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Capital Income Builder, et al. · 486BPOS · On 2/15/02

Filed On 2/15/02   ·   Accession Number 811968-2-3   ·   SEC Files 33-12967, 811-05085

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  As Of                Filer                Filing    For/On/As Docs:Size

 2/15/02  Capital Income Builder            486BPOS     2/15/02   10:617K
          Capital Income Builder Inc

Post-Effective Amendment to an N-2   —   Form N-2
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 486BPOS     Post-Effective Amendment to an N-2                   111    646K 
 2: EX-99.A CHARTER  Miscellaneous Exhibit                             3±    12K 
 3: EX-99.E UNDR CONTR  Miscellaneous Exhibit                         24±    90K 
 4: EX-99.G CUST AGREEMT  Miscellaneous Exhibit                       23±    87K 
 5: EX-99.H OTH MAT CONT  Miscellaneous Exhibit                        7±    29K 
 6: EX-99.I LEGAL OPININ  Miscellaneous Exhibit                        1      8K 
 7: EX-99.J OTHER OPININ  Miscellaneous Exhibit                        1      5K 
 8: EX-99.M 12B-1 PLAN  Miscellaneous Exhibit                         22±    84K 
 9: EX-99.N 18F-3 PLAN  Miscellaneous Exhibit                          6±    26K 
10: EX-99.P CODE ETH  Miscellaneous Exhibit                            7±    26K 


486BPOS   —   Post-Effective Amendment to an N-2
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
9Investment Objectives, Strategies and Risks
14American Funds Service Company Service Areas
19Sales Charges
21Sales Charge Reductions and Waivers
22Contingent Deferred Sales Charge Waivers
"Plans of Distribution
23Transactions by Telephone, Fax or the Internet
25Financial Highlights
61Certain Investment Limitations and Guidelines
"Equity Securities
"Description of Certain Securities and Investment Techniques
67Fundamental Policies and Investment Restrictions
70Management of the Fund
82Taxes and Distributions
87Purchase of Shares
88Fund Numbers
97Individual Retirement Account (IRA) Rollovers
98Price of Shares
99Selling Shares
101Shareholder Account Services and Privileges
104Execution of Portfolio Transactions
"General Information
106Class A Share Investment Results and Related Statistics
108Appendix
109Aaa
110Ccc
111Item 23. Exhibits
"Item 24. Persons Controlled by or Under Common Control With Registrant
"Item 25. Indemnification
"Item 25. Indemnification (Continued)
"Item 26. Business and Other Connections of Investment Adviser
"Item 28. Location of Accounts and Records
"Item 29. Management Services
"Item 30. Undertakings
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SEC. File Nos. 2-12967 811-5085 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A Registration Statement Under the Securities Act of 1933 Post-Effective Amendment No. 19 and Registration Statement Under The Investment Company Act of 1940 Amendment No. 21 CAPITAL INCOME BUILDER, INC. (Exact Name of Registrant as specified in charter) 333 South Hope Street Los Angeles, California 90071 (Address of principal executive offices) Registrant's telephone number, including area code: (213) 486-9200 Vincent P. Corti Capital Research and Management Company 333 South Hope Street Los Angeles, California 90071 (name and address of agent for service) Copies to: MICHAEL J. FAIRCLOUGH, ESQ. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (Counsel for the Registrant) Approximate date of proposed public offering: It is proposed that this filing become effective on February 15, 2002, pursuant to paragraph (b) of rule 485. [logo - American Funds(sm)] The right choice for the long term(sm) CAPITAL INCOME BUILDER(R) PROSPECTUS February 15, 2002 Table of Contents 1 Risk/Return Summary 5 Fees and Expenses of the Fund 7 Investment Objectives, Strategies and Risks 10 Management and Organization 12 Shareholder Information 13 Choosing a Share Class 15 Purchase and Exchange of Shares 17 Sales Charges 19 Sales Charge Reductions and Waivers 20 Plans of Distribution 21 How to Sell Shares 22 Distributions and Taxes 23 Financial Highlights THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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[This page is intentionally left blank.] Capital Income Builder / Prospectus
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Risk/Return Summary The fund primarily seeks to provide you with a level of current income that exceeds the average yield on U.S. stocks generally and a growing stream of income over the years. Secondarily, the fund strives to make your investment grow over time. The fund invests primarily in a broad range of income-producing securities, including stocks with a history of, or potential for, increasing dividends. The fund may also invest significantly in non-U.S. securities. The fund is designed for investors seeking current income and capital appreciation through a mix of investments that provide above-average price stability. Your investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to economic, political or social events in the U.S. or abroad. The values of and the income generated by debt securities owned by the fund may be affected by changing interest rates and credit risk assessments. The prices of and the income generated by securities owned by the fund may be affected by events specifically involving the companies issuing those securities. Although all securities in the fund's portfolio may be adversely affected by currency fluctuations or global political, social or economic instability, securities issued by entities based outside the U.S. may be affected to a greater extent. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 Capital Income Builder / Prospectus
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HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual total returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. [bar chart] CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, results would be lower.) 1992 10.00% 1993 15.28 1994 -2.26 1995 25.05 1996 17.64 1997 23.32 1998 11.75 1999 -2.78 2000 12.52 2001 4.75 [end bar chart] Highest/lowest quarterly results during this time period were: [Download Table] HIGHEST 9.29% (quarter ended December 31, 1996) LOWEST -5.37% (quarter ended September 30, 1999) 2 Capital Income Builder / Prospectus
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Unlike the bar chart on the previous page, the Investment Results Table on the following page reflects, as required by Securities and Exchange Commission rules, the fund's results with the maximum initial or deferred sales charge imposed. Class A share results reflect the maximum initial sales charge of 5.75%. Class A sales charges are reduced for purchases of $25,000 or more. Class B share results reflect the applicable contingent deferred sales charge. These charges begin to decline after 12 months and are eliminated after six years. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividend and capital gain distributions. The fund's results are shown on a pre-tax and after-tax basis, as required by Securities and Exchange Commission rules. Total returns shown "after taxes on distributions" reflect the effect of taxable distributions (for example, dividend or capital gain distributions) by the fund. Total returns shown "after taxes on distributions and sale of fund shares" assume that you sold your fund shares at the end of the particular time period, and as a result, reflect the effect of both taxable distributions by the fund and any taxable gain or loss realized upon the sale of the shares. After-tax returns are calculated using the highest historical individual federal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class A shares; after-tax returns for other share classes will vary. YOUR ACTUAL AFTER-TAX RETURNS DEPEND ON YOUR INDIVIDUAL TAX SITUATION AND LIKELY WILL DIFFER FROM THE RESULTS SHOWN ON THE FOLLOWING PAGE. IN ADDITION, AFTER-TAX RETURNS ARE NOT RELEVANT IF YOU HOLD YOUR FUND SHARES THROUGH TAX-DEFERRED ARRANGEMENTS, SUCH AS A 401(K) PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR COLLEGEAMERICA ACCOUNT. Since the fund's Class C and F shares were first available on March 15, 2001 and the fund's Class 529 shares were first available on February 15, 2002, comparable results for these classes are not available for the 2001 calendar year. 3 Capital Income Builder / Prospectus
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[Download Table] INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME ------------------------------------------------------------------------------- CLASS A - BEGAN 7/30/87 Before Taxes -1.27% 8.28% 10.50% 11.11% After Taxes on Distributions -3.58% 5.66% 8.02% N/A After Taxes on Distributions and -0.34% 5.67% 7.60% N/A Sale of Fund Shares ------------------------------------------------------------------------------- CLASS B - BEGAN 3/15/00 Before Taxes -0.92% N/A N/A 9.40% ------------------------------------------------------------------------------- INDEXES/1/ S&P 500/2/ -11.83% 10.69% 12.91% 12.03% Lipper Income Funds Average/3/ -0.02% 6.90% 9.77% 9.98% ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2001: 3.44% (For current yield information, please call American FundsLine at 1-800-325-3590.) 1 Lifetime results are as of the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted measurement of changes in stock market conditions based on the average weighted performance of 500 widely held common stocks. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. 3 The Lipper Income Funds Average represents an average of funds that normally seek a high level of current income through investing in income-producing stocks, bonds, and money market instruments. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. 4 Capital Income Builder / Prospectus
