<PAGE>
CAPITAL INCOME BUILDER, INC.
Part B
Statement of Additional Information
JANUARY 1, 1999
as amended August 1, 1999
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, 1999. 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>
<CAPTION>
TABLE OF CONTENTS
ITEM PAGE NO.
<S> <C>
Certain Investment Limitations and Guidelines 2
Description of Certain Securities and Investment Techniques 2
Investment Restrictions 7
Fund Organization 9
Fund Directors and Officers 10
Management 14
Dividends, Distributions and Federal Taxes 17
Purchase of Shares 19
Selling Shares 25
Shareholder Account Services and Privileges 27
Execution of Portfolio Transactions 29
General Information 30
Investment Results and Related Statistics 32
Description of Commercial Paper and Bond Ratings 35
Financial Statements Attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
OBJECTIVE
- - The fund will invest at least 90% of its assets in income-producing
securities.
EQUITY SECURITIES
- - The fund will invest at least 50% of its assets in common stocks.
DEBT SECURITIES
- - The fund may invest up to 5% of its assets in fixed-income securities rated
Ba/BB or below or unrated but determined to be of equivalent quality.
NON-U.S. SECURITIES
- - The fund may invest up to 40% of its assets in securities of issuers
domiciled outside the U.S.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING CERTAIN PORTFOLIO SECURITIES
DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF HEAVY REDEMPTIONS.
THE DESCRIPTIONS BELOW ARE INTENDED TO SUPPLEMENT THE MATERIAL IN THE
PROSPECTUS UNDER "INVESTMENT OBJECTIVES, STRATEGIES AND RISKS."
EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. The prices of equity securities fluctuate based on changes in the
financial condition of their issuers and on market and economic conditions.
The fund's results will be related to the overall market for these securities.
Certain securities purchased by the fund, particularly smaller capitalization
stocks, may involve large price swings and potential for loss.
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 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.
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.
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.
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
INVESTING IN VARIOUS COUNTRIES -- The fund has the flexibility to invest
outside the U.S. Investing outside the U.S. involves special risks,
particularly in certain developing countries, caused by, among other things:
currency controls; fluctuating currency values; different accounting, auditing,
and financial reporting regulations and practices in some countries;
expropriation or confiscatory taxation; 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.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
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.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities whose principal trading market
is in the U.S. will be considered illiquid unless they have been specifically
determined to be liquid under procedures which may be adopted by the fund's
board of directors, taking into account factors such as the frequency and
volume of trading, the commitment of dealers to make markets and the
availability of qualified investors, all of which can change from time to time.
The fund may incur certain additional costs in disposing of illiquid
securities.
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 purchase or sell securities under which it
gives or receives a commitment to complete the transaction beyond the normal
settlement period. 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 also may enter into "roll" transactions, which is the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a later date. The fund
intends 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 (the "1940 Act").
The fund will segregate liquid assets which will be marked to market daily in
an amount sufficient to meet its payment obligations under "roll" transactions
and reverse repurchase agreements with broker-dealers (but no collateral is
required on reverse repurchase agreements with banks). 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.
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.
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.
PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations
backed by a pool of mortgages or other assets including loans on single family
residences, home equity loans, mortgages on commercial buildings, credit card
receivables, and leases on airplanes or other equipment. Principal and
interest payments made on the underlying asset pools backing these obligations
are typically passed through to investors. Pass-through securities may have
either fixed or adjustable coupons. These securities include those discussed
below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities do not affect the rights of
borrowers to prepay their underlying mortgages. Prepayments can alter the
effective maturity of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed-through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change the impact of
changing prepayment rates on these securities' effective maturities is
magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment risk than
other mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which
can change the securities' effective maturities.
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.
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. Investment limitations expressed in the
following restrictions are considered at the time securities are purchased and
are based on the fund's net assets unless otherwise indicated. 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 is materially different. The
fund will determine such classifications of issuers 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 ORGANIZATION
The fund is an open-end, diversified management investment company. It was
organized as a Maryland corporation on June 8, 1987.
All fund operations are supervised by the fund's board of directors. The board
meets periodically and performs 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 "Fund Directors and Officers - Directors
and Director Compensation" below. They may elect to defer all or a portion of
these fees through a deferred compensation plan in effect for the fund.
FUND DIRECTORS AND OFFICERS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AND AGE REGISTRANT DURING (INCLUDING (INCLUDING OF FUND
PAST 5 YEARS VOLUNTARILY VOLUNTARILY BOARDS ON
DEFERRED DEFERRED WHICH
COMPENSATION COMPENSATION DIRECTOR
/1/)FROM THE /1/) FROM ALL SERVES
FUND DURING FUNDS MANAGED /2/
FISCAL YEAR BY CAPITAL
ENDED 10/31/98 RESEARCH AND
MANAGEMENT
COMPANY OR ITS
AFFILIATES /2/
FOR THE YEAR
ENDED 10/31/98
<S> <C> <C> <C> <C> <C>
H. Frederick Director Private investor; $16,050/3/ $183,000 19
Christie former President
P.O. Box 144 and Chief
Palos Verdes Executive
Estates, CA 90274 Officer, The
Age: 65 Mission Group
(non-utility
holding company,
subsidiary of
Southern
California Edison
Company)
+Paul G. Haaga, Jr. Chairman Executive Vice None/4/ None/4/ 14
333 South Hope of the President and
Street Board Director, Capital
Los Angeles, CA Research and
90071 Management
Age: 50 Company
Mary Myers Kauppila Director Private Investor; $16,850/3/ $97,500/3/ 5
One Winthrop Square former Owner and
Boston, MA 02110 President, Energy
Age: 44 Investment, Inc.
