[THE AMERICAN FUNDS GROUP (R)]
CAPITAL INCOME BUILDER
ANNUAL REPORT 1997
FOR THE YEAR ENDED OCTOBER 31
Capital Income Builder's goal is to provide a growing dividend - with higher
income distributions every quarter as far as possible - together with a current
yield which exceeds that paid by U.S. stocks generally.
[Capital Income Builder logo]
10 YEARS OF GROWING DIVIDENDS
<PAGE>
[Capital Income Builder logo]
Capital Income Builder (R) came into being on July 30, 1987 to help meet the
goals of investors seeking above-average and growing income with reduced risk
in declining market periods and reasonable participation in rising markets. The
fund has met these goals.
Over the fund's lifetime, CIB's dividend yield has averaged more than two full
percentage points above that of the unmanaged Standard & Poor's 500 Stock
Composite Index.
If you reinvested all the capital gain distributions, as most shareholders do,
the December 1997 dividend would be 80% higher than the first full-quarter
dividend in December 1987. CIB's increase in dividend income has far outpaced
the 40% gain in the Consumer Price Index during the period.
CIB's Equity Holdings Showing Largest Industries by Country or Region
<TABLE>
CIB's Equity Holdings Showing Largest Industries by Country or Region
As of 10/31/97
<S> <C> <C> <C> <C> <C>
Europe Europe
U.S. U.K. Continental Canada Australia
Banking 14.20% 1.20% 0.21% 2.43% 1.02%
Telecommunications 2.42 4.56
Utilities:
Electric & Gas 3.43 2.22 .04
Business &
Public Services .64 4.39 .16
Real Estate 4.68
Five Largest Industries 11.31 6.62 4.93 .02 .05
Other Industries 17.62 2.74 .97 .37 1.26
Total Equities 42.99% 10.55% 5.90% 2.80% 2.32%
Hong New South
Kong Zealand America Total
Banking 0.31% .19
Telecommunications .78 1.62% 0.27% 6.98
Utilities:
Electric & Gas .48 5.69
Business &
Public Services .17 5.19
Real Estate 4.68
Five Largest Industries 1.43 .02 .0 22.94
Other Industries .18 - .05 22.96
Total Equities 1.92% 1.62% 0.32% 47.58%
</TABLE>
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended September 30, 1997
(the most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods - 10 years: +241.83%, or +13.08%
a year; 5 years: +87.80%, or +13.43% a year; 12 months: +22.25%. Sales charges
are lower for accounts of $50,000 or more. The fund's 30-day yield as of
November 30, 1997, calculated in accordance with the Securities and Exchange
Commission formula, was 3.50%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
FELLOW INVESTORS:
October 31, 1997 was a special occasion for Capital Income Builder. It marked
the completion not only of the fund's latest fiscal year but also of ten full
fiscal years of operations.
When CIB was started in July 1987, we set deliberately specific goals for the
fund: to provide above-average and growing income for shareholders.
We are pleased to say that these goals have been achieved for the latest fiscal
year and for the fund's 10-1/4 years of operations.
When Capital Income Builder came into being, we believed that if the fund's
clear income goals could be accomplished, other benefits to shareholders would
follow: Investors would be protected from inflation; CIB's portfolio of
dividend-producing stocks and bonds should be more resilient in stock market
declines than stocks generally; and the fund would produce substantial
long-term capital appreciation. In the fund's lifetime, CIB investors have
realized these benefits.
As the fund passes its 10-year mark, we are devoting this report to examining
in detail the goals of Capital Income Builder and how they have been met. On
pages 10 and 11, we highlight some of the key people who have contributed to
CIB's accomplishments.
[Begin line chart]
Dividends for CIB and the S&P 500 Index
(based on trailing 12-month periods)
[Y-AXIS: CIB MOVING 12-MONTH DIVIDEND PAID ($ PER SHARE)]
[Y-AXIS: S&P 500 MOVING 12-MONTH DIVIDEND]
<TABLE>
<CAPTION>
CIB with capital
Month S&P 500 CIB gains reinvested
<S> <C> <C> <C>
Sept. 1988 9.46 1.15
Dec. 1988 9.73 1.17
Mar. 1989 9.98 1.19
June 1989 10.30 1.21
Sept. 1989 10.67 1.23
Dec. 1989 11.05 1.255
Mar. 1990 11.32 1.28
June 1990 11.67 1.305
Sept. 1990 11.84 1.33
Dec. 1990 12.10 1.35
Mar. 1991 12.12 1.37
June 1991 12.15 1.39
Sept. 1991 12.28 1.41
Dec. 1991 12.20 1.43
Mar. 1992 12.32 1.45 1.453
June 1992 12.32 1.47 1.476
Sept. 1992 12.39 1.49 1.499
Dec. 1992 12.38 1.51 1.522
Mar. 1993 12.48 1.53 1.544
June 1993 12.52 1.55 1.566
Sept. 1993 12.52 1.57 1.588
Dec. 1993 12.58 1.59 1.610
Mar. 1994 12.71 1.61 1.631
June 1994 12.84 1.63 1.652
Sept. 1994 12.93 1.65 1.673
Dec. 1994 13.18 1.67 1.694
Mar. 1995 13.18 1.69 1.716
June 1995 13.37 1.71 1.738
Sept. 1995 13.58 1.73 1.760
Dec. 1995 13.79 1.75 1.782
Mar. 1996 14.10 1.77 1.808
June 1996 14.27 1.79 1.835
Sept. 1996 14.66 1.81 1.862
Dec. 1996 14.90 1.83 1.889
Mar. 1997 15.06 1.845 1.914
June 1997 15.16 1.86 1.938
Sept. 1997 15.33 1.875 1.962
Dec. 1997 1.89 1.986
[End line chart]
GROWTH OF INCOME
The title on the cover, "10 Years of Growing Dividends," sums up the essence of
Capital Income Builder - growth of income. We have never wavered from this
goal. In December 1997, CIB's dividend was raised to 48 cents per share. For
shareholders who reinvested their capital gain distributions, this continued
the fund's record of increasing income distributions for every quarter of its
lifetime. It was the 41st consecutive quarterly income increase for these
investors.
The per-share December dividend of 48 cents is 3.2% higher than a year ago and
71% higher than the first full-quarter payment of 28 cents in December 1987. If
you reinvested all the capital gain distributions, as most shareholders do, the
December dividend would be 5.0% higher than a year ago. It would also be 80%
higher than the first full-quarter dividend in December 1987, far outpacing the
40% gain in the Consumer Price Index during the period.
In December, you are also receiving a capital gain distribution of $1.61 per
share. These capital gains resulted from portfolio changes over the past fiscal
year as the rise in stock and bond prices continued. As you may know, the new
tax law created several new rates and holding periods for capital gains
applicable to the current calendar year. We estimate that about 66% of the
distribution would be taxed at a maximum rate of 28% and the remainder would be
taxed at a maximum 20% tax rate. We were able to avoid any net short-term gains
for CIB.
[Begin sidebar]
THE CHART ON THESE PAGES ILLUSTRATES THE CIB STORY. THE BARS SHOW THE STEADY
INCREASE OF DIVIDENDS. THE TABS ABOVE THE BARS SHOW THE IMPORTANT CONTRIBUTION
OF REINVESTED CAPITAL GAIN DISTRIBUTIONS. THE SINGLE LINE SHOWS THE RISE OF
INFLATION OVER THE PERIOD.