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Fees and Expenses of the Fund [Download Table] SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A/1/ CLASS B/1/ CLASS C/1/ CLASS E/1/ CLASS F/1/ ------------------------------------------------------------------------------------ Maximum sales charge imposed on purchases (as a percentage of 5.75 %/2/ none none none none offering price) ------------------------------------------------------------------------------------ Maximum sales charge imposed on reinvested none none none none none dividends ------------------------------------------------------------------------------------ Maximum deferred none/3/ 5.00%/4/ 1.00%/5/ none none sales charge ------------------------------------------------------------------------------------ Redemption or exchange fees none none none none none 1 Includes versions of these classes offered through CollegeAmerica, a 529 college savings plan sponsored by the Virginia College Savings Plan, an agency of the Commonwealth of Virginia. Class E shares are only available through CollegeAmerica to employer-sponsored plans. 2 Sales charges are reduced or eliminated for purchases of $25,000 or more. 3 A contingent deferred sales charge of 1% applies on certain redemptions made within 12 months following purchases of $1 million or more made without a sales charge. 4 Deferred sales charge is reduced after 12 months and eliminated after six years. 5 Deferred sales charge is eliminated after 12 months. [Download Table] ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A CLASS B CLASS C/1/ CLASS F/1/ ------------------------------------------------------------------------------- Management Fees 0.33% 0.33% 0.33% 0.33% ------------------------------------------------------------------------------- Distribution and/or 0.24% 1.00% 1.00% 0.25% Service (12b-1) Fees/2/ ------------------------------------------------------------------------------- Other Expenses 0.09% 0.08% 0.18% 0.22% ------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.66% 1.41% 1.51% 0.80% CLASS CLASS CLASS CLASS CLASS 529-A/3/ 529-B/3/ 529-C/3/ 529-E/3/ 529-F/3/ ------------------------------------------------------------------------------- Management Fees 0.33% 0.33% 0.33% 0.33% 0.33% ------------------------------------------------------------------------------- Distribution and/or 0.22% 1.00% 1.00% 0.50% 0.25% Service (12b-1) Fees/4/ ------------------------------------------------------------------------------- Other Expenses/5/ 0.28% 0.28% 0.28% 0.28% 0.28% ------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.83% 1.61% 1.61% 1.11% 0.86% 1 Annualized. 2 Class A and F 12b-1 fees may not exceed 0.30% and 0.50%, respectively, of the class' average net assets annually. 3 Based on estimated amounts for the current fiscal year. 4 Class 529-A and 529-F 12b-1 fees may not exceed 0.50% of each class' average net assets annually. Class 529-E 12b-1 fees may not exceed 0.75% of the class' average net assets annually. 5 Includes 0.10% paid to the Virginia College Savings Plan for administrative services it provides in overseeing CollegeAmerica. 5 Capital Income Builder / Prospectus
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EXAMPLE The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividend and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown on the previous page. The examples assuming redemption do not reflect the effect of any taxable gain or loss at the time of the redemption. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be: [Download Table] ONE THREE FIVE TEN YEAR YEARS YEARS YEARS --------------------------------------------------------------------------- Class A/1/ $639 $774 $ 922 $1,350 --------------------------------------------------------------------------- Class B - assuming redemption/2/ $644 $846 $ 971 $1,486 --------------------------------------------------------------------------- Class B - assuming no redemption $144 $446 $ 771 $1,486 --------------------------------------------------------------------------- Class C - assuming redemption/3/ $254 $477 $ 824 $1,802 --------------------------------------------------------------------------- Class C - assuming no redemption $154 $477 $ 824 $1,802 --------------------------------------------------------------------------- Class F - excludes intermediary fees/4/ $ 82 $255 $ 444 $ 990 --------------------------------------------------------------------------- Class 529-A/1/ $655 $825 $1,009 $1,541 --------------------------------------------------------------------------- Class 529-B - assuming redemption/2/ $664 $908 $1,076 $1,702 --------------------------------------------------------------------------- Class 529-B - assuming no redemption $164 $508 $ 876 $1,702 --------------------------------------------------------------------------- Class 529-C - assuming redemption/3/ $264 $508 $ 876 $1,911 --------------------------------------------------------------------------- Class 529-C - assuming no redemption $164 $508 $ 876 $1,911 --------------------------------------------------------------------------- Class 529-E $113 $353 $ 612 $1,352 --------------------------------------------------------------------------- Class 529-F - excludes intermediary fees/4/ $ 88 $274 $ 477 $1,061 1 Reflects the maximum initial sales charge in the first year. 2 Reflects applicable contingent deferred sales charges through year six and Class A or 529-A expenses for years nine and ten because Class B and 529-B shares automatically convert to Class A and 529-A shares, respectively, after eight years. 3 Reflects contingent deferred sales charge during the first year. 4 Does not include fees charged by financial intermediaries, which are independent of fund expenses and will increase the overall cost of your investment. Intermediary fees typically range from 0.50% to 3.00% of assets annually depending on services offered. 6 Capital Income Builder / Prospectus
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Investment Objectives, Strategies and Risks The fund has two primary investment objectives: 1) to provide you with a level of current income that exceeds the average yield on U.S. stocks generally and 2) to provide you with a growing stream of income over the years. The fund's secondary objective is to provide you with growth of capital. The fund invests primarily in a broad range of income-producing securities, including stocks and bonds. The fund may also invest significantly in securities of issuers domiciled outside the U.S. The fund normally will invest at least 90% of its assets in income-producing securities (with at least 50% of its assets in common stocks). The prices of common stocks and other equity-type securities held by the fund may decline in response to certain events including those directly involving issuers of these securities, adverse conditions affecting the general economy, overall market declines, world political, social and economic instability, and currency fluctuations. The values of and the income generated by most debt securities held by the fund may be affected by changing interest rates and by changes in effective maturities and credit ratings of these securities. For example, the values of debt securities in the fund's portfolio generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem or "call" a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities. Investments in securities issued by entities based outside the U.S. may be subject to the risks described above to a greater extent and may also be affected by differing securities regulations, higher transaction costs, and administrative difficulties such as delays in clearing and settling portfolio transactions. The fund may also hold cash or money market instruments. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objectives in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general market downturn and provide liquidity to make additional investments or to meet redemptions. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek reasonably priced securities that represent above average long-term investment opportunities. This is accomplished not only through fundamental analysis, but also by meeting with company executives and employees, suppliers, customers and competitors in order to gain in-depth knowledge of a company's true value. Securities may be sold when the investment adviser believes they no longer represent good long-term value. 7 Capital Income Builder / Prospectus
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[Download Table] INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME CLASS A - BEGAN 7/30/87 Before Taxes 4.75% 9.57% 11.16% 11.57% After Taxes on Distributions 2.30% 6.92% 8.66% N/A After Taxes on Distributions and 3.35% 6.74% 8.17% N/A Sale of Fund Shares ------------------------------------------------------------------------------- CLASS B - BEGAN 3/15/00 Before Taxes 3.94% N/A N/A 11.46% ------------------------------------------------------------------------------- INDEXES/1/ S&P 500/2/ -11.83% 10.69% 12.91% 12.03% Lipper Income Funds Average/3/ -0.02% 6.90% 9.77% 9.98% ------------------------------------------------------------------------------- Class A distribution rate at December 31, 2001/4/: 4.77% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.) 1 Lifetime results are as of the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted measurement of changes in stock market conditions based on the average weighted performance of 500 widely held common stocks. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. 3 The Lipper Income Funds Average represents an average of funds that normally seek a high level of current income through investing in income-producing stocks, bonds, and money market instruments. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. 4 The distribution rate represents actual distrbutions paid by the fund. It was calculated at net asset value by annualizing the dividends paid by the fund over one quarter and dividing that number by the fund's average net asset value for the three months. 8 Capital Income Builder / Prospectus