+James B. Lovelace President Senior Vice None/4/ None/4/ 1
333 South Hope and President,
Street Director Capital Research
Los Angeles, CA and Management
90071 Company
Age: 42
+Jon B. Lovelace Vice Chairman None/4/ None/4/ 4
333 South Hope Chairman Emeritus, Capital
Street of Research and
Los Angeles, CA the Board Management
90071 Company
Age: 71
Gail L. Neale Director President, The $16,450/3/ $68,700/3/ 5
The Lovejoy Lovejoy
Consulting Group Consulting Group,
154 Prospect Inc.; former
Parkway Executive Vice
Burlington, VT President of the
05401 Salzburg Seminar;
Age: 63 former Director
of Development
and the Capital
Campaign,
Hampshire College
Robert J. O'Neill Director Chichele $16,850 $39,400 3
Whitney, OXON Professor of the
United Kingdom History of War
Age: 62 and Fellow, All
Souls College,
University of
Oxford
Donald E. Petersen Director Retired; former $16,450/3/ $79,800/3/ 4
255 East Brown Chairman of the
Birmingham, MI Board and Chief
48009 Executive
Age: 72 Officer, Ford
Motor Company
Stefanie Powers Director Actor; President, $16,050 $31,100 2
2661 Hutton Drive William Holden
Beverly Hills, CA Wildlife
90210 Foundation
Age: 56
Frank Stanton Director Retired; former $17,250 $33,600 2
25 West 52nd Street President, CBS
New York, NY 10019 Inc. (1946-1973)
Age: 90
Charles Wolf, Jr. Director Dean, The RAND $15,650 $33,600 2
1700 Main Street Graduate School;
Santa Monica, CA Senior Economic
90407 Adviser, The RAND
Age: 74 Corporation
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
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 29 funds: AMCAP Fund, Inc., 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., New World 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; and Endowments, Inc. whose shareholders are
limited to (i) any entity exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any
trust, the present or future beneficiary of which is a 501(c)(3) organization,
and (iii) any other entity formed for the primary purpose of benefiting a
501(c)(3) organization. An affiliate of Capital Research and Management
Company, Capital International, Inc., manages Emerging Markets Growth Fund,
Inc.
/3/ Since the deferred compensation plan's adoption, the total amount of
deferred compensation accrued by the fund (plus earnings thereon) as of the
fiscal year ended October 31, 1998 for participating Directors is as follows:
H. Frederick Christie ($54,848), Mary Myers Kauppila ($113,555), Gail L. Neale
($70,400) and Donald E. Petersen ($53,855). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the Director.
/4/ Paul G. Haaga, Jr., James B. Lovelace and Jon B. Lovelace are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
HELD WITH DURING PAST 5 YEARS
REGISTRANT
<S> <C> <C> <C>
Paul G. Haaga, Jr.
(see above)
Jon B. Lovelace
(see above)
James B. Lovelace
(see above)
Larry P. Clemmensen 51 Senior Vice Senior Vice President
333 South Hope President and Director, Capital
Street Research and Management
Los Angeles, CA Company; President and
90071 Director,
The Capital Group
Companies, Inc.
Janet A. McKinley 44 Senior Vice Director, Capital
630 Fifth Avenue President Research and Management
New York, NY 10111 Company; Senior Vice
President, Capital
Research Company
Catherine M. Ward 51 Senior Vice Senior Vice President
333 South Hope President and Director,
Street Capital Research and
Los Angeles, CA Management Company
90071
Joyce E. Gordon 42 Vice Senior Vice President
333 South Hope President and Director,
Street Capital Research
Los Angeles, CA Company
90071
Darcy B. Kopcho 45 Vice Executive Vice
333 South Hope President President and Director,
Street Capital Research
Los Angeles, CA Company
90071
Steven T. Watson 43 Vice Senior Vice President
25 Bedford Street President and Director, Capital
London, England Research Company
Vincent P. Corti 42 Secretary Vice President - Fund
333 South Hope Business Mangement
Street Group, Capital Research
Los Angeles, CA and Management Company
90071
R. Marcia Gould 44 Treasurer Vice President - Fund
135 South State Business Mangement
College Blvd. Group, Capital Research
Brea, CA 92821 and Management Company
Diana J. Prohoroff 49 Assistant Assistant Vice
135 South State Treasurer President - Fund
College Blvd. Business Mangement
Brea, CA 92821 Group, Capital Research
and Management Company
</TABLE>
All of the officers listed are officers or employees of Investment Adviser or
affiliated companies. 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 fund pays fees of $12,500 per annum to directors who
are not affiliated with the Investment Adviser, plus $1,000 for each Board of
Directors meeting attended, plus $500 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. As of December 1, 1998, the officers and
directors 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 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 managing more than $175 billion of
stocks, bonds and money market instruments and serves over eight 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, 1999
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 $8 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.
During the fiscal years ended October 31, 1998, 1997 and 1996, the Investment
Adviser's total fees amounted to $26,651,000, $20,097,000 and $18,213,000,
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.
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, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 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 (see 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 for the fiscal year ended
October 31, 1998 amounted to $6,716,000 after allowance of $32,535,000 to
dealers. During the fiscal years ended October 31, 1997 and 1996 the Principal
Underwriter retained $6,383,000 and $4,007,000 after allowance of $32,064,000
and $20,341,000, respectively.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors and separately by a majority of the Directors who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund. The Officers and Directors who are "interested
persons" of the fund may 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 include improved shareholder services, savings to the fund in
transfer agency costs, savings to the fund in advisory fees and other expenses,
benefits to the investment process from growth or stability of assets and
maintenance of a financially healthy management organization. The selection
and nomination of Directors who are not "interested persons" of the fund are
committed to the discretion of the Directors who are not "interested persons"
during the existence of the Plan. The 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 net assets annually to
finance any activity 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, any defined contribution plan qualified under section 401(a) of the
Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees or a community foundation).
Commissions 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 any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fiscal year ended October 31, 1998, the fund paid or accrued $18,508,000
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, as amended, (the Code). Under Subchapter M, if
the fund distributes within specified times at least 90% of the sum of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses) and its tax-exempt
interest, if any, it generally will be taxed only on that portion of such
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; and (b) diversify its holdings so that at the end of
each fiscal quarter, (i) at least 50% of the market value of the fund's total
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities (but
such other securities must be limited, in respect of any one issuer, to an
amount not greater than 5% of the fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer), and (ii) not more than
25% of the value of its total 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 distribute net investment income and net
capital gains so as 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 in 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, foreign
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, U.S. residents, or domestic corporations will apply.
However, if the distribution is effectively connected with the conduct of the
non-U.S. shareholder's trade or business within the U.S., the distribution
would be included in the net income of the shareholder and subject to U.S.
income tax at the applicable marginal rate. Distributions of net long-term
capital gains are not subject to tax withholding, but in the case of a non-U.S.
shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during the
taxable year.
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 gains on assets held more than one year is 20%; 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 taxable income in excess of $100,000 for a
taxable year will be required to pay an additional amount of tax liability of
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 a shareholder
with respect to either distributions from the fund or disposition of fund
shares 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. The maximum amount that an individual may
contribute to all IRA's (deductible, nondeductible and Roth IRA's) per year is
the lesser of $2,000 or the individual's compensation for the year. 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. Investors should consult their own tax
advisers with specific reference to their own tax situation.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums and Fund $50 minimum (except where a
Numbers" for initial investment lower minimum is noted under
minimums. "Investment Minimums and Fund
Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your registered in the state where the dealer's address printed on your
investment purchase is made and who has a sales account statement.
dealer agreement with American Funds
Distributors.
