $3,080.279
million) 4,081.971 75.33
----------- ----------
SHORT-TERM SECURITIES
- ---------------------------------------------- ------------- ----------- ----------
Corporate Short-Term Notes
- ---------------------------------------------- ------------- ----------- ----------
Abbott Laboratories 5.22%-5.23% due 11/22-12/27/96 61700000 61.449 1.14
American Express Credit Corp. 5.26%-5.28% due
11/1-12/10/96 46200000 46.101 .85
Baltimore Gas & Electric Co. 5.23%-5.28% due
11/21-12/3/96 30335000 30.227 .56
Campbell Soup Co. 5.25%-5.29% due 11/8-12/12/96 45300000 45.153 .83
Walt Disney Co. 5.25%-5.29% due 11/18/96-1/27/97 86200000 85.272 1.57
Ford Motor Credit Co. 5.24%-5.36% due
11/4/96-1/9/97 96700000 96.104 1.77
General Electric Capital Corp. 5.24%-5.32% due
11/7/96-1/14/97 68700000 68.506 1.26
H.J. Heinz Co. 5.23%-5.41% due 11/6-12/4/96 76300000 76.014 1.40
Hewlett-Packard Co. 5.23%-5.40% due 11/6-12/20/96 75097000 74.860 1.38
International Lease Finance Corp. 5.33% due 12/16/96 43000000 42.710 .79
Eli Lilly and Co. 5.24%-5.28% due 12/18/96-1/22/97 75000000 74.239 1.37
Lucent Technologies Inc. 5.23%-5.30% due
11/12/96-1/6/97 66300000 65.863 1.22
National Rural Utilities Cooperative Finance Corp. 5.31%
due 1/13-1/17/97 70000000 69.206 1.28
J.C. Penney Funding Corp. 5.23%-5.31% due
12/3-12/16/96 80925000 80.459 1.49
Procter & Gamble Co. 5.27%-5.34% due
11/6/96-1/16/97 67900000 67.356 1.24
Weyerhaeuser Co. 5.24%-5.38% due 11/5/96-1/10/97 77000000 76.537 1.41
----------- ----------
1,060.056 19.56
----------- ----------
Federal Agency Discount Notes
- ---------------------------------------------- ------------- ----------- ----------
Federal Home Loan Bank 5.24%-5.36% due
11/20-12/19/96 97700000 97.116 1.79
Federal Home Loan Mortgage Corp. 5.20%-5.40% due
11/12-12/31/96 53900000 53.525 .99
Federal National Mortgage Assn. 5.34%-5.44% due
12/6-12/19/96 47700000 47.442 .88
----------- ----------
198.083 3.66
----------- ----------
U.S. Treasury Short-Term Notes
- ---------------------------------------------- ------------- ----------- ----------
6.375% due 6/30/97 8000000 8.048 .15
6.875% due 4/30/97 30000000 30.220 .56
6.75% due 2/28/97 65000000 65.284 1.20
----------- ----------
103.552 1.91
----------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $1,361.041
million) 1,361.691 25.13
EXCESS OF PAYABLES OVER CASH AND RECEIVABLES 25.949 .46
----------- ----------
TOTAL SHORT-TERM SECURITIES, CASH AND
RECEIVABLES, NET OF PAYABLES 1,335.742 24.67
----------- ----------
NET ASSETS $5,417.713 100.00%
=========== ==========
/1/ Purchased in a private placement transaction;
resale to the public may require registration
or sale only to qualified institutional buyers
/2/ Valued under procedures established by the Board
of Directors.
/3/ Non-income-producing securities.
/4/ 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.