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[pie chart] HOLDINGS BY INDUSTRY AS OF OCTOBER 31, 2001 Banks 14.34% Electric Utilities 10.09% Real Estate 6.60% Tobacco 5.32% Insurance 3.48% Other Industries 29.87% Bonds and Notes 19.17% Cash & Equivalents 11.13% [end chart] [Download Table] LARGEST EQUITY HOLDINGS AS OF OCTOBER 31, 2001 PERCENT OF NET ASSETS ------------------------------------------------------------------- Philip Morris 2.11% ------------------------------------------------------------------- NiSource 1.71 -------------------------------------------- XL Capital 1.57 ------------------------------------------------------------------- Pinnacle West Capital 1.51 ------------------------------------------------------------------- PowerGen PLC 1.44 ------------------------------------------------------------------- Bank of Nova Scotia 1.42 ------------------------------------------------------------------- Archstone-Smith Trust 1.40 ------------------------------------------------------------------- Wachovia 1.38 ------------------------------------------------------------------- Royal Bank of Canada 1.30 ------------------------------------------------------------------- Southern Co. 1.29 ------------------------------------------------------------------- Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 9 Capital Income Builder / Prospectus
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Management and Organization INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier in the Annual Fund Operating Expenses Table. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for Capital Income Builder are: 10 Capital Income Builder / Prospectus
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[Enlarge/Download Table] PORTFOLIO COUNSELOR/ FUND PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE ----------------------------------------------------------------------------------------------------------- JAMES B. LOVELACE 10 years Senior Vice President and Director, Capital Chairman, Principal (plus 3 years prior Research and Management Company Executive Officer and experience as a research Director professional for the fund) Investment professional for 20 years, all with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- JON B. LOVELACE 15 years Chairman Emeritus, Capital Research and Director Management Company Investment professional for 50 years, all with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- JOYCE E. GORDON 2 years Senior Vice President, Capital Research Company Senior Vice President (plus 11 years prior experience as a research Investment professional for 26 years, all with professional for the fund) Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- JANET A. MCKINLEY 10 years Director, Capital Research and Management Company Senior Vice President (plus 4 years prior experience as a research Investment professional for 26 years in total;20 professional for the fund) years with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- DARCY B. KOPCHO 1 year Director, Capital Research and Management Company Vice President (plus 4 years prior experience as a research Investment professional for 16 years, all with professional for the fund) Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- MARK R. MACDONALD 7 years Vice President - Investment Management Group, Vice President Capital Research and Management Company Investment professional for 16 years in total;8 years with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- STEVEN T. WATSON 4 years Senior Vice President, Capital Research Company Vice President (plus 5 years prior experience as a research Investment professional for 12 years, all with professional for the fund) Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- 11 Capital Income Builder / Prospectus
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Shareholder Information SHAREHOLDER SERVICES American Funds Service Company, the fund's transfer agent, offers you a wide range of services you can use to alter your investment program should your needs and circumstances change. These services may be terminated or modified at any time upon 60 days' written notice. For your convenience, American Funds Service Company has four service centers across the country. AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS Call toll-Free from anywhere in the U.S. (8 a.m. to 8 p.m. ET): 800/421-0180 Access the American Funds website : www.americanfunds.com [map of the United States] [Download Table] Western Western Central Eastern Central Eastern Service Center Service Center Service Center Service Center American Funds American Funds American Funds American Funds Service Company Service Company Service Company Service Company P.O. Box 25065 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280 Santa Ana, San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia California 78265-9522 46206-6007 23501-2280 92799-5065 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773 Fax: 714/671-7080 A MORE DETAILED DESCRIPTION OF POLICIES AND SERVICES IS INCLUDED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION AND THE OWNER'S GUIDE SENT TO NEW AMERICAN FUNDS SHAREHOLDERS TITLED "WELCOME TO THE FAMILY." 529 CLASS SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO THEIR COLLEGEAMERICA ACCOUNT(S). These documents are available by writing or calling American Funds Service Company. 12 Capital Income Builder / Prospectus
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Choosing a Share Class The fund offers different classes of shares through this prospectus. Class A, B, C and F shares may be purchased through various investment programs or accounts, including many types of retirement plans. The services or share classes available to you may vary depending upon how you wish to purchase shares of the fund. Investors residing in any state may purchase Class 529-A, 529-B, 529-C, 529-E and 529-F shares through an account established with CollegeAmerica. The 529-A, 529-B, 529-C and 529-F share classes are structured similarly to the corresponding Class A, B, C and F shares. For example, the same initial sales charges apply to Class 529-A shares as they do to Class A shares. Class 529-E shares are only available to investors participating in CollegeAmerica through an eligible employer plan. Each share class represents investments in the same portfolio of securities, but each class has its own sales charge and expense structure, allowing you to choose the class that best meets your situation. WHEN YOU PURCHASE SHARES OF THE FUND, YOU MUST CHOOSE A SHARE CLASS. IF NONE IS CHOSEN, YOUR INVESTMENT WILL BE MADE IN CLASS A SHARES OR, IN THE CASE OF A COLLEGEAMERICA INVESTMENT, CLASS 529-A SHARES. Factors you should consider in choosing a class of shares include: . how long you expect to own the shares; . how much you intend to invest; . total expenses associated with owning shares of each class; . whether you qualify for any reduction or waiver of sales charges (for example, Class A or 529-A shares may be a less expensive option over time if you qualify for a sales charge reduction or waiver); . whether you plan to take any distributions in the near future (for example, the contingent deferred sales charge will not be waived if you sell your Class 529-B or 529-C shares to cover higher education expenses); . Class B and C shares are generally not available to certain retirement plans, including employer-sponsored retirement plans such as 401(k) plans, 457 plans, employer-sponsored 403(b) plans, and money purchase pension and profit sharing plans; . Class F and 529-F shares are generally only available to fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. EACH INVESTOR'S FINANCIAL CONSIDERATIONS ARE DIFFERENT. YOU SHOULD SPEAK WITH YOUR FINANCIAL ADVISER TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU. UNLESS OTHERWISE NOTED, REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F SHARES. 13 Capital Income Builder / Prospectus
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[Download Table] SUMMARY OF THE PRIMARY DIFFERENCES AMONG SHARE CLASSES CLASS A SHARES Initial sales charge up to 5.75% (reduced or eliminated for purchases of $25,000 or more) Contingent deferred none (except on certain redemptions on purchases of $1 sales charge million or more made without an initial sales charge) 12b-1 fees up to 0.30% annually (529-A may not exceed 0.50% annually) Dividends generally higher than other classes due to lower annual expenses Purchase maximum none Conversion none CLASS B SHARES Initial sales charge none Contingent deferred starts at 5.00% and declines until it reaches 0% after sales charge six years 12b-1 fees 1.00% annually Dividends generally lower than A and F shares due to higher distribution fees and other expenses, but higher than C shares due to lower other expenses Purchase maximum $100,000 Conversion automatic conversion to A or 529-A shares after eight years, reducing future annual expenses CLASS C SHARES Initial sales charge none Contingent deferred 1.00% if shares are sold within one year after being sales charge purchased 12b-1 fees 1.00% annually Dividends generally lower than other classes due to higher distribution fees and other expenses Purchase maximum $500,000 Conversion automatic conversion to F shares after 10 years, reducing future annual expenses (529-C shares will not convert to 529-F shares) CLASS F SHARES Initial sales charge none Contingent deferred none sales charge 12b-1 fees currently 0.25% annually (may not exceed 0.50% annually) Dividends generally higher than B and C shares due to lower distribution fees, but lower than A shares due to higher other expenses Purchase maximum none Conversion none CLASS 529-E SHARES Initial sales charge none Contingent deferred none sales charge 12b-1 fees currently 0.50% annually (may not exceed 0.75% annually) Dividends generally higher than 529-B and 529-C shares due to lower distribution fees, but lower than 529-A and 529-F shares due to higher distribution fees Purchase maximum none Conversion none 14 Capital Income Builder / Prospectus