By mail Make your check payable to the fund Fill out the account additions
and mail to the address indicated on form at the bottom of a recent
the account application. Please account statement, make your
indicate an investment dealer on the check payable to the fund, write
account application. your account number on your
check, and mail the check and
form in the envelope provided
with your account statement.
By telephone Please contact your investment dealer Complete the "Investments by
to open account, then follow the Phone" section on the account
procedures for additional investments. application or American
FundsLink Authorization Form.
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 and Computer
Purchases, Redemptions and
Exchanges" below).
By computer Please contact your investment dealer Complete the American FundsLink
to open account, then follow the Authorization Form. Once you
procedures for additional investments. establish the privilege, you,
your financial advisor or any
person with your account
information may access American
FundsLine OnLine(SM) on the
Internet and make investments by
computer (subject to conditions
noted in "Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain your Your bank should wire your
account number(s), if necessary. additional investments in the
Please indicate an investment dealer same manner as described under
on the account. Instruct your bank to "Initial Investment."
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>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income 1,000 33
Fund(SM)
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
New World Fund(SM) 1,000+ 36
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond 1,000 40
Fund(R)
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of 1,000 23
America(SM)
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of 1,000 19
America(R)
The Tax-Exempt Fund of 1,000 20
California(R)*
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of 2,500 09
America(R)
The Tax-Exempt Money Fund of 2,500 39
America(SM)
The U.S. Treasury Money Fund of 2,500 49
America(SM)
___________
*Available only in certain states.
+Effective September 15, 1999.
</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).
SALES CHARGES -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES -- Investment of $1 million or more
and investments made by employer-sponsored defined contribution-type plans with
100 or more eligible employees are sold with no initial sales charge. A
contingent deferred sales charge may be imposed on certain redemptions by these
accounts made within one year of purchases. Investments by retirement plans,
foundations or endowments with $50 million or more in assets, and
employer-sponsored defined contribution-type plans with 100 or more eligible
employees made with no sales charge are not subject to a contingent deferred
sales charge.
In addition, 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 $50 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.
DEALER COMMISSIONS -- 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 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS -- American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
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.
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.
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.
STATEMENT OF INTENTION -- You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had purchased at once. This includes purchases made
during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. 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"). 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 by the close of the period,
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 account
application) and any individual investments in American Legacy products
(American Legacy, American Legacy II and American Legacy III variable
annuities, American Legacy Life, American Legacy Variable Life, and American
Legacy Estate Builder) 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.
When trustees of certain retirement plans purchase shares 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), any
rollovers or transfers reasonably anticipated to be invested in non-money
market American Funds during the 13-month period, and any individual
investments in American Legacy products 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.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When
determining your sales charge, you may also take into account the value of your
individual holdings, as of the end of the week prior to your investment, in
various American Legacy products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). Direct purchases of the
money market funds are excluded.
PRICE OF SHARES -- Shares are purchased at the offering price next determined
after the purchase order is received and accepted by the fund or American Funds
Service Company; 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. 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. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00
p.m. on the next, the fund's share price would be determined as of 4:00 p.m.
New York time on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined, as follows:
1. 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 a 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.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, 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 Principal Underwriter will not knowingly sell shares of the fund directly
or indirectly to any person or entity, where, after the sale, such person or
entity would own beneficially directly or indirectly more than 4.5% of the
outstanding shares of the fund without the consent of a majority of the fund's
Board of Directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
- -- Sent to an address other than the address of record, or an address of record
which has not been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(SM)
- - Redemptions by telephone or fax (including American FundsLine(R) and American
FundsLine OnLine(SM)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application).
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within twelve months of purchase on investments of $1 million or more
(other than redemptions by employer-sponsored retirement plans). 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 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.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will
begin within 30 days after your account application is received. Your bank
account will be debited on the day or a few days before your investment is
made, depending on the bank's capabilities. American Funds Service Company
will then invest your money into the fund you specified on or around the date
you specified. If your bank account cannot be debited due to insufficient
funds, a stop-payment or the closing of the account, the plan may be terminated
and the related investment reversed. You may change the amount of the
investment or discontinue the plan at any time by writing to American Funds
Service Company.
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 -- You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the
fund receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
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) or American FundsLine OnLine(SM) (see "American FundsLine(R) and
American FundsLine OnLine(SM)" 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 and Computer Purchases, 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, computer, 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 (a) meet the minimum initial investment
requirement for the receiving fund or (b) 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, will be reflected on regular confirmation statements from American
Funds Service Company. Dividend and capital gain reinvestments and purchases
through automatic investment plans and certain retirement plans will be
confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM)-- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLine(SM). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com. Redemptions and exchanges through American
FundsLine(R) and American FundsLine OnLine(SM) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges -- Telephone
and Computer Purchases, 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 AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine(R)) or computer (including American
FundsLine OnLine(SM)), fax or telegraph purchase 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.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
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 (a) the
shares owned by such shareholder have a value (determined, for the purpose of
this sentence only, as the greater of the shareholder's cost or the then net
asset value of the shares, including the reinvestment of income dividends and
capital gain distributions, if any) of less than $150, or (b) such shareholder
owns less than ten (10) shares of capital stock of the fund. 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 (either directly or through their
correspondent clearing agents) 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 have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
Portfolio transactions for the fund may be executed as part of concurrent
authorizations to purchase or sell the same security for other 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 for the fiscal years ended
October 31, 1998, 1997 and 1996 amounted to $2,797,000, $2,123,000 and
$2,365,000, respectively.
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more
than 15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, J.P. Morgan & Co.
Inc. and Merrill Lynch Mortgage Investors, Inc. were among the top 10 dealers
that received the largest amount of brokerage commissions and that acted as
principals in portfolio transactions. The fund held equity securities of J.P.
Morgan & Co. in the amount of $11,310,000 and debt securities of Merrill Lynch
Mortgage Investors, Inc. in the amount of $1,929,000 as of the close of its
October 31, 1998 fiscal year.
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 $4,060,000 for the fiscal year ended October 31, 1998.
INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP given on the authority of said firm as
experts in auditing and accounting.