[End sidebar]
[begin bar chart]
CIB'S QUARTERLY DIVIDENDS COMPARED WITH INFLATION
(cents per share)
(Index: December 1987 = 100)
</TABLE>
<TABLE>
<CAPTION>
Additional income earned
on initial shares if the
capital gain distributions Inflation=
paid in December 1991, 1992, Consumer Price
1993, 1994, 1995 and 1996 were Index (through
Fiscal Quarters Dividend reinvested September 1997)
<S> <C> <C> <C>
4 Aug-Oct 1987 22* - -
1 Nov-Jan 1988 28 - 100
2 Feb-Apr 1988 28.5 - 101
3 May-Jul 1988 29 - 102.3
4 Aug-Oct 1988 29.5 - 103.8
1 Nov-Jan 1989 30 - 104.4
2 Feb-Apr 1989 30.5 - 106
3 May-Jul 1989 31 - 107.5
4 Aug-Oct 1989 31.5 - 108.3
1 Nov-Jan 1990 32.5 - 109.3
2 Feb-Apr 1990 33 - 111.5
3 May-Jul 1990 33.5 - 112.6
4 Aug-Oct 1990 34 - 115
1 Nov-Jan 1991 34.5 - 115.9
2 Feb-Apr 1991 35 - 117
3 May-Jul 1991 35.5 - 117.9
4 Aug-Oct 1991 36 - 118.9
1 Nov-Jan 1992 36.5 - 119.5
2 Feb-Apr 1992 37 .3 120.7
3 May-Jul 1992 37.5 .3 121.5
4 Aug-Oct 1992 38 .3 122.4
1 Nov-Jan 1993 38.5 .3 123
2 Feb-Apr 1993 39 .5 124.4
3 May-Jul 1993 39.5 .5 125.1
4 Aug-Oct 1993 40 .5 125.7
1 Nov-Jan 1994 40.5 .5 126.3
2 Feb-Apr 1994 41 .6 127.6
3 May-Jul 1994 41.5 .6 128.2
4 Aug-Oct 1994 42 .6 129.5
1 Nov-Jan 1995 42.5 .6 129.7
2 Feb-Apr 1995 43 .8 131.2
3 May-Jul 1995 43.5 .8 132.1
4 Aug-Oct 1995 44 .8 132.8
1 Nov-Jan 1996 44.5 .8 133
2 Feb-Apr 1996 45 1.4 134.9
3 May-Jul 1996 45.5 1.5 135.8
4 Aug-Oct 1996 46 1.5 136.7
1 Nov-Jan 1997 46.5 1.5
2 Feb-Apr 1997 46.5 1.6 137.4
3 May-Jul 1997 47.0 2.4 138.9
4 Aug-Oct 1997 47.5 2.4 139.7
1 Nov-Jan 1998 48.0 2.4
</TABLE>
Fiscal Quarters: 1 Nov-Jan 2 Feb-Apr 3 May-Jul 4 Aug-Oct
* After less than a full quarter of operations
[end bar chart]
*After less than a full quarter of operations
As we have mentioned previously, we cannot promise that Capital Income Builder
will raise the dividend every quarter without exception, but long-term dividend
growth remains one of our central goals. To the best of our knowledge, CIB is
still the only fund with the goals of above-average and growing income, and the
only fund with a record of such steady dividend growth.
ABOVE-AVERAGE CURRENT INCOME
In an environment where dividend yields are at all-time lows, CIB continues to
provide significant current income, as shown in the chart at the top of page 4.
At October 31, 1997, the fund's annual dividend rate was 4.1% of net asset
value - more than twice the historically low 1.7% annual dividend yield of the
unmanaged Standard & Poor's 500 Stock Composite Index.
[begin line chart]
CIB's Annual Dividend Rate over its Lifetime
Compared with the average of equity-income funds and Standard & Poor's 500
Stock Composite Index
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Month CIB Equity-Income Funds S&P
Oct. 31, 1988 6.17% 4.71% 3.29%
Oct. 31, 1989 5.14 5.38 3.21
Oct. 31, 1990 5.60 6.07 3.91
Oct. 31, 1991 5.07 4.40 3.09
Oct. 31, 1992 4.67 3.75 2.95
Oct. 31, 1993 4.92 2.97 2.68
Oct. 31, 1994 5.04 2.98 2.76
Oct. 31, 1995 4.77 2.78 2.35
Oct. 31, 1996 4.53 2.11 2.10
Oct. 31, 1997 4.20 1.81 1.68
</TABLE>
All numbers calculated by Lipper Analytical Services.
The 12-month dividend rate is calculated by taking the total of the trailing 12
months' dividends and dividing by the month-end net asset value adjusted for
capital gains.
[end line chart]
In addition, Capital Income Builder's dividend yield was more than twice the
1.8% average yield of the 174 equity-income funds and over six times the 0.6%
average of the 2,518 general equity funds in existence for the 12 months ended
October 31, 1997, according to Lipper Analytical Services.
Over the fund's lifetime, CIB's dividend yield has averaged more than two full
percentage points higher than that of the S&P 500. The level of current income
has ranged between 4% and 6% depending on the general level of interest rates
and stock market yields.
From January 1, 1988 (CIB's first regular dividend was paid in December 1987)
through October 31, 1997, CIB's average annual dividend yield was 5.0%,
compared with an average annual yield of 2.8% for the S&P 500. It also clearly
outpaced the average annual yields of 3.8% for equity-income funds in existence
throughout that period and 1.6% for general equity funds, according to Lipper.
In recent years, it has been a challenge to provide above-average and growing
income in a low-yield market. Capital Income Builder has been able to achieve
these goals by carefully selecting a mix of companies, since no one type is
likely to satisfy our quest for both objectives. Income provided by the fund's
ownership of bonds and high-yielding, slower growing stocks enables CIB to
invest in other lower-current-income stocks with considerable growth potential.
Generally, CIB has invested in three types of companies:
1. Companies providing high current income but not necessarily any dividend
growth;
2. Companies with substantially above-average yields and average dividend
growth;
3. Companies with average yields but with prospects for rapid dividend growth
in the future.
RESILIENCE IN STOCK MARKET DECLINES
Capital Income Builder has consistently held up better in stock market declines
than the S&P 500. Here is a comparison of how CIB and the S&P 500 reacted to
the two significant down markets since the fund began:
In the period August 25 to December 4, 1987, which included the severe market
break of October 19, the S&P 500 declined 33.5%. CIB's net asset value was down
only 11.2%.
In the decline of July 16 to October 11, 1990 at the time of the Gulf War, the
S&P 500 was down 19.9%, while CIB's net asset value declined only 9.6%.
Since October 1990, the broad market had gone up for nearly seven full years
without a decline of as much as 10%. Then, in the last month of CIB's fiscal
year, that situation changed. After a largely upward fiscal year, encouraged by
strong corporate earnings growth and low interest rates, stocks, as measured by
the S&P 500, declined 10.8% from October 7 to October 27.
CIB's net asset value, in contrast, declined only half as much - 5.4% - during
those same 20 days. On Monday, October 27, the S&P 500 fell 6.9%; CIB declined
only 2.5%. The worldwide decline in stocks during this period was triggered by
financial unrest in Southeast Asia. In the U.S. it was exacerbated by the high
price level of stocks.
To help meet its above-average income goal, CIB often has a significant
investment in fixed-income securities. At October 31, 1997, CIB had 68.4% of
its assets in equities, 19.3% in bonds and notes, and 12.3% in short-term
fixed-income instruments and cash.
As we have noted, CIB invests in companies with above-average yields. In severe
declines, these above-average yields have acted as a cushion to help support
stock prices.
LONG-TERM CAPITAL APPRECIATION
CIB's focus on dividend growth, we believe, leads over time to capital
appreciation - another important goal for investors. Companies which can
produce a steadily growing stream of dividend payments usually do so because
they have achieved significant improvements in net income. Sooner or later, we
believe, the combination of superior earnings and dividend growth should lead
as well to a stock price that is superior to the market.