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Purchase and Exchange of Shares PURCHASE OF CLASS A, B AND C SHARES You may generally open an account and purchase Class A, B and C shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. PURCHASE OF CLASS F SHARES You may generally open an account and purchase Class F shares only through fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. These firms and advisers typically charge ongoing fees for services they provide. PURCHASE OF CLASS 529 SHARES Class 529 shares may be purchased only through a CollegeAmerica account. You may open a CollegeAmerica account and purchase 529 shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell a CollegeAmerica account. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. Class 529-E shares may only be purchased by employees participating in CollegeAmerica through an eligible employer plan. EXCHANGE Generally, you may exchange your shares into shares of the same class of other funds in The American Funds Group without a sales charge. Class A, C or F shares may generally be exchanged into the corresponding 529 share class without a sales charge. Class B shares may not be exchanged into Class 529-B shares. EXCHANGES FROM CLASS A, C OR F SHARES TO THE CORRESPONDING 529 SHARE CLASS, PARTICULARLY IN THE CASE OF UNIFORM GIFTS TO MINORS ACT OR UNIFORM TRANSFER TO MINORS ACT CUSTODIAL ACCOUNTS, MAY RESULT IN SIGNIFICANT LEGAL AND TAX CONSEQUENCES AS DESCRIBED IN THE COLLEGEAMERICA PROGRAM DESCRIPTION. PLEASE CONSULT YOUR FINANCIAL ADVISER PRIOR TO MAKING SUCH AN EXCHANGE. Exchanges of shares from the money market funds in The American Funds Group initially purchased without a sales charge generally will be subject to the appropriate sales charge. For purposes of computing the contingent deferred sales charge on Class B and C shares, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any permitted exchange. 15 Capital Income Builder / Prospectus
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Exchanges have the same tax consequences as ordinary sales and purchases. For example, to the extent you exchange shares held in a taxable account that are worth more now than what you paid for them, the gain will be subject to taxation. See "Transactions by Telephone, Fax or the Internet" for information regarding electronic exchanges. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM FLUCTUATIONS IN THE STOCK MARKET. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND AND AMERICAN FUNDS DISTRIBUTORS HAVE DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. Purchase Minimums and Maximums [Download Table] PURCHASE MINIMUMS FOR ALL CLASSES OF SHARES ------------------------------------------------------------------------- To establish an account (including retirement plan accounts) $ 250 For a retirement plan account through payroll deduction $ 25 or employer-sponsored CollegeAmerica account To add to an account $ 50 For a retirement plan account through payroll deduction $ 25 or employer-sponsored CollegeAmerica account ------------------------------------------------------------------------- PURCHASE MAXIMUM FOR CLASS B SHARES $100,000 ------------------------------------------------------------------------- PURCHASE MAXIMUM FOR CLASS C SHARES $500,000 VALUING SHARES The fund's net asset value is the value of a single share. The fund calculates its net asset value, each day the New York Stock Exchange is open, as of 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. A contingent deferred sales charge may apply at the time you sell certain Class A, B and C shares. 16 Capital Income Builder / Prospectus
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Sales Charges CLASS A The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below. Any applicable sales charge will be paid directly from your investment and, as a result, will reduce the amount of your investment. [Download Table] SALES CHARGE AS A PERCENTAGE OF DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE --------------------------------------------------------------------------- Less than $25,000 5.75% 6.10% 5.00% --------------------------------------------------------------------------- $25,000 but less than $50,000 5.00% 5.26% 4.25% --------------------------------------------------------------------------- $50,000 but less than $100,000 4.50% 4.71% 3.75% --------------------------------------------------------------------------- $100,000 but less than $250,000 3.50% 3.63% 2.75% --------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% --------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% --------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% --------------------------------------------------------------------------- $1 million or more and certain other none none none investments described below --------------------------------------------------------------------------- CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE INVESTMENTS OF $1 MILLION OR MORE MAY BE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE IF SHARES ARE SOLD WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through retirement plans, endowments or foundations with $50 million or more in assets, and investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). 17 Capital Income Builder / Prospectus
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CLASS B AND C SHARES Class B and C shares are sold without any initial sales charge. American Funds Distributors pays 4% of the amount invested to dealers who sell Class B shares and 1% to dealers who sell Class C shares. For Class C shares, a contingent deferred sales charge of 1% applies if shares are sold within one year of purchase. For Class B shares, a contingent deferred sales charge may be applied to shares you sell within six years of purchase, as shown in the table below. [Download Table] CLASS B SHARES SOLD WITHIN YEAR 1 2 3 4 5 6 ---------------------------------------------------------------- CONTINGENT DEFERRED SALES CHARGE 5% 4% 4% 3% 2% 1% Shares acquired through reinvestment of dividend or capital gain distributions are not subject to a contingent deferred sales charge. In addition, the contingent deferred sales charge may be waived in certain circumstances. See "Contingent Deferred Sales Charge Waivers" below. The contingent deferred sales charge is based on the original purchase cost or the current market value of the shares being sold, whichever is less. For purposes of determining the contingent deferred sales charge, if you sell only some of your shares, shares that are not subject to any contingent deferred sales charge will be sold first, followed by shares that you have owned the longest. See "Plans of Distribution" below for ongoing compensation paid to your dealer or financial adviser for all share classes. CONVERSION OF CLASS B AND C SHARES Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date; however, Class 529-C shares will not convert to Class 529-F shares. The Internal Revenue Service currently takes the position that these automatic conversions are not taxable. Should its position change, the automatic conversion feature may be suspended. If this happens, you would have the option of converting your Class B, 529-B or C shares to the respective share classes at the anniversary dates described above, but you might face certain tax consequences as a result. CLASS F AND 529-E SHARES Class F and Class 529-E shares are sold without any initial or contingent deferred sales charge. 18 Capital Income Builder / Prospectus
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Sales Charge Reductions and Waivers You must let your investment dealer or American Funds Service Company know at the time you purchase shares if you qualify for a reduction in your Class A initial sales charge or waiver of your Class B or C contingent deferred sales charge. REDUCING YOUR CLASS A INITIAL SALES CHARGE You and your "immediate family" (your spouse and your children under the age of 21) may combine investments to reduce your Class A sales charge. AGGREGATING ACCOUNTS To receive a reduced Class A sales charge, investments made by you and your immediate family (see above) may be aggregated if made for your own account(s) and/or certain other accounts, such as: .trust accounts established by the above individuals. However, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the primary beneficiary of the trust; .solely controlled business accounts; .single-participant retirement plans. CONCURRENT PURCHASES You may combine simultaneous purchases of any class of shares of two or more American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION You may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in any class of shares of the American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to determine your Class A sales charge. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION You may reduce your Class A sales charges by establishing a Statement of Intention. A Statement of Intention allows you to combine all non-money market fund purchases of all share classes you intend to make over a 13-month period, as well as individual American Legacy variable annuity and life insurance policies, to determine the applicable sales charge. At your request, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of your account may be 19 Capital Income Builder / Prospectus
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held in escrow to cover additional Class A sales charges that may be due if your total investments over the 13-month period do not qualify for the applicable sales charge reduction. CONTINGENT DEFERRED SALES CHARGE WAIVERS The contingent deferred sales charge on Class A, B and C shares may be waived in the following cases: . when receiving payments through systematic withdrawal plans (up to 12% of the value of each fund account); . when receiving required minimum distributions from retirement accounts upon reaching age 70 1/2; . for redemptions due to death or post-purchase disability of the shareholder (this generally excludes trusts); or . for redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship (only applies to 529 share classes). Plans of Distribution The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. The plans provide for annual expenses of up to 0.30% for Class A shares, up to 0.50% for Class 529-A shares, 1.00% for Class B, 529-B, C and 529-C shares, up to 0.75% for Class 529-E shares, and up to 0.50% for Class F and 529-F shares. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The amount remaining for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier in the Annual Fund Operating Expenses Table. Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. The higher fees for Class B and C shares may cost you more over time than paying the initial sales charge for Class A shares. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 20 Capital Income Builder / Prospectus