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,
PricewaterhouseCoopers LLP, whose selection is determined annually by the Board
of Directors. In an effort to reduce the volume of mail shareholders receive
from the fund when a household owns more than one account, the Transfer Agent
has taken steps to eliminate duplicate mailings of shareholder reports. To
receive additional copies of a report shareholders should contact the Transfer
Agent.
YEAR 2000 -- The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
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; 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.
SHAREHOLDER VOTING RIGHTS -- The fund does not hold annual meetings of
shareholders. However, significant 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 any meeting of
shareholders, duly called and at which a quorum is present, shareholders
holding a majority of the votes entitled to be cast, may 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
agreed, 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 at least than 10% of the
outstanding shares.
The financial statements including the investment portfolio and the 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:
DETERMINATION OF NET ASSET VALUE,
REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- OCTOBER 31, 1998
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $48.40
Maximum offering price per share
(100/94.25 of per share net asset value, which takes
into account the fund's current maximum sales charge) $51.35
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 3.72 % based on a 30-day (or one month) period ended
October 31, 1998, 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 one-year total return and average annual total returns for the five-
and ten-year periods ended October 31, 1998 was 6.82%, 12.53% and 13.57%,
respectively. 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.
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.
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,
ten 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 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, in advertisements or in reports furnished to present or
prospective shareholders, 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. The fund may also, from time to time, combine its results
with those of other funds in The American Funds Group for purposes of
illustrating investment strategies involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services,
Morningstar, Inc., Wiesenberger Investment Companies Services and by the U.S.
Department of Commerce. Additionally, the fund may, from time to time, refer
to results published in various newspapers or 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.
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*- 10/31/98 +282.4% +365.3% +372.8%
</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, 1998)
<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>
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 16,542 751 9,907 27,200
1997 1,324 8,733 18,733 19,225 1,446 12,934 33,605
1998 1,468 10,201 20,201 20,315 2,760 15,163 38,238
</TABLE>
# From July 30, 1987
The dollar amount of capital gain distributions during the period was $2,304.
EXPERIENCE OF THE INVESTMENT ADVISER -- Capital Research and Management Company
manages nine growth and growth-income funds that are at least 10 years old. In
the 10-year periods since January 1, 1968 (133 in all), those funds have had
better total returns than their comparable Lipper indexes in 124 of 133
periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than 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.
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 unre liable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"Ba -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<PAGE>
<TABLE>
CAPITAL INCOME BUILDER
Portfolio Summary - OCTOBER 31, 1998
<S> <C>
Largest Individual Percent of
Equity Holdings Net Assets
- ---------------------------- ---------
First Union 3.07%
United Utilities 2.13
Wachovia 1.97
BANK ONE 1.81
Philip Morris 1.58
Ameritech 1.54
Southern Electric 1.52
Deutsche Telekom 1.44
Thames Water 1.38
Telefonica 1.19
</TABLE>
<TABLE>
CAPITAL INCOME BUILDER
Investment Portfolio October 31, 1998
<S> <C> <C> <C>
Equity Securities Shares or Market Percent
Principal Value of Net
Energy Amount (Millions Assets
- ---------------------------------------------- ------------------------------
Energy Sources - 3.19%
Amoco Corp. 1,700,000 $ 95.413 1.09%
Atlantic Richfield Co. 410,000 28.239 .32
CalEnergy Capital Trust II 6.25% convertible preferred 20 130,000 5.590 .06
Chevron Corp. 800,000 65.200 .75
Phillips Petroleum Co. 950,000 41.088 .47
Royal Dutch Petroleum Co. (New York Registered Shares) 880,000 43.340 .50
- ---------------------------------------------- ------------------------------
Utilities: Electric & Gas - 6.95%
Australian Gas Light Co. 380,088 2.737 .03
Central and South West Corp. 1,450,000 40.328 .46
DPL Inc. 2,684,200 50.832 .58
DTE Energy Co. 450,000 19.181 .22
GPU, Inc. 1,150,000 49.594 .57
KeySpan Energy Corp. 2,428,800 72.560 .83
National Power PLC 9,600,000 83.390 .95
Nevada Power Co. 920,000 23.230 .26
NIPSCO Industries, Inc. 600,000 17.963 .21
PowerGen PLC 1,600,000 22.628 .26
Southern Electric PLC 12,900,000 132.567 1.52
Williams Companies, Inc. 3,383,250 92.828 1.06
- ---------------------------------------------- ------------------------------
886.708 10.14
-------------------
Materials
- ---------------------------------------------- ------------------------------
Chemicals - 0.08%
E.I. du Pont de Nemours and Co. 120,000 6.900 .08
- ---------------------------------------------- ------------------------------
Forest Products & Paper - 0.72%
Chesapeake Corp. 300,000 10.500 .12
Potlatch Corp. 613,800 22.404 .26
Rayonier Inc. 215,600 8.449 .10
Union Camp Corp. 500,000 21.500 .24
- ---------------------------------------------- ------------------------------
Metals: Nonferrous - 0.08%
USX Corp. 6.75% DECS convertible preferred 2000 500,000 7.250 .08
- ---------------------------------------------- ------------------------------
77.003 .88
-------------------
Capital Equipment
- ---------------------------------------------- ------------------------------
Industrial Components - 0.32%
Tomkins PLC 6,000,000 27.767 .32
- ---------------------------------------------- ------------------------------
Consumer Goods
- ---------------------------------------------- ------------------------------
Automobiles - 1.26%
Chrysler Corp. 300,000 14.438 .17