/5/ Represents a zero-coupon bond which will
convert to an interest-bearing security at a
later date.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Capital Income Builder
Financial Statements
Statement of Assets and Liabilities
at October 31, 1996 (dollars in
millions)
Assets:
Investment securities at market (cost:$3,080.279) $4,081.971
Short-term securities (cost:$1,361.041) 1,361.691
Cash .006
Receivables for-
Sales of investments $ 6.132
Sales of fund's shares 8.031
Dividends and accrued interest 18.548 32.711
------------ ------------
5,476.379
Liabilities:
Payables for-
Purchases of investments 8.829
Repurchases of fund's shares 4.822
Management services 1.324
Dividends payable 41.219
Accrued expenses 2.472 58.666
------------ ------------
Net Assets at October 31, 1996 - Equivalent to
$39.70 per share on 136,469,764 shares of $0.01
par value capital stock outstanding
(authorized capital stock - 200,000,000 shares) $5,417.713
============
Statement of Operations
for the year ended October 31, 1996
(dollars in millions)
Investment Income:
Income:
Dividends $181.465
Interest 111.502 $292.967
------------
Expenses:
Management services fee 18.213
Distribution expenses 10.741
Transfer agent fee 3.396
Reports to shareholders .654
Registration statement and prospectus .300
Postage, stationery and supplies .642
Directors' fees .107
Auditing and legal fees .053
Custodian fee .845
Taxes other than federal income tax .063
Other expenses .075 35.089
------------ ------------
Net investment income 257.878
------------
Realized Gain and Unrealized Appreciation on
Investments:
Net realized gain 87.347
Net increase in unrealized appreciation on investments: 431.666
------------
Net realized gain and increase in unrealized
appreciation on investments 519.013
------------
Net Increase in Net Assets Resulting from Operations $776.891
============
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in millions) Year ended October 31
1996 1995
------------ ------------
Operations:
Net investment income $257.878 $197.764
Net realized gain on investments 87.347 64.236
Net change in unrealized appreciation on investments 431.666 387.255
------------ ------------
Net increase in net assets resulting from
operations 776.891 649.255
------------ ------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (257.053) (199.581)
Distributions from net realized gain on investments (62.913) (11.162)
------------ ------------
Total dividends and distributions (319.966) (210.743)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold: 20,891,053 and
23,777,252 shares, respectively 782.282 796.496
Proceeds from shares issued in reinvestment of net
investment income dividends and distributions of
net realized gain on investments: 6,760,213 and
5,248,005 shares, respectively 251.534 174.909
Cost of shares repurchased: 16,175,451 and 15,065,188
shares, respectively (606.384) (505.097)
------------ ------------
Net increase in net assets resulting from capital
share transactions 427.432 466.308
------------ ------------
Total Increase in Net Assets 884.357 904.820
Net Assets:
Beginning of year 4,533.356 3,628.536
------------ ------------
End of year (including undistributed net investment
income: $2.228 and $1.403, respectively) $5,417.713 $4,533.356
============ ============
See Notes to Financial Statements
</TABLE>
<PAGE>
CAPITAL INCOME BUILDER
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 fund seeks to provide a growing dividend together with a current yield
which exceeds that paid by U.S. stocks generally. The following paragraphs
summarize the significant accounting policies consistently followed by the fund
in the preparation of its financial statements:
Equity-type securities traded on a national securities exchange (or reported
on the NASDAQ national market) and securities traded in the over-the-counter
market are stated at the last reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price. 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 prices for securities of comparable maturity, quality, and
type. 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. Where
pricing service or market quotations are not readily available, securities will
be valued at fair value by the Board of Directors or a committee thereof.
Short-term securities with 60 days or less to maturity are valued at amortized
cost, which approximates market value.
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. The fund
does not amortize premiums on securities purchased. Amortization of market
discounts on securities is recognized upon disposition, subject to applicable
tax requirements. Dividends to shareholders are declared daily from net
investment income. Distributions paid to shareholders are recorded on the
ex-dividend date.
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 effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
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 $845,000 includes $78,000 that was paid by these credits
rather than in cash.
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, 1996, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $1,000,668,000, of which
$1,021,175,000 related to appreciated securities and $20,507,000 related to
depreciated securities. During the year ended October 31, 1996, the fund
realized, on a tax basis, a net capital gain of $86,961,000 on securities
transactions. Net gains related to non-U.S. currency transactions of $386,000
were treated as ordinary income for federal income tax purposes. The cost of
portfolio securities for book and federal income tax purposes was
$4,442,994,000 at October 31, 1996.
3. The fee of $18,213,000 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 0.24% of the first $1 billion of average net assets; 0.20%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.18% of
such assets in excess of $2 billion but not exceeding $3 billion; 0.165% of
such assets in excess of $3 billion but not exceeding $5 billion; 0.155% of
such assets in excess of $5 billion but not exceeding $8 billion; and 0.15% of
such assets in excess of $8 billion; plus 3.0% of the fund's gross investment
income. For purposes of the Investment Advisory and Service Agreement, gross
investment income means gross income, computed without taking account of gains
or losses from sales of capital assets.