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How to Sell Shares Once a sufficient period of time has passed to reasonably assure that checks or drafts (including certified or cashiers' checks) for shares purchased have cleared (normally 15 calendar days), you may sell (redeem) those shares in any of the following ways: THROUGH YOUR DEALER OR FINANCIAL ADVISER (CERTAIN CHARGES MAY APPLY) . Shares held for you in your dealer's name must be sold through the dealer. . Class F shares must be sold through your dealer or financial adviser. 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 $75,000; -- 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 that has been changed within the last 10 days. . American Funds Service Company reserves the right to require signature guarantee(s) on any redemptions. . Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR USING THE INTERNET . Redemptions by telephone, fax or the Internet (including American FundsLine(R) and American FundsLine OnLine(R)) are limited to $75,000 per American Funds shareholder each day. . Checks must be made payable to the registered shareholder. . Checks must be mailed to an address of record that has been used with the account for at least 10 days. TRANSACTIONS BY TELEPHONE, FAX OR THE INTERNET Generally, you are automatically eligible to use these services for redemptions and exchanges unless you notify us in writing that you do not want any or all of these services. You may reinstate these services at any time. Unless you decide not to have telephone, fax or Internet services on your account(s), 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 liabilities (including attorney fees) which may be incurred in connection with the exercise of these privileges, provided American Funds Service Company employs reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine. If reasonable procedures are not employed, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. 21 Capital Income Builder / Prospectus
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Distributions and Taxes DIVIDENDS AND DISTRIBUTIONS The fund intends to distribute dividends to you, usually in March, June, September and December. Capital gains, if any, are usually distributed in December. When a dividend or capital gain is distributed, the net asset value per share is reduced by the amount of the payment. You may elect to reinvest dividend and/or capital gain distributions to purchase additional shares of this fund or other American Funds, or you may elect to receive them in cash. Most shareholders do not elect to take capital gain distributions in cash because these distributions reduce principal value. Dividend and capital gain distributions by 529 share classes will be automatically reinvested. TAXES ON DISTRIBUTIONS Distributions you receive from the fund may be subject to income tax and may also be subject to state or local taxes - unless you are exempt from taxation. For federal tax purposes, any taxable dividends and distributions of short-term capital gains are treated as ordinary income. The fund's distributions of net long-term capital gains are taxable to you as long-term capital gains. Any taxable distributions you receive from the fund will normally be taxable to you when made, regardless of whether you reinvest distributions or receive them in cash. TAXES ON TRANSACTIONS Your redemptions, including exchanges, may result in a capital gain or loss for federal tax purposes. A capital gain or loss on your investment is the difference between the cost of your shares, including any sales charges, and the price you receive when you sell them. PLEASE SEE YOUR TAX ADVISER FOR MORE INFORMATION. HOLDERS OF 529 SHARES SHOULD REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR MORE INFORMATION REGARDING THE TAX CONSEQUENCES OF SELLING 529 SHARES. 22 Capital Income Builder / Prospectus
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Financial Highlights The financial highlights table is intended to help you understand the fund's results for the past five years and is currently only shown for Class A, B, C and F shares. A similar table will be shown for the 529 share classes beginning with the fund's 2002 fiscal year end. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request. [Download Table] CLASS A YEAR ENDED OCTOBER 31 2001 2000 1999 1998 1997 NET ASSET VALUE, BEGINNING OF $43.69 $44.90 $48.40 $46.14 $39.70 YEAR ------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 1.94/1/ 1.99/1/ 1.93 2.09 1.74 Net gains (losses) on securities (both 1.19/1/ .26/1/ (.70) 3.87 7.20 realized and unrealized) -------------------------------- Total from investment 3.13 2.25 1.23 5.96 8.94 operations ------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (2.08 ) (1.92 ) (1.92) (2.09) (1.77) investment income) Distributions (from capital (.94 ) (1.54 ) (2.81) (1.61) (.73) gains) ------------------------------------------------------------------------------- Total distributions (3.02 ) (3.46 ) (4.73) (3.70) (2.50) ------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $43.80 $43.69 $44.90 $48.40 $46.14 ------------------------------------------------------------------------------- TOTAL RETURN/2/ 7.39 % 5.55 % 2.53% 13.33% 23.16% ------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in $8,057 $7,368 $8,773 $8,747 $7,301 millions) ------------------------------------------------------------------------------- Ratio of expenses to average .66 % .67 % .64% .64% .65% net assets ------------------------------------------------------------------------------- Ratio of net income to 4.36 % 4.67 % 4.15% 4.35% 4.04% average net assets 1 Based on average shares outstanding. 2 Total returns exclude all sales charges, including contingent deferred sales charges. 23 Capital Income Builder / Prospectus
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[Download Table] CLASS B CLASS C CLASS F Year ended March 15, to March 15 to March 15 to October 31, October 31, October 31, October 31, 2001 2000/1/ 2001/1/ 2001/1/ ------------------------- NET ASSET VALUE, $43.69 $40.33 $44.15 $44.15 BEGINNING OF PERIOD ------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS/2/: Net investment income 1.60 .96 .81 .99 Net gains (losses) on securities (both 1.19 3.44 (.14) (.14) realized and unrealized) ------------------------------------------------------------------------------- Total from investment 2.79 4.40 .67 .85 operations ------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (1.74) (1.04) (1.02) (1.20) investment income) Distributions (from (.94) - - - capital gains) ------------------------------------------------------------------------------- Total distributions (2.68) (1.04) (1.02) (1.20) ------------------------------------------------------------------------------- NET ASSET VALUE, END $43.80 $43.69 $43.80 $43.80 OF PERIOD ------------------------------------------------------------------------------- TOTAL RETURN/3/ 6.55% 10.97% 1.52% 1.94% ------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of $ 118 $ 18 $ 65 $ 17 period (in millions) ------------------------------------------------------------------------------- Ratio of expenses to 1.41% 1.44%/4/ 1.51%/4/ .80%/4/ average net assets ------------------------------------------------------------------------------- Ratio of net income to 3.35% 3.90%/4/ 2.98%/4/ 3.70%/4/ average net assets 1 Based on operations for the period shown and, accordingly, not representative of a full year (unless otherwise noted). 2 Based on average shares outstanding. 3 Total returns exclude all sales charges, including contingent deferred sales charges. 4 Annualized. [Download Table] YEAR ENDED OCTOBER 31 2001 2000 1999 1998 1997 Portfolio turnover rate for all 36.60% 41.37% 20.56% 24.38% 27.65% classes of shares 24 Capital Income Builder / Prospectus
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NOTES 25 Capital Income Builder / Prospectus
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NOTES 26 Capital Income Builder / Prospectus
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NOTES 27 Capital Income Builder / Prospectus
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[logo - AMERICAN FUNDS(sm)] The right choice for the long term/SM/ [Download Table] FOR SHAREHOLDER SERVICES American Funds Service Company 800/421-0180 FOR RETIREMENT PLAN SERVICES Call your employer or plan administrator FOR DEALER SERVICES American Funds Distributors 800 /421-9900, ext. 11 FOR COLLEGEAMERICA American Funds Service Company 800 /421-0180, ext. 529 American FundsLine(R) FOR 24-HOUR INFORMATION 800/325-3590 American FundsLine OnLine(R) www.americanfunds.com Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. ----------------------------------------------------------------------------------- MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The shareholder reports contain additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). COLLEGEAMERICA PROGRAM DESCRIPTION The Program Description contains additional information about the policies and services related to CollegeAmerica accounts. STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains more detailed information on all aspects of the fund, including the fund's financial statements, and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the SAI, Codes of Ethics or CollegeAmerica Program Description, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. [RECYCLED LOGO] [Download Table] Printed on recycled paper Investment Company File No. 811-5085 CIB-010-0202/RRD ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES Capital International Capital Guardian Capital Research and Management Capital Bank and Trust American Funds THE FUND PROVIDES SPANISH TRANSLATION IN CONNECTION WITH THE PUBLIC OFFERING AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND. /s/ VINCENT P. CORTI VINCENT P. CORTI SECRETARY [logo - American Funds(sm)] The right choice for the long term(sm) CAPITAL INCOME BUILDER(R) PROSPECTUS February 15, 2002 Table of Contents 1 Risk/Return Summary 5 Fees and Expenses of the Fund 7 Investment Objectives, Strategies and Risks 10 Management and Organization 12 Shareholder Information 13 Choosing a Share Class 15 Purchase and Exchange of Shares 17 Sales Charges 19 Sales Charge Reductions and Waivers 20 Plans of Distribution 21 How to Sell Shares 22 Distributions and Taxes 23 Financial Highlights THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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[This page is intentionally left blank.] Capital Income Builder / Prospectus