Ford Motor Co., Class A 1,750,000 94.938 1.09
- ---------------------------------------------- ------------------------------
Beverages & Tobacco - 3.99%
British American Tobacco PLC (formerly B.A.T Industries P 1,000,000 8.904 .10
Foster's Brewing Group Ltd. 16,000,000 39.344 .45
Gallaher Group PLC 8,121,700 55.732 .64
Philip Morris Companies Inc. 2,715,000 138.804 1.58
RJR Nabisco Holdings Corp. 950,000 27.134 .31
Societe Nationale d'Exploitation Industrielle des Tabacs
et Allumettes "SEITA" 575,000 34.168 .39
UST Inc. 1,350,000 45.900 .52
- ---------------------------------------------- ------------------------------
Health & Personal Care - 0.51%
Bristol-Myers Squibb Co. 400,000 44.225 .51
- ---------------------------------------------- ------------------------------
503.587 5.76
-------------------
Services
- ---------------------------------------------- ------------------------------
Broadcasting & Publishing - 0.46%
Golden Books Family Entertainment, Inc. 8.75% convertible
TOPrS 2016 100,000 .050 .00
Houston Industries Inc. 7.00% ACES convertible preferred 340,000 27.561 .31
West Australian Newspapers Holdings Ltd. 4,165,000 13.134 .15
- ---------------------------------------------- ------------------------------
Business & Public Services - 6.11%
American Water Works Co., Inc. 1,850,000 59.084 .68
Autopistas del Mare Nostrum, SA Concesionaria del Estado 750,000 18.811 .21
Consumers Water Co. 300,000 9.038 .10
Hutchison Delta Finance Ltd. 7.00% convertible
debentures 2002 (2,3) 11,000,000 11.000 .13
Hyder PLC 5,980,000 82.222 .94
Thames Water PLC 6,554,166 120.667 1.38
TNT Post Groep 1,778,900 47.592 .54
United Utilities PLC 12,717,416 186.032 2.13
- ---------------------------------------------- ------------------------------
Leisure & Tourism - 0.19%
Host Marriott Financial Trust 6.75% QUIPS convertible
preferred 2026 400,000 16.300 .19
- ---------------------------------------------- ------------------------------
Merchandising - 0.87%
J.C. Penney Co., Inc. 950,000 45.125 .52
Safeway PLC 6,100,000 30.629 .35
- ---------------------------------------------- ------------------------------
Telecommunications - 10.07%
Ameritech Corp. 2,502,600 134.984 1.54
Deutsche Telekom AG 4,607,300 125.570 1.44
France Telecom, SA 850,000 59.311 .68
Hong Kong Telecommunications Ltd. (ADR) 2,454,377 49.241 .56
Koninklijke PTT Nederland NV 1,800,593 69.947 .80
SBC Communications Inc. 1,000,000 46.313 .53
Telecom Argentina SA, Class B (ADR) 841,900 27.151 .31
Telecom Corp. of New Zealand Ltd. 15,784,160 64.736
Telecom Corp. of New Zealand Ltd. (2) 8,380,000 34.369 1.14
Telecom Corp. of New Zealand Ltd. (ADR) 25,000 .825
Telecom Italia SpA 18,255,800 92.443 1.06
Telefonica de Argentina SA, Class B (ADR) 136,300 4.506 .05
Telefonica, SA (formerly Telefonica de Espana, SA) 2,300,840 103.827 1.19
TELUS Corp. 1,300,000 26.793 .31
U S WEST, Inc. 704,707 40.433 .46
- ---------------------------------------------- ------------------------------
Transportation: Airlines - 0.35%
Qantas Airways Ltd. 18,261,867 31.080 .35
- ---------------------------------------------- ------------------------------
1,578.774 18.05
-------------------
Finance
- ---------------------------------------------- ------------------------------
Banking - 17.78%
AmSouth Bancorporation 2,100,000 84.131 .96
Australia and New Zealand Banking Group Ltd. 2,400,000 13.740 .16
BANK ONE CORP. 3,238,000 158.257 1.81
BancWest Corp. (formerly First Hawaiian Bank) 400,000 15.950 .18
Bank of Nova Scotia 4,241,600 88.659 1.01
Barclays PLC 3,500,000 75.392 .86
Chase Manhattan Corp. 800,000 45.450 .52
Comerica Inc. 600,000 38.700 .44
Commonwealth Bank of Australia 1,650,000 20.535 .23
First Security Corp. (Utah) 2,420,500 49.469 .56
First Union Corp. 4,623,506 268.163 3.07
ForeningsSparbanken AB 845,000 22.905 .26
HSBC Holdings PLC 1,016,583 23.301 .27
Huntington Bancshares Inc. 1,954,617 56.195 .64
KeyCorp 2,070,000 62.747 .72
Keystone Financial, Inc. 1,127,550 32.981 .38
J.P. Morgan & Co. Inc. 120,000 11.310 .13
National Australia Bank Ltd. 2,480,654 32.905 .38
National City Corp. 800,000 51.450 .59
Royal Bank of Canada 1,715,000 79.154 .90
United Bankshares, Inc. 600,000 16.050 .18
Wachovia Corp. 1,899,375 172.606 1.97
Washington Mutual, Inc. 1,100,000 41.181 .47
Westpac Banking Corp. 7,100,930 43.231 .49
Wilmington Trust Corp. 950,000 52.309 .60
- ---------------------------------------------- ------------------------------
Financial Services - 0.43%
Health Care Property Investors, Inc. 880,000 29.590 .34
Imperial Credit Commercial Mortgage Investment Corp. 900,000 7.538 .09
- ---------------------------------------------- ------------------------------
Insurance - 3.18%
American General Corp. 160,000 10.960 .13
EXEL Ltd. 970,800 74.206 .85
Guardian Royal Exchange PLC 6,432,572 31.168 .36
HIH Winterthur International Holdings Ltd. 4,715,540 6.668 .08
Lincoln National Corp. 1,280,000 97.120 1.11
Ohio Casualty Corp. 717,500 27.086 .31
Royal & Sun Alliance Insurance Group PLC 3,286,656 30.090 .34
- ---------------------------------------------- ------------------------------
Real Estate - 4.31%
AMB Property Corp. 750,000 17.250 .20
Apartment Investment and Management Co., Class A 1,125,000 39.305 .45
Archstone Communities Trust (formerly Security Capital
Atlantic Trust and Security Capital Pacific Trust) 4,784,585 96.290 1.10
Bradley Real Estate, Inc. 1,045,000 21.945 .25
CarrAmerica Realty Corp. 1,620,000 36.450 .42
CCA Prison Realty Trust 429,400 10.091 .12
Correctional Properties Trust 185,000 3.596 .04
Kimco Realty Corp. 400,000 15.925 .18
Meditrust Corp., paired stock 2,010,000 32.663 .37
Pacific Retail Trust (2,3) 2,850,000 37.050 .42
ProLogis Trust (formerly Security Capital Industrial Trus 1,191,114 25.981 .30
Redwood Trust, Inc. 100,000 1.375 .02
Spieker Properties, Inc. 250,000 8.625 .10
Washington Real Estate Investment Trust 145,500 2.583 .03
Weeks Corp. 485,000 14.095 .16
Weingarten Realty Investors 300,000 13.331 .15
- ---------------------------------------------- ------------------------------
2,247.752 25.70
-------------------
Multi-Industry and Miscellaneous
- ---------------------------------------------- ------------------------------
Multi-Industry - 0.24%
Hunting PLC 4,260,000 11.194 .13
Lend Lease Corp. Ltd. 306,535 6.770 .08
Thermo Instrument Systems Inc. 4.50% convertible
debentures 2003 (2) 3,000,000 2.629 .03
- ---------------------------------------------- ------------------------------
Miscellaneous - 2.40%
Equity securities in initial period of
acquisition 210.572 2.40
Anglo American Coal Corp. Ltd.