[begin bar chart]
CIB's Results Compared with General Equity Mutual Funds
For the period 7/31/87 to 10/31/97
General Equity Funds +244.16%
CIB +266.68%
*Average for 475 general equity mutual funds
Total return as calculated by Lipper Analytical Services
Results do not reflect the effects of sales charges.
[end bar chart]
In the fiscal year just ended, Capital Income Builder participated in the
upward stock market. The fund had a total return of 23.2%, a strong result over
a single year for a fund with CIB's conservative goals and balanced portfolio.
Capital appreciation accounted for 19.1% of the total return.
However, CIB did not keep up with the remarkable 32.1% total return of the S&P
500 (including capital appreciation of 29.7%) for the same period. This is the
seventh year of an extraordinary stock market rise which began late in 1990,
the end of the last major market decline. Over that period, the stock market,
as measured by the S&P 500, has increased more than threefold. The October high
for the S&P 500 was 3.3 times the low seven years earlier. This uninterrupted
market rise is the longest this century. In the past 40 years, a 15% or greater
stock market correction has occurred on average every four years.
Over its lifetime, Capital Income Builder's total return has outpaced that of
most general equity mutual funds. For the period July 31, 1987 through October
31, 1997, CIB had a cumulative total return of 266.7%, compared with 244.2% for
the average of 475 general equity mutual funds, as calculated by Lipper
Analytical Services.
[begin line chart]
TOTAL RETURN RESULTS OF A $10,000 INVESTMENT IN CIB* COMPARED WITH THE S&P 500+
(with all dividends and distributions reinvested)
<TABLE>
<CAPTION>
Date CIB S&P 500
<S> <C> <C>
July 30, 1987 $9,425 $10,000
October 31, 1987 8,929 7,970
October 31, 1988 10,029 9,163
October 31, 1989 11,689 11,573
October 31, 1990 11,502 10,701
October 31, 1991 14,858 14,283
October 31, 1992 16,893 15,711
October 31, 1993 19,897 18,052
October 31, 1994 19,936 18,739
October 31, 1995 23,367 23,692
October 31, 1996 27,200 29,386
October 31, 1997 33,748 38,821
</TABLE>
*Reflects payment of the maximum sales charge of 5.75%. Sales charges are lower
for accounts of $50,000 or more.
+The Standard & Poor's 500 Index is unmanaged and does not reflect sales
charges, commissions or expenses.
Past results are not predictive of future results.
[end line chart]
TOTAL RETURN RESULTS*
Based on a $1,000 investment for periods ended October 31, 1997
(with all dividends and distributions reinvested)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ending Total Annualized
Balance Return Return
One year from 11/1/96 $1,161 16.09 -
Two years from 11/1/95 1,355 35.50 16.41
Three years from 11/1/94 1,585 58.50 16.59
Four years from 11/1/93 1,593 59.26 12.34
Five years from 11/1/92 1,872 87.23 13.36
Six years from 11/1/91 2,124 112.43 13.38
Seven years from 11/1/90 2,746 174.55 15.52
Eight years from 11/1/89 2,700 169.97 13.22
Nine years from 11/1/88 3,151 215.15 13.60
Ten years from 11/1/87 3,539 253.88 13.47
Lifetime from 7/30/87 3,375 237.51 12.59
</TABLE>
*Reflects payment of the maximum sales charge of 5.75%.
Largest Individual Equity Holdings Percent of Net Assets
American Home Products 2.39%
United Utilities 2.03
CoreStates Financial 1.96
Banc One 1.64
Telecom Corp. of New Zealand 1.62
Thames Water 1.47
Philip Morris 1.47
Telefonica de Espana 1.34
Central Fidelity Banks 1.31
Portugal Telecom 1.28
A LOOK AT CIB'S LARGEST INDUSTRIES
In fiscal 1997, the fund benefited in particular from a number of equity
holdings in U.S. banks and U.S. and global telecommunications companies.
For the third consecutive year, BANKING (19.4% of net assets at fiscal
year-end, down from 21.7% a year ago) has been the largest industry holding for
Capital Income Builder. This group has been an ideal area for investment in
line with Capital Income Builder's objectives, in that all of the holdings have
provided above-average income compared with the broad stock market. There has
been a pattern of regular dividend increases, and in fiscal 1997 the banking
stocks recorded a remarkably favorable level of market appreciation.
The 1996 annual report showed 26 companies held in the banking industry. Of
these, 14 remained in the portfolio throughout fiscal 1997 with no change in
the share holdings through purchases or sales.
In the 12 months ended October 31, 1997, the S&P 500 went up 29.7% in price.
The 14 bank stocks held without change throughout the year increased 45.7% in
aggregate market value. Individual percentage gains for these 14 are shown in
the following table:
CIB's Bank Holdings
<TABLE>
<CAPTION>
<S> <C>
Central Fidelity Banks +83.3
Royal Bank of Canada 61.7
Barclays (U.K.) 59.6
AmSouth 55.5
Huntington Bancshares 48.1
Wilmington Trust 47.7
Old Kent Financial 46.9
First Chicago 42.6
National City 37.8
Keystone Financial 32.2
KeyCorp 31.2
S&P 500 Stock Composite Index 29.7
J.P. Morgan 27.1
First Hawaiian 25.8
Banc One 23.0
</TABLE>
TELECOMMUNICATIONS (9.7% of net assets at fiscal year-end, down from 10.4% a
year ago) was another industry of continuing interest, both in the U.S. and
around the world. The trend toward privatization, mergers and partnerships
between leading companies persisted this past year. As a result of the
privatization trend, our ability to invest in telecommunications around the
world has become extensive. In addition to the U.S., we now have investments in
telecommunications companies in New Zealand, Spain, Portugal, Italy, the
Netherlands, Hong Kong and Argentina.
Three of our non-U.S. investments did particularly well in the recent period.
They are Portugal Telecom (which showed a price gain of 57.5%), Telecom Italia
(up 51.0%) and Telefonica de Espana (up 36.0%). Telefonica de Espana and
Portugal Telecom, first purchased in the 1996 fiscal year, are among CIB's ten
largest individual holdings.
CIB'S NET ASSET GROWTH
[begin bar chart]
CIB's Net Assets
Annually at October 31 (in $ millions)
<TABLE>
<CAPTION>
CIB's
Net
Year Assets
<S> <C>
October 1987 53.269
October 1988 125.950
October 1989 194.866
October 1990 206.320
October 1991 563.039
October 1992 1,203.329
October 1993 2,826.097
October 1994 3,628.536
October 1995 4,533.356
October 1996 5,417.713
October 1997 7,301.326
</TABLE>
[end bar chart]
10 YEARS OF GROWING DIVIDENDS
CIB came into being on July 30, 1987 to meet the goals of investors seeking
above-average and growing income, resilience of capital in declining markets
and long-term capital appreciation.
Because we have adhered to these goals, Capital Income Builder has grown to
$7.3 billion in net assets over its lifetime.
We believe that CIB will continue to provide rewarding long-term results in all
kinds of markets in the future, and we thank you, our fellow shareholders, for
your support over the past decade.
/s/ Jon B. Lovelace
Jon B. Lovelace
Chairman of the Board
/s/ Paul G. Haaga, Jr.
Paul G. Haaga, Jr.