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, 1996,
distribution expenses under the Plan were $10,741,000. As of October 31, 1996,
accrued and unpaid distribution expenses were $1,782,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $3,396,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $4,007,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of October 31,
1996, aggregate amounts deferred and earnings thereon were $160,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS, and AFD. No such
persons received any remuneration directly from the fund.
4. As of October 31, 1996, accumulated undistributed net realized gain on
investments was $77,870,000 and additional paid-in capital was $4,333,599,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,201,233,000 and $1,126,743,000, respectively,
during the year ended October 31, 1996.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended October 31, 1996, such non-U.S. taxes were $13,631,000. Net realized
currency gains on dividends, interest, withholding taxes reclaimable, and sales
of non-U.S. bonds and notes were $1,117,000 for the year ended October 31,
1996.
The fund reclassified $731,000 from undistributed currency gains to
undistributed net realized gains and $42,000 from undistributed net investment
income to undistributed net realized gains for the year ended October 31, 1996.
<TABLE>
<S> <C> <C> <C> <C> <C>
Per-Share Data and Ratios Year
ended
October
31
1996 1995 1994 1993 1992
Net Asset Value, Beginning of Year $ 36.27 $ 32.68 $ 34.42 $30.77 $28.67
--------- - --------- - --------- - ------- -------
Income From Investment Operations:
Net investment income 1.95 1.69 1.73 1.53 1.44
Net realized and unrealized gain
(loss) on investments 3.92 3.69 (1.62) 3.76 2.33
--------- --------- --------- ------- -------
Total income from investment operations 5.87 5.38 .11 5.29 3.77
--------- --------- --------- ------- -------
Less Distributions:
Dividends from net investment income (1.94) (1.69) (1.73) (1.53) (1.44)
Distributions from net realized gains (.50) (.10) (.12) (.11) (.23)
--------- --------- --------- ------- -------
Total distributions (2.44) (1.79) (1.85) (1.64) (1.67)
--------- --------- --------- ------- -------
Net Asset Value, End of Year $ 39.70 $ 36.27 $ 32.68 $34.42 $30.77
========= ========= ========= ======= =======
Total Return/1/ 16.76% 16.98% .47% 17.58% 13.46%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $5,418 $4,533 $3,629 $2,826 $1,203
Ratio of expenses to average net assets .71% .72% .73% .72% .81%
Ratio of net income to average net assets 5.19% 4.96% 5.29% 4.69% 4.71%
Average commissions paid per share/2/ 2.20cents 2.10cents 3.63cents 2.90cents 2.48cents
Portfolio turnover rate 27.56% 18.06% 36.19% 11.22% 16.57%
/1/ Calculated without deducting a sales
charge. The maximum sales charge is 5.75% of
the fund's offering price.
/2/ Brokerage commissions paid on portfolio
transfactions increase the cost of securities
purchased or reduce the proceeds of securities
sold, and are not reflected in the fund's
statement of operations. Shares traded on a
principal basis are excluded. Generally,
non-U.S. commissions are lower than U.S.
commissions when expressed as cents per share
but higher when expressed as a percentage of
transactions because of the lower per-share
prices of many non-U.S. securities.
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A
Financial Highlights
Included in Statement of Additional Information - Part B
As of October 31, 1996:
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Per-Share Data and Ratios
Report of Independent Accountants
(B) EXHIBITS:
1. On file (see SEC file numbers 811-5085 and 33-12967).
2. On file (see SEC file numbers 811-5085 and 33-12967).
3. None.
4. On file (see SEC file numbers 811-5085 and 33-12967).
5. On file (see SEC file numbers 811-5085 and 33-12967).
6. On file (see SEC file numbers 811-5085 and 33-12967).
7. None.
8. On file (see SEC file numbers 811-5085 and 33-12967).
9. On file (see SEC file numbers 811-5085 and 33-12967).
10. Not applicable to this filing.
11. Consent of Independent Accountants.
12. None.
13. On file (see SEC file numbers 811-5085 and 33-12967).
14. On file (see SEC file numbers 811-5085 and 33-12967).
15. On file (see SEC file numbers 811-5085 and 33-12967).
16. On file (see SEC file numbers 811-5085 and 33-12967).
17. Financial data schedule (EDGAR).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of November 30, 1996.
<TABLE>
<CAPTION>
Number of
Title of Class Record-Holders
<S> <C>
Capital Stock 239,406
($.01 par value)
</TABLE>
ITEM 27. INDEMNIFICATION.