Anglogold Ltd. (South Africa)
Bankers Trust New York Corp. (USA)
Cabot Industrial Trust
Cendant Corp. 7.50% PRIDES convertible preferred
Devro PLC (United Kingdom)
GLENBOROUGH REALTY TR CV PF SER A 7.75% 12/31/49
Hickson International PLC (United Kingdom)
[The] Rank Group PLC (United Kingdom)
Shell Transport and Trading Co. PLC (New York Registered Shares) (United Kin
Stora Kopparbergs Berslags, Class A (Sweden)
Swisscom AG (Switzerland)
Wisconsin Energy Corp. (USA)
- ---------------------------------------------- 1,608,800 -------------------
231.165 2.64
-------------------
TOTAL EQUITY SECURITIES (cost:
$3,670.864 million) 5,552.756 63.49
-------------------
Principal
Bonds and Notes Amount
- ---------------------------------------------- ------------------------------
Corporate
- ---------------------------------------------- ------------------------------
Airplanes Pass Through Trust, pass-through certificates,
Series 1, Class C, 8.15% 2019 (4) 5,443,783 5.658 .07
Allegiance Corp. 7.80% 2016 3,000,000 3.345 .04
Atlas Air, Inc., 1998-1 Pass Through Trust,
Class B, 7.68% 2014 (4) 5,000,000 4.979 .16
Atlas Air, Inc., 1998-1 Pass Through Trust,
Class A, 7.38% 2018 (4) 9,000,000 9.225
Ball Corp. 7.75% 2006 (2) 3,500,000 3.623 .04
Boyd Gaming Corp. 9.25% 2003 1,250,000 1.263 .01
Cable & Wireless Communications PLC 6.625%-6.75% 2005-200 3,625,000 3.674 .04
Cablevision Systems Corp. 7.875%-8.125% 2007-2009 5,500,000 5.459 .06
California Energy Co., Inc. 10.25% 2004 4,300,000 4.530 .05
Camden Property Trust 7.00% 2006 5,000,000 4.708 .05
CarrAmerica Realty Corp. 6.625%-7.375% 2000-2007 26,000,000 24.901 .28
CBS Corp. 7.15% 2005 6,000,000 6.131 .07
Century Communications Corp. 8.75% 2007 2,000,000 2.070 .02
Chateau Properties, Inc. 6.92% MOPPRS 2014 10,500,000 9.945 .11
Columbia Gas System, Inc., Series G, 7.62% 2025 3,000,000 3.035
Columbia Gas System, Inc., Series C, 6.80% 2005 2,000,000 2.106 .06
Columbia/HCA Healthcare Corp. 6.125%-6.91% 2000-2045 28,580,000 27.715 .32
Comcast Cellular Corp., Series B, 9.50% 2007 5,000,000 5.113 .06
Consumers International Inc. 10.25% 2005 5,000,000 5.075 .06
Container Corp. of America 9.75% 2003 8,485,000 8.188 .09
Continental Airlines, Inc., pass-through certificates,
Series 1997-1, Class A, 7.461% 2016 (4,5) 1,974,347 2.053
Continental Airlines, Inc., pass-through certificates,
7.78% 2007 (4,5) 2,944,600 2.978 .12
Continental Airlines, Inc., pass-through certificates,
Series 1997-4, Class A, 6.90% 2018 (4) 5,000,000 5.061
Cox Radio, Inc. 6.375% 2005 (2) 3,500,000 3.641 .04
Delta Air Lines, Inc., 1991 Equipment
Certificates Trust, Series K, 10.00% 2014 (2) 2,000,000 2.599 .03
DLJ Mortgage Acceptance Corp., Series 1996-CF1,
Class A-1A, 7.28% 2028 2,081,812 2.165 .03
EOP Operating LP, 6.625%-6.75% 2003-2008 5,550,000 5.381 .06
FIRSTPLUS Home Loan Owner Trust, Series 1997-1,
Class A-6, 6.95% 2015 (4) 4,250,000 4.318 .05
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 2,000,000 1.180 .01
Hearst-Argyle Television, Inc. 7.00% 2018 2,000,000 1.937 .02
Highwoods/Forsyth LP, 6.835% MOPPRS 2003 5,000,000 4.903 .06
Irvine Apartment Communities, LP 7.00% 2007 7,000,000 6.714 .08
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
2015 (2) 5,000,000 5.793 .07
McDermott Inc. 9.375% 2002 6,000,000 6.468 .07
J. Ray McDermott, SA 9.375% 2006 8,000,000 8.280 .10
M.D.C. Holdings, Inc. 8.375% 2008 5,000,000 4.650 .05
Merrill Lynch Mortgage Investors, Inc., Seller Manufactured
Housing Contract, Series 1995-C2, Class A-1, 7.093% 2021 1,891,944 1.929 .02
Fred Meyer, Inc. 7.375% 2005 5,000,000 5.208 .06
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds, Series C-91, 10.33% 2002 2,537,441 2.754 .03
Occidental Petroleum Corp. 8.50% 2004 8,000,000 8.123 .09
Ocean Energy, Inc. 8.875% 2007 5,000,000 4.925 .06
Omega Healthcare Investors, Inc. 6.95% 2002-2007 18,000,000 16.878 .19
Owens-Illinois, Inc. 7.85%-8.10% 2004-2007 2,000,000 2.092 .02
Paperboard Industries International Inc. 8.375% 2007 4,750,000 4.418 .05
Parker & Parsley Petroleum Co. 8.25% 2007 5,000,000 5.266 .06
Price REIT, Inc. 7.50% 2006 11,000,000 11.291 .13
ProLogis Trust 7.05% 2006 3,000,000 2.894 .03
Qwest Communications International Inc. 0%/9.47% 2007 (6) 2,000,000 1.480 .02
Riggs National Corp. 8.50% 2006 2,600,000 2.713 .03
Rite Aid Corp. 7.125% 2007 5,000,000 5.210 .06
Royal Caribbean Cruises Ltd. 7.00%-7.25% 2007-2018 4,500,000 4.392 .05
Rykoff-Sexton, Inc. 8.875% 2003 2,000,000 2.020 .02
Security Capital Group Inc. 7.15% 2007 7,500,000 7.195 .08
Security Capital Industrial Trust 7.81% 2015 2,000,000 1.868 .02
Security Capital Pacific Trust 7.25% 2004 5,000,000 4.941 .06
Shopping Center Associates 6.75% 2004 (2) 3,000,000 2.919 .03