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Risk/Return Summary The fund primarily seeks to provide you with a level of current income that exceeds the average yield on U.S. stocks generally and a growing stream of income over the years. Secondarily, the fund strives to make your investment grow over time. The fund invests primarily in a broad range of income-producing securities, including stocks with a history of, or potential for, increasing dividends. The fund may also invest significantly in non-U.S. securities. The fund is designed for investors seeking current income and capital appreciation through a mix of investments that provide above-average price stability. Your investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to economic, political or social events in the U.S. or abroad. The values of and the income generated by debt securities owned by the fund may be affected by changing interest rates and credit risk assessments. The prices of and the income generated by securities owned by the fund may be affected by events specifically involving the companies issuing those securities. Although all securities in the fund's portfolio may be adversely affected by currency fluctuations or global political, social or economic instability, securities issued by entities based outside the U.S. may be affected to a greater extent. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 Capital Income Builder / Prospectus
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HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual total returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. [bar chart] CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, results would be lower.) 1992 10.00% 1993 15.28 1994 -2.26 1995 25.05 1996 17.64 1997 23.32 1998 11.75 1999 -2.78 2000 12.52 2001 4.75 [end bar chart] Highest/lowest quarterly results during this time period were: [Download Table] HIGHEST 9.29% (quarter ended December 31, 1996) LOWEST -5.37% (quarter ended September 30, 1999) 2 Capital Income Builder / Prospectus
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Unlike the bar chart on the previous page, the Investment Results Table on the following page reflects, as required by Securities and Exchange Commission rules, the fund's results with the maximum initial or deferred sales charge imposed. Class A share results reflect the maximum initial sales charge of 5.75%. Class A sales charges are reduced for purchases of $25,000 or more. Class B share results reflect the applicable contingent deferred sales charge. These charges begin to decline after 12 months and are eliminated after six years. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividend and capital gain distributions. The fund's results are shown on a pre-tax and after-tax basis, as required by Securities and Exchange Commission rules. Total returns shown "after taxes on distributions" reflect the effect of taxable distributions (for example, dividend or capital gain distributions) by the fund. Total returns shown "after taxes on distributions and sale of fund shares" assume that you sold your fund shares at the end of the particular time period, and as a result, reflect the effect of both taxable distributions by the fund and any taxable gain or loss realized upon the sale of the shares. After-tax returns are calculated using the highest historical individual federal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class A shares; after-tax returns for other share classes will vary. YOUR ACTUAL AFTER-TAX RETURNS DEPEND ON YOUR INDIVIDUAL TAX SITUATION AND LIKELY WILL DIFFER FROM THE RESULTS SHOWN ON THE FOLLOWING PAGE. IN ADDITION, AFTER-TAX RETURNS ARE NOT RELEVANT IF YOU HOLD YOUR FUND SHARES THROUGH TAX-DEFERRED ARRANGEMENTS, SUCH AS A 401(K) PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR COLLEGEAMERICA ACCOUNT. Since the fund's Class C and F shares were first available on March 15, 2001 and the fund's Class 529 shares were first available on February 15, 2002, comparable results for these classes are not available for the 2001 calendar year. 3 Capital Income Builder / Prospectus
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[Download Table] INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME ------------------------------------------------------------------------------- CLASS A - BEGAN 7/30/87 Before Taxes -1.27% 8.28% 10.50% 11.11% After Taxes on Distributions -3.58% 5.66% 8.02% N/A After Taxes on Distributions and -0.34% 5.67% 7.60% N/A Sale of Fund Shares ------------------------------------------------------------------------------- CLASS B - BEGAN 3/15/00 Before Taxes -0.92% N/A N/A 9.40% ------------------------------------------------------------------------------- INDEXES/1/ S&P 500/2/ -11.83% 10.69% 12.91% 12.03% Lipper Income Funds Average/3/ -0.02% 6.90% 9.77% 9.98% ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2001: 3.44% (For current yield information, please call American FundsLine at 1-800-325-3590.) 1 Lifetime results are as of the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted measurement of changes in stock market conditions based on the average weighted performance of 500 widely held common stocks. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. 3 The Lipper Income Funds Average represents an average of funds that normally seek a high level of current income through investing in income-producing stocks, bonds, and money market instruments. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. 4 Capital Income Builder / Prospectus
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Fees and Expenses of the Fund [Download Table] SHAREHOLDER FEES TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A/1/ CLASS B/1/ CLASS C/1/ CLASS E/1/ CLASS F/1/ ------------------------------------------------------------------------------------ Maximum sales charge imposed on purchases (as a percentage of 5.75 %/2/ none none none none offering price) ------------------------------------------------------------------------------------ Maximum sales charge imposed on reinvested none none none none none dividends ------------------------------------------------------------------------------------ Maximum deferred none/3/ 5.00%/4/ 1.00%/5/ none none sales charge ------------------------------------------------------------------------------------ Redemption or exchange fees none none none none none 1 Includes versions of these classes offered through CollegeAmerica, a 529 college savings plan sponsored by the Virginia College Savings Plan, an agency of the Commonwealth of Virginia. Class E shares are only available through CollegeAmerica to employer-sponsored plans. 2 Sales charges are reduced or eliminated for purchases of $25,000 or more. 3 A contingent deferred sales charge of 1% applies on certain redemptions made within 12 months following purchases of $1 million or more made without a sales charge. 4 Deferred sales charge is reduced after 12 months and eliminated after six years. 5 Deferred sales charge is eliminated after 12 months. [Download Table] ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A CLASS B CLASS C/1/ CLASS F/1/ ------------------------------------------------------------------------------- Management Fees 0.33% 0.33% 0.33% 0.33% ------------------------------------------------------------------------------- Distribution and/or 0.24% 1.00% 1.00% 0.25% Service (12b-1) Fees/2/ ------------------------------------------------------------------------------- Other Expenses 0.09% 0.08% 0.18% 0.22% ------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.66% 1.41% 1.51% 0.80% CLASS CLASS CLASS CLASS CLASS 529-A/3/ 529-B/3/ 529-C/3/ 529-E/3/ 529-F/3/ ------------------------------------------------------------------------------- Management Fees 0.33% 0.33% 0.33% 0.33% 0.33% ------------------------------------------------------------------------------- Distribution and/or 0.22% 1.00% 1.00% 0.50% 0.25% Service (12b-1) Fees/4/ ------------------------------------------------------------------------------- Other Expenses/5/ 0.28% 0.28% 0.28% 0.28% 0.28% ------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.83% 1.61% 1.61% 1.11% 0.86% 1 Annualized. 2 Class A and F 12b-1 fees may not exceed 0.30% and 0.50%, respectively, of the class' average net assets annually. 3 Based on estimated amounts for the current fiscal year. 4 Class 529-A and 529-F 12b-1 fees may not exceed 0.50% of each class' average net assets annually. Class 529-E 12b-1 fees may not exceed 0.75% of the class' average net assets annually. 5 Includes 0.10% paid to the Virginia College Savings Plan for administrative services it provides in overseeing CollegeAmerica. 5 Capital Income Builder / Prospectus