Registrant is a joint-insured under an Investment Advisor/Mutual Fund Errors
and Omissions Policies written by American International Surplus Lines
Insurance Company, Chubb Custom Insurance Company, and ICI Mutual Insurance
Company which insures its officers and directors against certain liabilities.
Article VIII of the Articles of Incorporation of the Fund provides that "The
Corporation shall indemnify (1) its directors to the full extent provided by
the general laws of the State of Maryland now or hereafter in force, including
the advance of expenses under the procedures provided by such laws; (2) its
officers to the same extent it shall indemnify its directors; and (3) its
officers who are not directors to such further extent as shall be authorized by
the Board of Directors and be consistent with law. The foregoing shall not
limit the authority of the Corporation to indemnify other employees and agents.
Any indemnification by the Corporation shall be consistent with the
requirements of law, including the Investment Company Act of 1940."
Subsection (b) of Section 2-418 of the General Corporation Law of Maryland
empowers a corporation to indemnify any person who was or is party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against reasonable expenses (including attorneys' fees), judgments, penalties,
fines and amounts paid in settlement actually incurred by him in connection
with such action, suit or proceeding unless it is established that: (i) the
act or omission of the person was material to the cause of action adjudicated
in the proceeding and was committed in bad faith or was the result of active
and deliberate dishonesty; or (ii) the person actually received an improper
personal benefit of money, property or services; or (iii) with respect to any
criminal action or proceeding, the person had reasonable cause to believe that
the act or omission was unlawful.
Indemnification under subsection (b) of Section 2-418 may not be made by a
corporation unless authorized for a specific proceeding after a determination
has been made that indemnification is permissible in the circumstances because
the party to be indemnified has met the standard of conduct set forth in
subsection (b). This determination shall be made (i) by the Board of Directors
by a majority vote of a quorum consisting of directors not, at the time,
parties to the proceeding, or, if such a quorum cannot be obtained, then by a
majority vote of a committee of the Board consisting solely of two or more
directors not, at the time, parties to such proceeding and who were duly
designated to act in the matter by a majority vote of the full Board in which
the designated directors who are parties may participate; (ii) by special legal
counsel selected by the Board of Directors of a committee of the Board by vote
as set forth in subparagraph (i), or, if the requisite quorum of the full Board
cannot be obtained therefor and the committee cannot be established, by a
majority vote of the full Board in which directors who are parties may
participate; or (iii) by the stockholders (except that shares held by any party
to the specific proceeding may not be voted). A court of appropriate
jurisdiction may also order indemnification if the court determines that a
person seeking indemnification is entitled to reimbursement under subsection
(b).
Section 2-418 further provides that indemnification provided for by Section
2-418 shall not be deemed exclusive of any rights to which the indemnified
party may be entitled; that the scope of indemnification extends to directors,
officers, employees or agents of a constituent corporation absorbed in a
consolidation or merger and persons serving in that capacity at the request of
the constituent corporation for another; and empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against and incurred by
such person in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such person
against such liabilities under Section 2-418.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
(A) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Income Series, The American Funds Tax-Exempt Series I, The American Funds
Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American
High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc.,
Capital World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The
Cash Management Trust of America, EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., The 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 Money Fund of America, The U.S. Treasury Money
Fund of America and Washington Mutual Investors Fund, Inc.
(B)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C> <C>
* David A. Abzug Regional Vice President None
5657 Lemona Avenue
Van Nuys, CA 91411
John A. Agar Regional Vice President None
1501 N. University Drive
Suite 227A
Little Rock, AR 72207
Robert B. Aprison Regional Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
% Richard Armstrong Assistant Vice President None
* William W. Bagnard Vice President None
Steven L. Barnes Senior Vice President None
8000 Town Line Avenue So.
Suite 204
Minneapolis, MN 55438
Michelle A. Bergeron Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Senior Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Regional Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President None