President of the Fund
December 18, 1997
[Begin sidebar]
AS CAPITAL INCOME BUILDER ENTERS ITS SECOND DECADE, THE FUND'S BOARD OF
DIRECTORS HAS APPROVED AND AUTHORIZED THE FOLLOWING MANAGEMENT CHANGES
EFFECTIVE JANUARY 2, 1998: PAUL G. HAAGA, JR., CURRENTLY PRESIDENT OF THE FUND,
WILL BECOME CHAIRMAN OF THE BOARD. JAMES B. LOVELACE, CURRENTLY EXECUTIVE VICE
PRESIDENT, HAS BEEN ELECTED PRESIDENT AND DIRECTOR. JON B. LOVELACE, CURRENTLY
CHAIRMAN OF THE BOARD, WILL BECOME VICE CHAIRMAN.
[End sidebar]
All of the individuals shown on these two pages have played a major role in
Capital Income Builder's success over the past 10-1/4 years. We are pleased to
show you their photos and tell you something about them. As you will notice,
they are located in various offices of CIB's investment adviser, Capital
Research and Management Company (CRMC). In addition, each has many years of
service with Capital.
Shown at the left are the six primary portfolio counselors for Capital Income
Builder. At far left: Jon Lovelace (located in Los Angeles, with 46 years at
Capital), Chairman and a Director since CIB's inception, will be retiring as
Chairman at the end of 1997 but will continue as an equity manager and Vice
Chairman. Equity managers Janet McKinley (New York, 16) and Jim Lovelace (Los
Angeles, 16) serve as Senior Vice President and Executive Vice President of the
fund, respectively, and hold officer responsibilities in other funds managed by
CRMC.
[Photos: Jon B. Lovelace, William R. Grimsley, Janet A. McKinley, Thierry
Vandeventer, James B. Lovelace, Abner D. Goldstine]
At the near left: Equity managers Bill Grimsley (San Francisco, 28 years) and
Thierry Vandeventer (Geneva, 35), and fixed-income manager Abner Goldstine (Los
Angeles, 30), though not officers of Capital Income Builder, have Chairman
and/or President responsibilities in other funds managed by CRMC.
Pictured on this page are three of Capital Income Builder's senior
administrative officers and three of the fund's senior investment research
associates who have significant responsibilities within the research portfolio
portion of CIB.
[Photos: Paul G. Haaga, Jr., Joyce E. Gordon, Catherine M. Ward, Darcy B.
Kopcho, Larry P. Clemmensen, Steven T. Watson]
The senior administrative officers pictured at near right are all located in
Los Angeles. Paul Haaga (12 years of service), President and a Director of the
fund, manages the legal, compliance and fund administration areas of CRMC.
Catherine Ward (28), a Senior Vice President of the fund, has a broad range of
responsibilities in investment administration. Larry Clemmensen (12) is a
Senior Vice President of CIB and has been involved in financial and
administrative areas of the fund since inception.
The three research associates shown at far right are all Vice Presidents of the
fund. Joyce Gordon (Los Angeles, 22) specializes in the banking industry, which
has had a major role in Capital Income Builder's investment results. Darcy
Kopcho (Los Angeles, 11) provides investment research coverage for the global
automobile and oil service industries and oversees the fund's research
portfolio in which analysts have portfolio responsibility for stocks in the
industries they cover. Steve Watson (London, 8) has been responsible for
Capital Income Builder's successful investments over the years in electricity
and water companies in the United Kingdom.
<TABLE>
CAPITAL INCOME BUILDER
Investment Portfolio October 31, 1997
<S> <C> <C> <C>
Percent of
Largest Individual Holdings Net Assets
- -------------------------------------------------- --------------
American Home Products 2.39%
United Utilities
CoreStates Financial
Banc One
Telecom Corp. of New Zealand 1.62
Thames Water 1.47
Philip Morris 1.47
Telefonica de Espana
Central Fidelity Banks 1.31
Portugal Telecom 1.28
Equity Securities Shares or Market Percent
Principal Value of Net
Energy Amount (Millions) Assets
- ---------------------------------------------- ----------------------------------------------
Energy Sources - 3.57%
Amoco Corp. 930,000 $ 85.269 1.17 %
Atlantic Richfield Co. 300000 24.694 .33
CalEnergy Capital Trust II, 6.25% convertible preferred
shares 130000 6.760 .09
Chevron Corp. 800000 66.350 .91
Phillips Petroleum Co. 650000 31.444 .43
Royal Dutch Petroleum Co. (New York Registered
Shares) 880000 46.310 .64
- ---------------------------------------------- ----------------------------------------------
Utilities: Electric & Gas - 6.17%
Australian Gas Light Co. 372662 2.491 .04
Central and South West Corp. 1650000 35.578 .49
DPL Inc. 500000 12.406 .17
DTE Energy Co. 450000 13.838 .19
GPU, Inc. 850000 30.759 .42
Hongkong Electric Holdings Ltd. 10,231,500 34.679 .48
KeySpan Energy Corp. (formerly Brooklyn Union Gas Co.) 200,000 6.213 .09
Long Island Lighting Co. 2125000 53.523 .73
National Grid Group PLC 3431000 16.159 .22
National Power PLC 4405000 36.692 .50
NIPSCO Industries, Inc. 300000 13.181 .18
PECO Energy Co. 97900 2.221 .03
PowerGen PLC 1600000 17.779 .24
Southern Electric PLC 12000000 92.314 1.26
Williams Companies, Inc. 1617900 82.412 1.13
----------------------------------------------
711.072 9.74
-----------------------------
Materials
- ---------------------------------------------- ----------------------------------------------
Chemicals - 0.11%
E.I. du Pont de Nemours and Co. 120000 6.825 .09
ICI Australia Ltd. (1) 218827 1.647 .02
- ---------------------------------------------- ----------------------------------------------
Forest Products & Paper - 0.95%
Fort James Corp. (formerly James River Corp. of Virginia) 345225 13.701 .19
Potlatch Corp. 485500 24.214 .33
Rayonier Inc. 90600 3.958 .06
Union Camp Corp. 500000 27.094 .37
----------------------------------------------
Metals: Nonferrous - 0.34%
Aluminum Co. of America 190000 13.870 .19
USX Corp., DECS convertible preferred 500000 11.313 .15
- ---------------------------------------------- ----------------------------------------------
102.622 1.40
-----------------------------
Capital Equipment
- ---------------------------------------------- ----------------------------------------------
Industrial Components - 0.28%
Tomkins PLC 4000000 20.514 .28
- ---------------------------------------------- ----------------------------------------------
20.514 .28
-----------------------------
Consumer Goods
- ---------------------------------------------- ----------------------------------------------
Automobiles - 1.57%
Chrysler Corp. 1,065,000 37.541 .52
Ford Motor Co., Class A 1750000 76.453 1.05
- ---------------------------------------------- ----------------------------------------------
Beverages & Tobacco - 2.89%
Foster's Brewing Group Ltd. 16,000,000 30.395 .42
Gallaher Group PLC 2,300,000 11.044 .15
Philip Morris Companies Inc. 2,715,000 107.582 1.47
RJR Nabisco Holdings Corp. 700,000 22.181 .30
UST Inc. 1,350,000 40.416 .55
- ---------------------------------------------- ----------------------------------------------