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EXAMPLE The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year, that all dividend and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown on the previous page. The examples assuming redemption do not reflect the effect of any taxable gain or loss at the time of the redemption. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be: [Download Table] ONE THREE FIVE TEN YEAR YEARS YEARS YEARS --------------------------------------------------------------------------- Class A/1/ $639 $774 $ 922 $1,350 --------------------------------------------------------------------------- Class B - assuming redemption/2/ $644 $846 $ 971 $1,486 --------------------------------------------------------------------------- Class B - assuming no redemption $144 $446 $ 771 $1,486 --------------------------------------------------------------------------- Class C - assuming redemption/3/ $254 $477 $ 824 $1,802 --------------------------------------------------------------------------- Class C - assuming no redemption $154 $477 $ 824 $1,802 --------------------------------------------------------------------------- Class F - excludes intermediary fees/4/ $ 82 $255 $ 444 $ 990 --------------------------------------------------------------------------- Class 529-A/1/ $655 $825 $1,009 $1,541 --------------------------------------------------------------------------- Class 529-B - assuming redemption/2/ $664 $908 $1,076 $1,702 --------------------------------------------------------------------------- Class 529-B - assuming no redemption $164 $508 $ 876 $1,702 --------------------------------------------------------------------------- Class 529-C - assuming redemption/3/ $264 $508 $ 876 $1,911 --------------------------------------------------------------------------- Class 529-C - assuming no redemption $164 $508 $ 876 $1,911 --------------------------------------------------------------------------- Class 529-E $113 $353 $ 612 $1,352 --------------------------------------------------------------------------- Class 529-F - excludes intermediary fees/4/ $ 88 $274 $ 477 $1,061 1 Reflects the maximum initial sales charge in the first year. 2 Reflects applicable contingent deferred sales charges through year six and Class A or 529-A expenses for years nine and ten because Class B and 529-B shares automatically convert to Class A and 529-A shares, respectively, after eight years. 3 Reflects contingent deferred sales charge during the first year. 4 Does not include fees charged by financial intermediaries, which are independent of fund expenses and will increase the overall cost of your investment. Intermediary fees typically range from 0.50% to 3.00% of assets annually depending on services offered. 6 Capital Income Builder / Prospectus
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Investment Objectives, Strategies and Risks The fund has two primary investment objectives: 1) to provide you with a level of current income that exceeds the average yield on U.S. stocks generally and 2) to provide you with a growing stream of income over the years. The fund's secondary objective is to provide you with growth of capital. The fund invests primarily in a broad range of income-producing securities, including stocks and bonds. The fund may also invest significantly in securities of issuers domiciled outside the U.S. The fund normally will invest at least 90% of its assets in income-producing securities (with at least 50% of its assets in common stocks). The prices of common stocks and other equity-type securities held by the fund may decline in response to certain events including those directly involving issuers of these securities, adverse conditions affecting the general economy, overall market declines, world political, social and economic instability, and currency fluctuations. The values of and the income generated by most debt securities held by the fund may be affected by changing interest rates and by changes in effective maturities and credit ratings of these securities. For example, the values of debt securities in the fund's portfolio generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem or "call" a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities. Investments in securities issued by entities based outside the U.S. may be subject to the risks described above to a greater extent and may also be affected by differing securities regulations, higher transaction costs, and administrative difficulties such as delays in clearing and settling portfolio transactions. The fund may also hold cash or money market instruments. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objectives in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general market downturn and provide liquidity to make additional investments or to meet redemptions. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek reasonably priced securities that represent above average long-term investment opportunities. This is accomplished not only through fundamental analysis, but also by meeting with company executives and employees, suppliers, customers and competitors in order to gain in-depth knowledge of a company's true value. Securities may be sold when the investment adviser believes they no longer represent good long-term value. 7 Capital Income Builder / Prospectus
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[Download Table] INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME CLASS A - BEGAN 7/30/87 Before Taxes 4.75% 9.57% 11.16% 11.57% After Taxes on Distributions 2.30% 6.92% 8.66% N/A After Taxes on Distributions and 3.35% 6.74% 8.17% N/A Sale of Fund Shares ------------------------------------------------------------------------------- CLASS B - BEGAN 3/15/00 Before Taxes 3.94% N/A N/A 11.46% ------------------------------------------------------------------------------- INDEXES/1/ S&P 500/2/ -11.83% 10.69% 12.91% 12.03% Lipper Income Funds Average/3/ -0.02% 6.90% 9.77% 9.98% ------------------------------------------------------------------------------- Class A distribution rate at December 31, 2001/4/: 4.77% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.) 1 Lifetime results are as of the date Class A shares first became available. 2 The Standard & Poor's 500 Composite Index is a market capitalization-weighted measurement of changes in stock market conditions based on the average weighted performance of 500 widely held common stocks. This index is unmanaged and does not reflect sales charges, commissions, expenses or taxes. 3 The Lipper Income Funds Average represents an average of funds that normally seek a high level of current income through investing in income-producing stocks, bonds, and money market instruments. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the funds for portfolio transactions, but do not reflect sales charges or taxes. 4 The distribution rate represents actual distrbutions paid by the fund. It was calculated at net asset value by annualizing the dividends paid by the fund over one quarter and dividing that number by the fund's average net asset value for the three months. 8 Capital Income Builder / Prospectus
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[pie chart] HOLDINGS BY INDUSTRY AS OF OCTOBER 31, 2001 Banks 14.34% Electric Utilities 10.09% Real Estate 6.60% Tobacco 5.32% Insurance 3.48% Other Industries 29.87% Bonds and Notes 19.17% Cash & Equivalents 11.13% [end chart] [Download Table] LARGEST EQUITY HOLDINGS AS OF OCTOBER 31, 2001 PERCENT OF NET ASSETS ------------------------------------------------------------------- Philip Morris 2.11% ------------------------------------------------------------------- NiSource 1.71 -------------------------------------------- XL Capital 1.57 ------------------------------------------------------------------- Pinnacle West Capital 1.51 ------------------------------------------------------------------- PowerGen PLC 1.44 ------------------------------------------------------------------- Bank of Nova Scotia 1.42 ------------------------------------------------------------------- Archstone-Smith Trust 1.40 ------------------------------------------------------------------- Wachovia 1.38 ------------------------------------------------------------------- Royal Bank of Canada 1.30 ------------------------------------------------------------------- Southern Co. 1.29 ------------------------------------------------------------------- Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 9 Capital Income Builder / Prospectus
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Management and Organization INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier in the Annual Fund Operating Expenses Table. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for Capital Income Builder are: 10 Capital Income Builder / Prospectus
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[Enlarge/Download Table] PORTFOLIO COUNSELOR/ FUND PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE ----------------------------------------------------------------------------------------------------------- JAMES B. LOVELACE 10 years Senior Vice President and Director, Capital Chairman, Principal (plus 3 years prior Research and Management Company Executive Officer and experience as a research Director professional for the fund) Investment professional for 20 years, all with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- JON B. LOVELACE 15 years Chairman Emeritus, Capital Research and Director Management Company Investment professional for 50 years, all with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- JOYCE E. GORDON 2 years Senior Vice President, Capital Research Company Senior Vice President (plus 11 years prior experience as a research Investment professional for 26 years, all with professional for the fund) Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- JANET A. MCKINLEY 10 years Director, Capital Research and Management Company Senior Vice President (plus 4 years prior experience as a research Investment professional for 26 years in total;20 professional for the fund) years with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- DARCY B. KOPCHO 1 year Director, Capital Research and Management Company Vice President (plus 4 years prior experience as a research Investment professional for 16 years, all with professional for the fund) Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- MARK R. MACDONALD 7 years Vice President - Investment Management Group, Vice President Capital Research and Management Company Investment professional for 16 years in total;8 years with Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- STEVEN T. WATSON 4 years Senior Vice President, Capital Research Company Vice President (plus 5 years prior experience as a research Investment professional for 12 years, all with professional for the fund) Capital Research and Management Company or affiliate ----------------------------------------------------------------------------------------------------------- 11 Capital Income Builder / Prospectus