3100 West End Avenue
Suite 870
Nashville, TN 37215
Michael L. Brethower Vice President None
108 Hagen Court
Georgetown, TX 78628
C. Alan Brown Regional Vice President None
4619 McPherson Avenue
St. Louis, MO 63108
* Daniel C. Brown Senior Vice President None
@ J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MD 20895
Victor C. Cassato Vice President None
609 W. Littleton Blvd.
Suite 310
Littleton, CO 80121
Christopher J. Cassin Senior Vice President None
111 West Chicago Avenue
Suite G3
Hinsdale, IL 60521
Denise M. Cassin Regional Vice President None
1301 Stoney Creek Drive
San Ramon, CA 94538
* Larry P. Clemmensen Director and Treasurer Senior Vice President
* Kevin G. Clifford Director and None
Senior Vice President
Ruth M. Collier Vice President None
145 West 67th Street
Suite 12K
New York, NY 10023
Thomas E. Cournoyer Vice President None
2333 Granada Blvd.
Coral Gables, FL 33134
Douglas A. Critchell Vice President None
4116 Woodbine St.
Chevy Chase, MD 20815
* Carl D. Cutting Vice President None
Dan J. Delianedis Regional Vice President None
8689 Braxton Drive
Eden Prairie, MN 55347
Michael A. Dilella Vice President None
P.O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
505 East Main Street
Jenks, OK 74037
Kirk D. Dodge Vice President None
2617 Salisbury Road
Ann Arbor, MI 48103
Peter J. Doran Senior Vice President None
1205 Franklin Avenue
Garden City, NY 11530
* Michael J. Downer Secretary None
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
& Lloyd G. Edwards Vice President None
* Paul H. Fieberg Senior Vice President None
John Fodor Regional Vice President None
15 Latisquama Road
Southborough, MA 01772
* Mark P. Freeman, Jr. President and Director None
Clyde E. Gardner Senior Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
# Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Regional Vice President None
5898 Heather Glen Court
Dublin, OH 43017
* Paul G. Haaga, Jr. Director President and Director
David E. Harper Senior Vice President None
R.D. 1, Box 210, Rte. 519
Frenchtown, NJ 08825
Ronald R. Hulsey Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33483
* Robert L. Johansen Vice President and Controller None
Michael J. Johnston Chairman of the Board None
630 Fifth Ave., 36th Fl.
New York, NY 10111-0121
V. John Kriss Senior Vice President None
P.O. Box 274
Surfside, CA 90743
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
# Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
12585-E E.Tennessee Circle
Aurora, CO 80012
* Lorin E. Liesy Assistant Vice President None
* Susan G. Lindgren Vice President - Institutional None
Investment Services Division
% Stella Lopez Vice President None
Stephen A. Malbasa Regional Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Senior Vice President None
5241 South Race Street
Littleton, CO 80121
* John C. Massar Director and None
Senior Vice President
* E. Lee McClennahan Senior Vice President None
Laurie B. McCurdy Regional Vice President None
3500 West Camino de
Urania
Tucson, AZ 85741
% John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
* R. William Melinat Vice President - Institutional None
Investment Services Division
David R. Murray Vice President None
25701 S.E. 32nd Place
Issaquah, WA 98027
Stephen S. Nelson Vice President None
7215 Trevor Road
Charlotte, NC 28226
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhus Regional Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President None
62 Park Drive
Glenview, IL 60025
Frederic Phillips Vice President None
32 Ridge Avenue
Newton Centre, MA 02159
# Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, SE
Mercer Island, WA 98040
* John O. Post, Jr. Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Regional Vice President None
12025 Delmahoy
Charlotte, NC 28277
George S. Ross Vice President None
55 Madison Avenue
Morristown, NJ 07960
* Julie D. Roth Vice President None
* James F. Rothenberg Director None
Douglas F. Rowe Regional Vice President None
30309 Oak Tree Drive
Georgetown, TX 78628
Christopher Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30202
Richard R. Samson Vice President None
4604 Glencoe, Ave., No. 4
Marina del Rey, CA 90292
Joseph D. Scarpitti Regional Vice President None
31465 St. Andrews
Westlake, OH 44145
* Daniel B. Seivert Assistant Vice President None
* R. Michael Shanahan Director None
David W. Short Director and None
Suite 212 Senior Vice President
1000 RIDC Plaza
Pittsburgh, PA 15238-2941
* Victor S. Sidhu Vice President - Institutional None
Investment Services Division
William P. Simon, Jr. Vice President None
554 Canterbury Lane
Berwyn, PA 19312
* John C. Smith Assistant Vice President - None
Institutional Investment
Services Division
* Mary E. Smith Assistant Vice President - None
Institutional Investment
Services Division
Rodney G. Smith Regional Vice President None
2350 Lakeside Blvd., #850
Richardson, TX 75082
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
Daniel S. Spradling Senior Vice President None
#4 West Fourth Ave.