Health & Personal Care - 2.87%
American Home Products Corp. 2,350,000 174.194 2.39
Bristol-Myers Squibb Co. 400000 35.100 .48
-----------------------------
534.906 7.33
-----------------------------
Services
- ---------------------------------------------- ----------------------------------------------
Broadcasting & Publishing - 0.69%
Golden Books Family Entertainment, Inc., 8.75% convertible
TOPrS (1) 100000 5.225 .07
Houston Industries Inc., 7.00% ACES convertible preferred 340000 18.615 .25
Reader's Digest Assn., Inc., Class A 150000 3.413 .05
Time Warner Inc., 10.25% preferred, Series M 4,349 4.980 .07
West Australian Newspapers Holdings Ltd. 4,165,000 18.609 .25
- ---------------------------------------------- ----------------------------------------------
Business & Public Services - 5.36%
American Water Works Co., Inc. 1850000 41.856 .57
Autopistas del Mare Nostrum, SA Concesionaria del Estado 750000 11.739 .16
Consumers Water Co. 300000 5.475 .07
Hutchison Delta Finance Ltd., 7.00% convertible
debentures 2002 (1) $11,000,000 12.386 .17
Hyder PLC 4300000 64.825 .89
Thames Water PLC 7100000 107.691 1.47
United Utilities PLC 12141809 148.247 2.03
- ---------------------------------------------- ----------------------------------------------
Leisure & Tourism - 0.35%
Host Marriott Financial Trust, 6.75% QUIPS convertible
preferred 2026 (1) 400000 25.700 .35
- ---------------------------------------------- ----------------------------------------------
Merchandising - 0.64%
J.C. Penney Co., Inc. 800000 46.950 .64
- ---------------------------------------------- ----------------------------------------------
Telecommunications - 9.65%
Ameritech Corp. 1,376,300 89.460 1.23
Hong Kong Telecommunications Ltd. 6572887 12.585
Hong Kong Telecommunications Ltd. (American .78
Depositary Receipts) 2,323,004 44.573
Koninklijke PTT Nederland NV 1,778,900 67.818 .93
Portugal Telecom, SA 2,286,000 93.633 1.28
SBC Communications Inc. 914,312 58.173 .80
Telecom Argentina SA (American Depositary Receipts) 784,800 19.865 .27
Telecom Corp. of New Zealand Ltd. 15,784,160 76.419
Telecom Corp. of New Zealand Ltd. (1) 8,380,000 40.572 1.62
Telecom Corp. of New Zealand Ltd. (American
Depositary Receipts) 25,000 .973
Telecom Italia SpA 18,255,813 73.498 1.01
Telefonica de Espana, SA 3,580,000 97.567 1.34
U S WEST Communications Group 704,707 28.056 .39
- ---------------------------------------------- ----------------------------------------------
Transportation: Airlines - 0.27%
Qantas Airways Ltd. 10800000 19.377 .27
-----------------------------
1,238.280 16.96
-----------------------------
Finance
- ---------------------------------------------- ----------------------------------------------
Banking - 19.37%
AmSouth Bancorporation 1,200,000 57.675 .79
Banc One Corp. 2,300,000 119.888 1.64
Bank of Nova Scotia 1,943,000 85.704 1.17
Barclays PLC 3500000 87.579 1.20
Central Fidelity Banks, Inc. 2062500 95.906 1.31
Chase Manhattan Corp. 400000 46.150 .63
Comerica Inc. 500000 39.531 .54
CoreStates Financial Corp 1971300 143.412 1.96
First Chicago NBD Corp. 1210000 88.028 1.21
First Hawaiian Bank 400000 15.600 .21
First Security Corp. (Utah) 1950000 56.550 .78
First Union Corp. 400000 19.625 .27
HSBC Holdings PLC 999800 22.635 .31
Huntington Bancshares Inc. 1,842,225 59.527 .82
KeyCorp 1,035,000 63.329 .87
Keystone Financial, Inc. 827,550 28.447 .39
J.P. Morgan & Co. Inc. 180,000 19.755 .27
National Australia Bank Ltd. 2480654 33.948 .46
National City Corp. 800000 47.800 .66
Old Kent Financial Corp. 578812 36.538 .50
Royal Bank of Canada 1715000 91.714 1.26
Sparbanken Sverige AB 670000 15.193 .21
Wachovia Corp. 600000 45.188 .62
Westpac Banking Corp. 6,950,000 40.489 .56
Wilmington Trust Corp. 950,000 52.962 .73
- ---------------------------------------------- ----------------------------------------------
Financial Services - 1.02%
Beneficial Corp. 340,000 26.074 .36
Health Care Property Investors, Inc. 880,000 33.770 .46
Imperial Credit Commercial Mortgage Investment Corp. (2) 900,000 14.850 .20
- ---------------------------------------------- ----------------------------------------------
Insurance - 3.39%
American General Corp. 160000 8.160 .11
EXEL Ltd. 545200 32.951 .45
Guardian Royal Exchange PLC 2000000 9.989 .14
HIH Winterthur International Holdings Ltd. 4408965 8.221 .11
Lincoln National Corp. 1230000 84.563 1.16
Ohio Casualty Corp. 717,500 31.749 .43
Prudential Corp. PLC 3557546 37.921 .52
Royal & Sun Alliance Insurance Group PLC 3080267 29.504 .40
SAFECO Corp. 100,000 4.762 .07
- ---------------------------------------------- ----------------------------------------------
Real Estate - 4.68%
Bradley Real Estate, Inc. 1,045,000 20.508 .28
CarrAmerica Realty Corp. 1,844,800 54.998 .75
Kimco Realty Corp. 400,000 12.800 .18
Pacific Retail Trust (1,3) 2,358,599 28.303 .39
Security Capital Atlantic Inc. 450,000 9.816
Security Capital Atlantic Inc. (1,3) 1,565,217 34.141 .60
Security Capital Group Inc., Class B, warrants (2) 368246 1.772 .02
Security Capital Industrial Trust 1191114 29.257 .40
Security Capital Pacific Trust 3219368 72.033 .99
Security Capital Realty Inc., Class A (2) 24900 37.350
Security Capital Realty Inc. 12.00% .88
convertible debentures 2014 $18,862,000 27.049
Washington Real Estate Investment Trust 145,500 2.382 .03
Weingarten Realty Investors 300,000 11.944 .16
-----------------------------
2,078.040 28.46
-----------------------------
Multi-Industry & Miscellaneous
- ---------------------------------------------- ----------------------------------------------
Multi-Industry - 1.28%
B.A.T Industries PLC 7,125,597 62.280 .85
Hutchison Whampoa Ltd. 1960000 13.565 .19
Lend Lease Corp. Ltd. 693689 14.213 .20
Thermo Instrument Systems Inc., 4.50% convertible
debentures 2003 (1) $3,000,000 3.146 .04
- ---------------------------------------------- ----------------------------------------------
Miscellaneous - 2.97%
Equity securities in initial period of
acquisition 217.116 2.97
-----------------------------
310.320 4.25
-----------------------------
TOTAL EQUITY SECURITIES (cost:
$3,231.789 million) 4,995.754 68.42
-----------------------------
Principal
Bonds and Notes Amount
- ---------------------------------------------- ----------------------------------------------
Corporate
- ---------------------------------------------- ----------------------------------------------
Airplanes Pass Through Trust, pass-through certificates,
Class C, 8.15% 2019 (4) $5,525,000 5.836 .08
Allegiance Corp. 7.80% 2016 3000000 3.193 .04
Boyd Gaming Corp. 9.25% 2003 1250000 1.288 .02
Cablevision Systems Corp. 8.125% 2009 (1) 2500000 2.506 .03
California Energy Co., Inc. 10.25% 2004 4300000 4.711 .06
Camden Property Trust 7.00% 2006 5000000 5.063 .07
CarrAmerica Realty Corp. 7.375% 2007 (1) 6000000 6.146 .08
Century Communications Corp. 8.75% 2007 2000000 2.000 .03
Columbia Gas System, Inc., Series G, 7.62% 2025 3000000 3.130
Columbia Gas System, Inc., Series C, 6.80% 2005 2000000 2.041 .07