Spieker Properties, LP 6.75%-6.875% 2005-2008 15,000,000 14.548 .17
Tenet Healthcare Corp. 8.125% 2008 (2) 10,000,000 10.150 .12
Time Warner Inc. 10.15% 2012 5,000,000 6.620 .08
TKR Cable I, Inc. 10.50% 2007 7,000,000 7.689 .09
Wellsford Residential Property Trust 7.75% 2005 2,500,000 2.593 .03
WestPoint Stevens Inc. 7.875% 2005 5,000,000 5.050 .06
Woolworth Corp., Series A, 6.98%-7.00% 2001-2002 16,500,000 16.341 .19
WorldCom, Inc. 6.40% 2005 3,150,000 3.273 .04
- ---------------------------------------------- ------------------------------
373.644 4.27
-------------------
Governments and Governmental Authorities
- ---------------------------------------------- ------------------------------
Canadian Government 7.00% September 2001 40,000,000 27.495 .32
- ---------------------------------------------- ------------------------------
27.495 .32
-------------------
U.S. Treasuries
- ---------------------------------------------- ------------------------------
8.50% February 2000 150,000,000 157.593 1.80
6.375% May 2000 100,000,000 102.984 1.18
8.75% August 2000 150,000,000 161.274 1.84
6.125% September 2000 30,000,000 30.975 .35
8.00% May 2001 6,000,000 6.519 .07
6.50% May 2001 3,000,000 3.157 .04
14.25% February 2002 75,000,000 97.383 1.11
11.125% August 2003 75,000,000 96.328 1.10
6.50% May 2005 7,500,000 8.355 .10
6.125% August 2007 2,200,000 2.429 .03
6.375% August 2027 9,000,000 10.371 .12
- ---------------------------------------------- ------------------------------
677.368 7.74
-------------------
TOTAL BONDS AND NOTES (cost: $1,072.893 million) 1,078.507 12.33
-------------------
TOTAL INVESTMENT SECURITIES (cost: $4,743.757
million) 6,631.263 75.82
-------------------
SHORT-TERM SECURITIES
- ---------------------------------------------- ------------------------------
Corporate Short-Term Notes
- ---------------------------------------------- ------------------------------
American Express Credit Corp. 5.03% due 1/5/99 29,500,000 29.216 .33
Ciesco LP 5.05%-5.47% due 11/6/98-1/22/99 81,200,000 80.582 .92
Coca-Cola Co. 4.89%-5.30% due 12/1/98-1/19/99 80,600,000 80.004 .91
Walt Disney Co. 4.96% due 1/14/99 50,000,000 49.476 .57
Duke University 5.51% due 11/6/98 17,900,000 17.884 .21
E.I. du Pont de Nemours and Co. 4.98%-5.34% due 11/24/98-80,000,000 79.531 .91
Ford Motor Credit Co. 5.05%-5.47% due 11/2/98-1/7/99 77,000,000 76.637 .88
Gannett Co., Inc. 5.25% due 11/3/98 (2) 41,800,000 41.782 .48
General Electric Capital Corp. 5.11%-5.72% due 11/2-11/2338,800,000 38.703 .44
General Motors Acceptance Corp. 5.06%-5.07% due 1/13-1/1557,000,000 56.380 .65
H.J. Heinz Co. 5.00%-5.44% due 11/4-12/11/98 84,000,000 83.719 .96
Hershey Foods Corp. 4.95%-5.43% due 11/5-12/10/98 43,400,000 43.219 .49
International Lease Finance Corp. 5.00%-5.43% due 11/2/9897,700,000 97.153 1.11
Lucent Technologies Inc. 5.19%-5.42% due 11/3-11/19/98 73,000,000 72.880 .83
Monsanto Co. 5.15%-5.52% due 11/12/98-2/12/99 (2) 51,300,000 50.913 .58
Motorola, Inc. 5.10%-5.48% due 11/12-12/28/98 63,185,000 62.824 .72
National Rural Utilities Cooperative Finance Corp. 5.12%-5.48%
due 11/12/98-1/12/99 62,900,000 62.423 .71
Procter & Gamble Co. 4.90%-5.47% due 11/6/98-1/20/99 59,900,000 59.690 .68
Xerox Corp. 4.95%-5.20% due 11/9/98-1/11/99 92,100,000 91.573 1.05
- ---------------------------------------------- ------------------------------
1,174.589 13.43
-------------------
Federal Agency Discount Notes
- ---------------------------------------------- ------------------------------
Fannie Mae 4.93%-5.34% due 12/4/98-3/25/99 100,800,000 99.548 1.14
Federal Farm Credit Banks 4.85% due 2/1/99 100,000,000 99.977 1.14
Federal Home Loan Banks 5.25% due 12/18/98 51,000,000 50.674 .58
Freddie Mac 4.92%-5.41% due 11/5/98-3/26/99 374,900,000 370.910 4.24
- ---------------------------------------------- ------------------------------
62 7.10
-------------------
U.S. Treasury Short-Term Notes
- ---------------------------------------------- ------------------------------
5.875%-8.875% due 2/15-8/15/99 348,000,000 354.387 4.05
- ---------------------------------------------- ------------------------------
TOTAL SHORT-TERM SECURITIES (cost: $2,150.783
million) 2,150.085 24.58
EXCESS OF PAYABLES OVER CASH AND RECEIVABLES 34.544 .40
-------------------
TOTAL SHORT-TERM SECURITIES, CASH AND
RECEIVABLES, NET OF PAYABLES 2,115.541 24.18
-------------------
NET ASSETS 8,746.804 100.00
===================
(1) Non-income-producing securities.
(2) Purchased in a private placement transaction;
resale to the public may require registration
or sale only to qualified institutional buyers.
(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) Coupon rate changes periodically.
(6) Step bond; coupon rate will increase at a later date.