Suite 406
San Mateo, CA 94402
Thomas A. Stout Regional Vice President None
12913 Kendale Lane
Bowie, MD 20715
Craig R. Strauser Regional Vice President None
17040 Summer Place
Lake Oswego, OR 97035
Francis N. Strazzeri Regional Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
* Drew Taylor Assistant Vice President None
% James P. Toomey Assistant Vice President None
& Christopher E. Trede Assistant Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President None
606 Glenwood Avenue
Mill Valley, CA 94941
* David M. Ward Assistant Vice President - None
Institutional Investment Services
Division
Thomas E. Warren Regional Vice President None
4001 Crockers Lake Blvd.
#1012
Sarasota, FL 34242
* J. Kelly Webb Senior Vice President None
Gregory J. Weimer Vice President None
125 Surrey Drive
Canonsburg, PA 15317
# Timothy W. Weiss Director None
** N. Dexter Williams Vice President None
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
# Laura L. Wimberly Assistant Vice President None
@ Marshall D. Wingo Senior Vice President None
* Robert L. Winston Director and None
Senior Vice President
William R. Yost Regional Vice President None
9320 Overlook Trail
Eden Prairie, MN 55437
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President None
209 Robinson Drive
Tustin Ranch, CA 92782
</TABLE>
* Business Address, 333 South Hope Street, Los Angeles, CA 90071
** Business Address, One Market Plaza, Steuart Towers, Suite 1800, San
Francisco, CA 94111
# Business Address, 135 South State College Blvd., Brea, CA 92821
% Business Address, 8000 IH-10, Suite 1400, San Antonio, TX 78230
@ Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
& Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(C) NONE.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, are maintained and kept in the offices of the
Fund and its investment adviser, Capital Research and Management Company, 333
South Hope Street, Los Angeles, CA 90071. Certain accounting records are
maintained and kept in the offices of the Fund's accounting department, 135
South State College Blvd., Brea, CA 92821.
Records covering shareholder accounts are maintained and kept by the Transfer
Agent, American Funds Service Company, 135 South State College Blvd., Brea, CA
92821, 8000 IH-10, Suite 1400, San Antonio, TX 78230, 5300 Robin Hood Road,
Norfolk, VA 23513 and 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240.
Records covering portfolio transactions are also maintained and kept by the
Custodian, The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New York,
New York, 10081.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
As reflected in the prospectus, the fund undertakes to provide each person to
whom a prospectus is delivered with a copy of the fund's latest annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, and State of California, on the 23rd
day of December, 1996.
CAPITAL INCOME BUILDER, INC.
By /s/Paul G. Haaga, Jr.
Paul G. Haaga, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
Registration Statement has been signed below on December 23, 1996, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
(1) Principal Executive Officer:
/s/Jon B. Lovelace Chairman of the Board
(Jon B. Lovelace)
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/R. Marcia Gould Treasurer
(R. Marica Gould)
(3) Directors:
H. Frederick Christie* Director
/s/Paul G. Haaga, Jr. Director
(Paul G. Haaga, Jr.)
Mary Myers Kauppila Director
/s/ Jon B. Lovelace Director
(Jon B. Lovelace)
Gail L. Neale* Director
Robert J. O'Neill Director
Donald E. Petersen* Director
Frank Stanton* Director
Charles Wolf, Jr.* Director
</TABLE>
*By /s/Vincent P. Corti
Vincent P. Corti, Attorney-in-Fact
Counsel reports that the amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of Rule
485(a).
/s/Michele Y. Yang
(Michele Y. Yang)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
and Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 11 to the
registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 27, 1996, relating to the financial statements and per share data
and
ratios appearing in the October 31, 1996 Annual Report of Capital Income
Builder, Inc., which is also incoporated by reference into the Registration
Statement. We
also consent to the references to us under the heading "Financial Highlights"
in the Prospectus and under the headings "Independent Accountants"
and "Reports to Shareholders" in the Statement of
Additional Information.
PRICE WATERHOUSE LLP
Los Angeles, California
December 23, 1996
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