Columbia/HCA Healthcare Corp. 6.91% 2005 2500000 2.477
Columbia/HCA Healthcare Corp. 6.87% 2003 3000000 3.028
Columbia/HCA Healthcare Corp. 6.41% 2000 5255000 5.247 .17
Columbia/HCA Healthcare Corp. 6.125% 2000 1400000 1.381
Comcast Cellular Corp. 9.50% 2007 (1) 5000000 5.175 .07
Consumers International 10.25% 2005 (1) 5000000 5.400 .07
Container Corp. of America 9.75% 2003 4985000 5.384 .07
Continental Airlines, Inc., pass-through certificates,
Series 1997-1, Class A, 7.461% 2016 (4) 2000000 2.104
Continental Airlines, Inc., pass-through certificates,
7.42% 2007 (4) 3000000 3.108 .14
Continental Airlines, Inc., pass-through certificates,
Series 1997-4, Class A, 6.90% 2018 (4) 5000000 5.070
Delta Air Lines, Inc., 1991 Equipment
Certificates Trust, Series K, 10.00% 2014 (1) 2000000 2.504 .03
Domtar Inc. 8.75% 2006 2500000 2.684 .04
Export-Import Bank of Japan 2.875% 2005 Yen1,380,000 12.487 .17
Falcon Drilling Company, Inc., Series B, 9.75% 2001 2750000 2.881
Falcon Drilling Company, Inc., Series B, 8.875% 2003 4000000 4.230 .10
FIRSTPLUS Home Loan Owner Trust, Series 1997-1,
Class A-6, 6.95% 2015 (4) 4000000 4.062 .05
Freeport-McMoRan Copper & Gold Inc. 7.50% 2006 2000000 1.982
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 2000000 2.039 .06
Fuji Bank, Ltd. 7.30/7.9391% 2049 3000000 2.986 .04
HMH Properties, Inc. 8.875% 2007 (1) 1000000 1.020 .01
Irvine Apartment Communities, Inc. 7.00% 2007 7000000 7.088 .10
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
2015 (1) 5000000 6.210 .08
Lloyds Trustee Savings Banking Group 8.50% 2006 Pounds3,000,000 5.380 .07
McDermott Inc. 9.375% 2002 6000000 6.456 .09
J. Ray McDermott, SA 9.375% 2006 8000000 8.400 .12
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds, Series C-91, 10.33% 2002 3139000 3.445 .05
News America Holdings Inc. 9.25% 2013 2000000 2.342
News America Holdings Inc. 9.125% 1999 3000000 3.164 .11
News America Holdings Inc. 8.625% 2003 2000000 2.169
Occidental Petroleum Corp. 8.50% 2004 8000000 8.241 .11
Ocean Energy, Inc. 8.875% 2007 5000000 5.125 .07
Omega Healthcare Investors, Inc. 6.95% 2007 8000000 8.077 .11
Owens-Illinois, Inc. 8.10% 2007 1000000 1.061
Owens-Illinois, Inc. 7.85% 2004 1000000 1.050 .03
Parker & Parsley Petroleum Co. 8.25% 2007 5000000 5.501 .08
The Price REIT, Inc. 7.50% 2006 4000000 4.175 .06
Riggs National Corp. 8.50% 2006 2600000 2.730 .04
Rite Aid Corp. 7.125% 2007 5000000 5.150 .07
Royal Caribbean 7.00% 2007 3500000 3.514 .05
Rykoff-Sexton, Inc. 8.875% 2003 2000000 2.020 .03
Samsung Electronics Co., Ltd. 7.45% 2002 (1) 2000000 1.882 .03
Security Capital Industrial Trust 7.81% 2015 2000000 2.150 .03
Security Capital Pacific Trust 7.25% 2004 5000000 5.169 .07
Shopping Center Associates 6.75% 2004 (1) 3000000 3.024 .04
TCI Communications, Inc. 6.875% 2006 8000000 7.923 .11
Tele-Communications, Inc. 8.00% 2005 5000000 5.295 .07
Time Warner Inc. 10.15% 2012 5000000 6.245
Time Warner Inc. 7.45% 1998 4000000 4.011 .22
Time Warner Inc. 7.25% 2017 6000000 5.948
TKR Cable I, Inc. 10.50% 2007 7000000 7.819 .11
Wellsford Residential Property Trust 7.75% 2005 2500000 2.652 .04
Woolworth Corp., Series A, 7.00% 2002 2000000 2.038
Woolworth Corp., Series A, 6.98% 2001 14500000 14.730 .23
-----------------------------
271.347 3.72
-----------------------------
Federal Agency Obligations: Mortgage Pass-Throughs (4)
- ----------------------------------------------
Fannie Mae (formerly Federal National
Mortgage Assn.) 7.50% 2024 2,815,000 2.876 .04
Freddie Mac (formerly Federal Home Loan
Mortgage Corp.) 9.00% 2025 2,851,000 3.035 .04
-----------------------------
5.911 .08
-----------------------------
Governments and Governmental Authorities
- ---------------------------------------------- ----------------- ----------- --------------
Canadian Government 9.75% December 2001 C$9,000,000 7.482
Canadian Government 9.00% December 2004 2,000,000 1.722 .21
Canadian Government 4.25% December 2026 (5) 8,529,000 6.431
Danish Government 8.00% May 2003 DKr22,000,000 3.731 .05
Fannie Mae 2.125% October 2007 (4) Yen620,000,000 5.251 .07
Fannie Mae Global 6.50% July 2002 (4) A$5,750,000 4.190 .06
International Bank for Reconstruction and Development
4.50% March 2003 Yen750,000,000 7.267 .10
Irish Government 8.00% August 2006 IR Pounds5,000,000 8.468
Irish Government 6.25% October 2004 1,250,000 1.916 .14
Italian Government 9.50% February 2001 Lr9,200,000,000 6.030 .08
New Zealand Government 8.00% July 1998 NZ$40,000,000 24.967
New Zealand Government 8.00% April 2004 5,000,000 3.351
New Zealand Government 8.00% November 2006 5,000,000 3.411 .48
New Zealand Government 4.50% February 2016 (5) 5,697,000 3.409
Poland (Republic of) Past Due Interest Bond 4.00% October
2014 (6) US$11,500,000 9.459 .13
South Africa (Republic of) 13.00% August 2010 ZAR10,000,000 1.890 .03
Spain (Kingdom of) 3.10% September 2006 Yen1,300,000,000 11.907 .16
Spanish Government 8.40% April 2001 Pta1,500,000,000 11.332
Spanish Government 6.75% April 2000 400,000,000 2.852 .20
Treuhandanstalt 7.125% January 2003 DM8,000,000 5.051 .07
United Kingdom 8.50% December 2005 Pounds4,000,000 7.485 .10
-----------------------------
137.602 1.88
-----------------------------
U.S. Treasuries
- ---------------------------------------------- ----------------------------------------------
8.875% February 1999 $10,000,000 10.397 .14
5.875% March 1999 90,000,000 90.310 1.24
6.875 July 1999 100,000,000 102.000 1.40
8.00% August 1999 150,000,000 155.906 2.13
8.50% February 2000 150,000,000 158.930 2.18
6.375% May 2000 100,000,000 101.594 1.39
8.875% May 2000 150,000,000 161.226 2.21
8.75% August 2000 150,000,000 161.555 2.21
6.125% September 2000 30,000,000 30.319 .42
6.50% May 2001 3,000,000 3.072 .04
8.00% May 2001 9,000,000 9.643 .13
7.25% August 2004 5,000,000 5.388 .07
6.375% August 2027 4,000,000 4.122 .06
-----------------------------
994.462 13.62
-----------------------------
TOTAL BONDS AND NOTES (cost: $1,395.043 million) 1,409.322 19.30
-----------------------------
TOTAL INVESTMENT SECURITIES (cost: $4,626.832
million) 6,405.076 87.72
-----------------------------
SHORT-TERM SECURITIES
- ---------------------------------------------- ----------------------------------------------
Corporate Short-Term Notes
- ---------------------------------------------- ----------------------------------------------
A.I. Credit Corp. 5.47%-5.50% due 11/6/97-1/9/98 43700000 43.406 .60
Coca-Cola Co. 5.46%-5.47% due 12/8-12/16/97 37800000 37.558 .52
Commercial Credit Co. 5.50% due 11/18/97-1/8/98 32000000 31.743 .43
John Deere Capital Corp. 5.51%-5.56% due 11/6/97-1/23/98 33500000 33.238 .46
Ford Motor Credit Co. 5.51%-5.60% due 1/8-1/9/98 40000000 39.566 .54
Gannett Co., Inc. 5.48% due 11/12/97 (1) 35300000 35.235 .48
Hershey Foods Corp. 5.48% due 11/14/97 38000000 37.918 .52
Lucent Technologies Inc. 5.49% due 12/10/97-1/22/98 28800000 28.503 .39
National Rural Utilities Cooperative Finance Corp.