ADR = American Depositary Receipts
See Notes to Financial Statements
</TABLE>
<TABLE>
Capital Income Builder
Financial Statements
<S> <C> <C>
Statement of Assets and Liabilities
at October 31, 1998 (dollars in
millions)
Assets:
Investment securities at market (cost:$4,743.757) $6,631.263
Short-term securities (cost:$2,150.783) 2,150.085
Cash .079
Receivables for-
Sales of investments $ 90.000
Sales of fund's shares 13.014
Forward currency contracts .000
Dividends and accrued interest 53.248 156.262
----------------------
8,937.689
Liabilities:
Payables for-
Purchases of investments 116.390
Repurchases of fund's shares 5.508
Management services 2.059
Dividends payable 63.346
Accrued expenses 3.582 190.885
----------------------
Net Assets at October 31, 1998 - Equivalent to
$48.40 per share on 180,735,722 shares of $0.01
par value capital stock outstanding
(authorized capital stock - 200,000,000 shares) $8,746.804
============
Statement of Operations
for the year ended October 31, 1998
(dollars in millions)
Investment Income:
Income:
Dividends $217.392
Interest 193.597 $410.989
------------
Expenses:
Management services fee 26.651
Distribution expenses 18.508
Transfer agent fee 4.060
Reports to shareholders .967
Registration statement and prospectus .570
Postage, stationery and supplies .815
Directors' fees .132
Auditing and legal fees .063
Custodian fee 1.114
Taxes other than federal income tax .069
Other expenses .100 53.049
----------------------
Net investment income 357.940
------------
Realized Gain and Unrealized Appreciation on
Investments:
Net realized gain 519.943
Net increase in unrealized appreciation on investments 108.040
------------
Net realized gain and increase in unrealized
appreciation on investments 627.983
------------
Net Increase in Net Assets Resulting from Operations $985.923
============
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in millions) Year endedOctober 31
1998 1997
----------------------
Operations:
Net investment income $ 357.940$ 259.582
Net realized gain on investments 519.943 280.827
Net increase in unrealized appreciation on inves 108.040 776.609
----------------------
Net increase in net assets resulting from
operations 985.923 1,317.018
----------------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (360.241) (262.498)
Distributions from net realized gain on investme (256.425) (99.910)
----------------------
Total dividends and distributions (616.666) (362.408)
----------------------
Capital Share Transactions:
Proceeds from shares sold: 30,081,411 and
29,804,485 shares, respectively 1,451.894 1,285.671
Proceeds from shares issued in reinvestment of net
investment income dividends and distributions of
net realized gain on investments: 10,721,248 and
7,455,750 shares, respectively 505.404 314.663
Cost of shares repurchased: 18,311,478 and 15,485,458
shares, respectively (881.077) (671.331)
----------------------
Net increase in net assets resulting from capital
share transactions 1,076.221 929.003
----------------------
Total Increase in Net Assets 1,445.478 1,883.613
Net Assets:
Beginning of year 7,301.326 5,417.713
----------------------
End of year (including undistributed net investment
income: $3.480 and $3.028, respectively) $8,746.804$7,301.326
======================
See Notes to Financial Statements
</TABLE>
CAPITAL INCOME BUILDER
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
SECURITY VALUATION - 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
a 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. 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.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - 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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are
declared daily from net investment income. Distributions paid to shareholders
are recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION
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, 1998, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $1,886,808,000, of which
$2,019,478,000 related to appreciated securities and $132,670,000 related to
depreciated securities. During the year ended October 31, 1998, the fund
realized, on a tax basis, a net capital gain of $517,096,000 on securities
transactions. Net losses related to non-U.S. currency and other transactions of
$2,847,000 were treated as an adjustment to ordinary income for federal income
tax purposes. The cost of portfolio securities for book and federal income tax
purposes was $6,894,540,000 at October 31, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $26,651,000 for management services was
incurred 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 monthly 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.
DISTRIBUTION EXPENSES - 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, 1998, distribution expenses under the Plan were $18,508,000. As of
October 31, 1998, accrued and unpaid distribution expenses were $2,758,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $6,716,000 (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.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer
agent for the fund, was paid a fee of $4,060,000.
DEFERRED DIRECTORS' FEES - 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, 1998, aggregate amounts deferred and earnings
thereon were $293,000.
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,722,714,000 and $1,913,111,000, respectively,
during the year ended October 31, 1998.
As of October 31, 1998, accumulated undistributed net realized gain on
investments was $492,001,000 and additional paid-in capital was $6,362,433,000.
The fund reclassified $2,753,000 to undistributed net investment income and
$24,069,000 to additional paid-in capital from undistributed net realized gains
for the year ended October 31, 1998.
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 $1,114,000 includes $33,000 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, 1998, such non-U.S. taxes were $11,018,000. Net realized
currency losses on dividends, interest, withholding taxes reclaimable, and
sales of non-U.S. bonds and notes, on a book basis, were $10,075,000 for the
year ended October 31, 1998.
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year ended October 31
1998 1997 1996 1995 1994
Net Asset Value, Beginning of Year $46.14 $39.70 $36.27 $32.68 $34.42
-------- --------- - --------- - --------- --------- -
Income From Investment Operations:
Net investment income 2.09 1.74 1.95 1.69 1.73
Net realized and unrealized gain
(loss) on investments 3.87 7.20 3.92 3.69 (1.62)
--------- --------- --------- --------- ---------
Total income from investment opera 5.96 8.94 5.87 5.38 .11
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from net investment incom (2.09) (1.77) (1.94) (1.69) (1.73)
Distributions from net realized gai (1.61) (.73) (.50) (.10) (.12)
--------- --------- --------- --------- ---------
Total distributions (3.70) (2.50) (2.44) (1.79) (1.85)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year $48.40 $46.14 $39.70 $36.27 $32.68
========= ========= ========= ========= =========
Total Return (1) 13.33% 23.16% 16.76% 16.98% .47%
Ratios/Supplemental Data:
Net assets, end of year (in millions $8,747 $7,301 $5,418 $4,533 $3,629
Ratio of expenses to average net ass .64% .65% .71% .72% .73%
Ratio of net income to average net a 4.35% 4.04% 5.19% 4.96% 5.29%
Portfolio turnover rate 24.38% 27.65% 27.56% 18.06% 36.19%
(1)Excludes maximum sales charge of 5.75%.
</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, 1998, 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, 1998 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
November 30, 1998
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>
Dividends and Distributions per Share
From Net From Net From Net
Investment Realized Short- Realized Long-
Reinvest Date Payment Date Income term Gains term Gains
<S> <C> <C> <C> <C>
December 22, 1997 December 23, 1997 $0.480 - $1.61*
March 23, 1998 March 24, 1998 0.480 - -
June 16, 1998 June 17, 1998 0.485 - -
September 8, 1998 September 9, 1998 0.490 - -
</TABLE>
*INCLUDES $1.061 LONG-TERM CAPITAL GAINS TAXED AT A MAXIMUM RATE OF 28%.
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 27% 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, 24% 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 retirement plan 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 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