5.48% due 11/7-11/14/97 37300000 37.222 .51
J.C. Penney Funding Corp. 5.50% due 11/4-12/8/97 (1) 45000000 44.869 .61
Procter & Gamble Co. 5.47% due 12/1-12/11/97 49500000 49.228 .67
Warner-Lambert Co. 5.48% due 12/12/97 (1) 50000000 49.680 .68
-----------------------------
468.166 6.41
-----------------------------
Federal Agency Discount Notes
- ---------------------------------------------- ----------------------------------------------
Fannie Mae 5.395%-5.485% 11/6/97-2/5/98 138600000 138.262 1.89
-----------------------------
U.S. Treasury Short-Term Notes
- ---------------------------------------------- ----------------------------------------------
5.625%-6.00% due 11/30/97-10/31/98 250000000 250.242 3.43
-----------------------------
TOTAL SHORT-TERM SECURITIES (cost: $855.592
million) 856.670 11.73
EXCESS OF CASH AND RECEIVABLES OVER PAYABLES 39.580 .55
-----------------------------
TOTAL SHORT-TERM SECURITIES, CASH AND
RECEIVABLES, NET OF PAYABLES 896.250 12.28
-----------------------------
NET ASSETS $7,301.326 100.00%
=========== ==========
(1) Purchased in a private placement transaction;
resale to the public may require registration
or sale only to qualified institutional buyers.
(2) Non-income-producing securities.
(3) Valued under procedures approved by the Board of
Directors.
(4) Pass-through securities backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore,
the effective maturity is shorter than the stated
maturity.
(5) Index-linked bond whose principal amount moves
with a government retail price index.
(6) Coupon rate changes periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
Capital Income Builder
Financial Statements
<S> <C> <C>
Statement of Assets and Liabilities
at October 31, 1997 (dollars in
millions)
Assets:
Investment securities at market (cost:$4,626.832) $6,405.076
Short-term securities (cost:$855.592) 856.670
Cash .254
Receivables for-
Sales of investments $43.912
Sales of fund's shares 16.301
Dividends and accrued interest 43.157 103.370
------------ ------------
7,365.370
Liabilities:
Payables for-
Purchases of investments 16.273
Repurchases of fund's shares 12.353
Forward currency contracts .426
Management services 1.363
Dividends payable 30.606
Accrued expenses 3.023 64.044
------------ ------------
Net Assets at October 31, 1997 - Equivalent to
$46.14 per share on 158,244,541 shares of $0.01
par value capital stock outstanding
(authorized capital stock - 200,000,000 shares) $7,301.326
============
Statement of Operations
for the year ended October 31, 1997
(dollars in millions)
Investment Income:
Income:
Dividends $165.482
Interest 135.648 $ 301.130
------------
Expenses:
Management services fee 20.097
Distribution expenses 14.932
Transfer agent fee 3.398
Reports to shareholders .471
Registration statement and prospectus .405
Postage, stationery and supplies .593
Directors' fees .121
Auditing and legal fees .048
Custodian fee 1.262
Taxes other than federal income tax .077
Other expenses .144 41.548
------------ ------------
Net investment income 259.582
------------
Realized Gain and Unrealized Appreciation on
Investments:
Net realized gain 280.827
Net increase in unrealized appreciation on investmen 777.035
Net unrealized depreciation on
forward currency contracts (0.426) 776.609
------------ ------------
Net realized gain and increase in unrealized
appreciation on investments 1,057.436
------------
Net Increase in Net Assets Resulting from Operations $1,317.018
============
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in millions) Year ended October 31
1997 1996
------------ ------------
Operations:
Net investment income $ 259.582 $ 257.878
Net realized gain on investments 280.827 87.347
Net increase in unrealized appreciation on investmen 776.609 431.666
------------ ------------
Net increase in net assets resulting from
operations 1,317.018 776.891
------------ ------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (262.498) (257.053)
Distributions from net realized gain on investments (99.910) (62.913)
------------ ------------
Total dividends and distributions (362.408) (319.966)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold: 29,804,485 and
20,891,053 shares, respectively 1,285.671 782.282
Proceeds from shares issued in reinvestment of net
investment income dividends and distributions of
net realized gain on investments: 7,455,750 and
6,760,213 shares, respectively 314.663 251.534
Cost of shares repurchased: 15,485,458 and 16,175,451
shares, respectively (671.331) (606.384)
------------ ------------
Net increase in net assets resulting from capital
share transactions 929.003 427.432
------------ ------------
Total Increase in Net Assets 1,883.613 884.357
Net Assets:
Beginning of year 5,417.713 4,533.356
------------ ------------
End of year (including undistributed net investment
income: $3.028 and $2.228, respectively) $7,301.326 $5,417.713
============ ============
See Notes to Financial Statements
</TABLE>
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 securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either securities exchange or the
over-the counter market.
Fixed-income securities are valued at prices obtained from a pricing
service, when such prices are available; however, in circumstances where the
investment adviser deems it appropriate to do so, such securities will be
valued at the mean quoted bid and asked prices or at prices for securities of
comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates. 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.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. 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.
The fund may enter into forward currency contracts, which represent an
agreement to exchange currencies of different countries at a specified future
date at a specified rate. The fund enters into these contracts to reduce its
exposure to fluctuations in foreign exchange rates arising from investments
denominated in non-U.S. currencies. The fund's use of forward currency
contracts involves market risk in excess of the amount recognized in the
statement of assets and liabilities. The contracts are recorded in the
statement of assets and liabilities at their net unrealized value. The fund
records realized gains or losses at the time the forward contract is closed or
offset by a matching contract. The face or contract amount in U.S. dollars
reflects the total exposure the fund has in that particular contract. Losses
may arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from possible movements
in non-U.S. exchange rates and securities values underlying these instruments.
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, 1997, net unrealized appreciation on investments,
excluding forward currency contracts, for book and federal income tax purposes
aggregated $1,779,322,000, of which $1,806,486,000 related to appreciated
securities and $27,164,000 related to depreciated securities. During the year
ended October 31, 1997, the fund realized, on a tax basis, a net capital gain
of $277,420,000 on securities transactions. Net gains related to non-U.S.
currency and other transactions of $3,407,000 were treated as ordinary income
for federal income tax purposes. The cost of portfolio securities, excluding
forward currency contracts, for book and federal income tax purposes was
$5,482,424,000 at October 31, 1997.
3. The fee of $20,097,000 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, 1997,
distribution expenses under the Plan were $14,932,000. As of October 31, 1997,
accrued and unpaid distribution expenses were $2,548,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $3,398,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $6,383,000 (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,
1997, aggregate amounts deferred and earnings thereon were $228,000.
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, 1997, accumulated undistributed net realized gain on
investments was $255,286,000 and additional paid-in capital was $5,262,385,000.
To conform to its tax reporting, the fund reclassified $3,716,000 from
undistributed net realized gains to undistributed net investment income and
$8,297,000 from undistributed net realized gains to undistributed currency
gains for the year ended October 31, 1997.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $2,870,448,000 and $1,449,198,000 respectively,
during the year ended October 31, 1997.
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 $1,262,000 includes $56,000 that was paid by these credits
rather than in cash.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended October 31, 1997, such non-U.S. taxes were $8,497,000. Net realized
currency losses on dividends, interest, withholding taxes reclaimable, and
sales of non-U.S. bonds and notes were $8,607,000 for the year ended October
31, 1997.
At October 31, 1997, the fund had outstanding forward currency contracts to
sell non-U.S. currencies as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Contract Amounts U.S. Valuation at 10/31/97
Unrealized
Non-U.S. Currency Appreciation/
Sale Contracts Non-U.S. U.S. Amount (Depreciation)
Australian Dollars A$4,991,404 $3,641,673 $3,517,150 $124,523
expiring 11/24/97
to 1/16/98
British Pounds L2,455,155 4,000,000 4,101,285 (101,285)
expiring 1/23/98
Danish Kroner DKr24,000,000 3,616,092 3,683,543 (67,451)
expiring 4/7/98
German Marks DM8,190,760 4,600,000 4,770,556 (170,556)
expiring 1/23/98
Irish Pounds IR Pounds6,592,791 9,841,652 9,900,568 (58,916)
expiring 12/4/97
to 1/20/98
Japanese Yen Yen3,789,275,950 31,713,634 31,928,726 (215,092)
expiring 12/22/97
to 3/30/98
New Zealand Dollars NZ$6,332,621 4,000,000 3,937,376 62,624
expiring 11/24/97
</TABLE>
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year
ended
October
31
1997 1996 1995 1994 1993
Net Asset Value, Beginning of Year $39.70 $36.27 $32.68 $34.42 $30.77
--------- - --------- - --------- - --------- - -------
Income From Investment Operations:
Net investment income 1.74 1.95 1.69 1.73 1.53
Net realized and unrealized gain
(loss) on investments 7.20 3.92 3.69 ($1.62) 3.76
--------- --------- --------- --------- -------
Total income from investment operati 8.94 5.87 5.38 .11 5.29
--------- --------- --------- --------- -------
Less Distributions:
Dividends from net investment income ($1.77) ($1.94) (1.69) ($1.73) (1.53)
Distributions from net realized gains ($0.73) ($0.50) (.10) ($0.12) (.11)
--------- --------- --------- --------- -------
Total distributions (2.50) (2.44) (1.79) ($1.85) (1.64)
--------- --------- --------- --------- -------
Net Asset Value, End of Year $46.14 $39.70 $36.27 $32.68 $34.42
========= ========= ========= ========= =======
Total Return (1) 23.16% 16.76% 16.98% .47% 17.58%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $7,301 $5,418 $4,533 $3,629 $2,826
Ratio of expenses to average net asset .65% .71% .72% .73% .72%
Ratio of net income to average net ass 4.04% 5.19% 4.96% 5.29% 4.69%
Average commissions paid per share (2) 1.89c 2.20c 2.10c 3.63c 2.90c
Portfolio turnover rate 27.65% 27.56% 18.06% 36.19% 11.22%
(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
transactions increase the cost of securities
purchased or reduce the proceeds of securities
sold and are not separately reflected
in the fund's statement of operations.
Shares traded on a principal basis (without
commissions), such as most over-the-counter
and fixed-income transactions, are excluded.
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>
Report of Independent Accountants
To the Board of Directors and Shareholders of Capital Income Builder, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the per-share data and ratios present fairly, in all
material respects, the financial position of Capital Income Builder, Inc. (the
"Fund") at October 31, 1997, the results of its operations, the changes in its
net assets and the per-share data and ratios for the years indicated in
conformity with generally accepted accounting principles. These financial
statements and per-share data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at October 31, 1997 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
/s/Price Waterhouse LLP
Los Angeles, California
November 26, 1997
Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Dividends and Distributions per Share
From Net From Net From Net
From Net Realized Realized
Investment Short-term Long-term
Reinvest Date Payment Date Income Gains Gains
December 6, 1996 December 9, 1996 $0.465 $0.73
March 10, 1997 March 11,1997 0.465
June 9, 1997 June 10, 1997 0.470
September 11,1997 September 12, 1997 0.475
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 33% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 12% of the dividends
paid by the fund from net investment income were derived from interest on
direct U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1998 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1997 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
CAPITAL INCOME BUILDER
BOARD OF DIRECTORS
H. Frederick Christie, Rolling Hills Estates, California
Private investor; former President and
Chief Executive Officer, The Mission Group;
former President, Southern California Edison Company
Paul G. Haaga, Jr., Los Angeles, California
President of the fund
Executive Vice President and Director,
Capital Research and Management Company
Mary Myers Kauppila, Boston, Massachusetts
Founder and President, Energy Investment, Inc.
Jon B. Lovelace, Los Angeles, California
Chairman of the Board of the fund
Vice Chairman of the Board,
Capital Research and Management Company
Gail L. Neale, Burlington, Vermont
President, The Lovejoy Consulting Group, Inc.;
former Executive Vice President of the Salzburg
Seminar; former Director of Development and of
the Capital Campaign, Hampshire College
Robert J. O'Neill, Ph.D., Oxford, England
Professor and Fellow,
All Souls College, University of Oxford
Donald E. Petersen, Birmingham, Michigan
Retired; former Chairman of the Board and
Chief Executive Officer, Ford Motor Company
Frank Stanton, New York, New York
President Emeritus, CBS Inc.
Charles Wolf, Jr., Ph.D., Santa Monica, California
Dean, The RAND Graduate School;
Senior Economic Adviser, The RAND Corporation
Stefanie Powers, Beverly Hills, California
Actor; Founder and President of
The William Holden Wildlife Foundation,
was re-elected a Director of the fund on December 4, 1997.
OFFICERS
Larry P. Clemmensen, Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
James B. Lovelace, Los Angeles, California
Executive Vice President of the fund
Senior Vice President,
Capital Research and Management Company
Janet A. McKinley, New York, New York
Senior Vice President of the fund
Director, Capital Research and Management Company
Catherine M. Ward, Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
Joyce E. Gordon, Los Angeles, California
Vice President of the fund
Senior Vice President,
Capital Research Company
Darcy B. Kopcho, Los Angeles, California
Vice President of the fund
Vice President and Director,
Capital Research Company
Vincent P. Corti, Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
R. Marcia Gould, Brea, California
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
Diana J. Prohoroff, Brea, California
Assistant Treasurer of the fund
Assistant Vice President -
Fund Business Management Group,
Capital Research and Management Company
Steven T. Watson, London, England
Vice President of Capital Research Company,
was elected a Vice President of the fund on December 4, 1997.
[THE AMERICAN FUNDS GROUP (R)]
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER,
CAPITAL RESEARCH AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
AMERICAN FUNDS SERVICE COMPANY
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
400 South Hope Street
Los Angeles, California 90071-2889
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180, OR VISIT WWW.AMERICANFUNDS.COM ON THE
WORLD WIDE WEB.
This report is for the information of shareholders of Capital Income Builder,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
December 31, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Capital Income Builder is one of the 28 mutual funds in The American Funds
Group,(R) managed by Capital Research and Management Company. Since 1931,
Capital has invested with a long-term focus based on thorough research and
attention to risk.
Litho in USA TAG/GRS/3204
Lit. No. CIB-011-1297