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Shareholder Information SHAREHOLDER SERVICES American Funds Service Company, the fund's transfer agent, offers you a wide range of services you can use to alter your investment program should your needs and circumstances change. These services may be terminated or modified at any time upon 60 days' written notice. For your convenience, American Funds Service Company has four service centers across the country. AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS Call toll-Free from anywhere in the U.S. (8 a.m. to 8 p.m. ET): 800/421-0180 Access the American Funds website : www.americanfunds.com [map of the United States] [Download Table] Western Western Central Eastern Central Eastern Service Center Service Center Service Center Service Center American Funds American Funds American Funds American Funds Service Company Service Company Service Company Service Company P.O. Box 25065 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280 Santa Ana, San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia California 78265-9522 46206-6007 23501-2280 92799-5065 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773 Fax: 714/671-7080 A MORE DETAILED DESCRIPTION OF POLICIES AND SERVICES IS INCLUDED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION AND THE OWNER'S GUIDE SENT TO NEW AMERICAN FUNDS SHAREHOLDERS TITLED "WELCOME TO THE FAMILY." 529 CLASS SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO THEIR COLLEGEAMERICA ACCOUNT(S). These documents are available by writing or calling American Funds Service Company. 12 Capital Income Builder / Prospectus
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Choosing a Share Class The fund offers different classes of shares through this prospectus. Class A, B, C and F shares may be purchased through various investment programs or accounts, including many types of retirement plans. The services or share classes available to you may vary depending upon how you wish to purchase shares of the fund. Investors residing in any state may purchase Class 529-A, 529-B, 529-C, 529-E and 529-F shares through an account established with CollegeAmerica. The 529-A, 529-B, 529-C and 529-F share classes are structured similarly to the corresponding Class A, B, C and F shares. For example, the same initial sales charges apply to Class 529-A shares as they do to Class A shares. Class 529-E shares are only available to investors participating in CollegeAmerica through an eligible employer plan. Each share class represents investments in the same portfolio of securities, but each class has its own sales charge and expense structure, allowing you to choose the class that best meets your situation. WHEN YOU PURCHASE SHARES OF THE FUND, YOU MUST CHOOSE A SHARE CLASS. IF NONE IS CHOSEN, YOUR INVESTMENT WILL BE MADE IN CLASS A SHARES OR, IN THE CASE OF A COLLEGEAMERICA INVESTMENT, CLASS 529-A SHARES. Factors you should consider in choosing a class of shares include: . how long you expect to own the shares; . how much you intend to invest; . total expenses associated with owning shares of each class; . whether you qualify for any reduction or waiver of sales charges (for example, Class A or 529-A shares may be a less expensive option over time if you qualify for a sales charge reduction or waiver); . whether you plan to take any distributions in the near future (for example, the contingent deferred sales charge will not be waived if you sell your Class 529-B or 529-C shares to cover higher education expenses); . Class B and C shares are generally not available to certain retirement plans, including employer-sponsored retirement plans such as 401(k) plans, 457 plans, employer-sponsored 403(b) plans, and money purchase pension and profit sharing plans; . Class F and 529-F shares are generally only available to fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. EACH INVESTOR'S FINANCIAL CONSIDERATIONS ARE DIFFERENT. YOU SHOULD SPEAK WITH YOUR FINANCIAL ADVISER TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU. UNLESS OTHERWISE NOTED, REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F SHARES. 13 Capital Income Builder / Prospectus
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[Download Table] SUMMARY OF THE PRIMARY DIFFERENCES AMONG SHARE CLASSES CLASS A SHARES Initial sales charge up to 5.75% (reduced or eliminated for purchases of $25,000 or more) Contingent deferred none (except on certain redemptions on purchases of $1 sales charge million or more made without an initial sales charge) 12b-1 fees up to 0.30% annually (529-A may not exceed 0.50% annually) Dividends generally higher than other classes due to lower annual expenses Purchase maximum none Conversion none CLASS B SHARES Initial sales charge none Contingent deferred starts at 5.00% and declines until it reaches 0% after sales charge six years 12b-1 fees 1.00% annually Dividends generally lower than A and F shares due to higher distribution fees and other expenses, but higher than C shares due to lower other expenses Purchase maximum $100,000 Conversion automatic conversion to A or 529-A shares after eight years, reducing future annual expenses CLASS C SHARES Initial sales charge none Contingent deferred 1.00% if shares are sold within one year after being sales charge purchased 12b-1 fees 1.00% annually Dividends generally lower than other classes due to higher distribution fees and other expenses Purchase maximum $500,000 Conversion automatic conversion to F shares after 10 years, reducing future annual expenses (529-C shares will not convert to 529-F shares) CLASS F SHARES Initial sales charge none Contingent deferred none sales charge 12b-1 fees currently 0.25% annually (may not exceed 0.50% annually) Dividends generally higher than B and C shares due to lower distribution fees, but lower than A shares due to higher other expenses Purchase maximum none Conversion none CLASS 529-E SHARES Initial sales charge none Contingent deferred none sales charge 12b-1 fees currently 0.50% annually (may not exceed 0.75% annually) Dividends generally higher than 529-B and 529-C shares due to lower distribution fees, but lower than 529-A and 529-F shares due to higher distribution fees Purchase maximum none Conversion none 14 Capital Income Builder / Prospectus
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Purchase and Exchange of Shares PURCHASE OF CLASS A, B AND C SHARES You may generally open an account and purchase Class A, B and C shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. PURCHASE OF CLASS F SHARES You may generally open an account and purchase Class F shares only through fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. These firms and advisers typically charge ongoing fees for services they provide. PURCHASE OF CLASS 529 SHARES Class 529 shares may be purchased only through a CollegeAmerica account. You may open a CollegeAmerica account and purchase 529 shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell a CollegeAmerica account. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. Class 529-E shares may only be purchased by employees participating in CollegeAmerica through an eligible employer plan. EXCHANGE Generally, you may exchange your shares into shares of the same class of other funds in The American Funds Group without a sales charge. Class A, C or F shares may generally be exchanged into the corresponding 529 share class without a sales charge. Class B shares may not be exchanged into Class 529-B shares. EXCHANGES FROM CLASS A, C OR F SHARES TO THE CORRESPONDING 529 SHARE CLASS, PARTICULARLY IN THE CASE OF UNIFORM GIFTS TO MINORS ACT OR UNIFORM TRANSFER TO MINORS ACT CUSTODIAL ACCOUNTS, MAY RESULT IN SIGNIFICANT LEGAL AND TAX CONSEQUENCES AS DESCRIBED IN THE COLLEGEAMERICA PROGRAM DESCRIPTION. PLEASE CONSULT YOUR FINANCIAL ADVISER PRIOR TO MAKING SUCH AN EXCHANGE. Exchanges of shares from the money market funds in The American Funds Group initially purchased without a sales charge generally will be subject to the appropriate sales charge. For purposes of computing the contingent deferred sales charge on Class B and C shares, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any permitted exchange. 15 Capital Income Builder / Prospectus
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Exchanges have the same tax consequences as ordinary sales and purchases. For example, to the extent you exchange shares held in a taxable account that are worth more now than what you paid for them, the gain will be subject to taxation. See "Transactions by Telephone, Fax or the Internet" for information regarding electronic exchanges. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM FLUCTUATIONS IN THE STOCK MARKET. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND AND AMERICAN FUNDS DISTRIBUTORS HAVE DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. Purchase Minimums and Maximums [Download Table] PURCHASE MINIMUMS FOR ALL CLASSES OF SHARES ------------------------------------------------------------------------- To establish an account (including retirement plan accounts) $ 250 For a retirement plan account through payroll deduction $ 25 or employer-sponsored CollegeAmerica account To add to an account $ 50 For a retirement plan account through payroll deduction $ 25 or employer-sponsored CollegeAmerica account ------------------------------------------------------------------------- PURCHASE MAXIMUM FOR CLASS B SHARES $100,000 ------------------------------------------------------------------------- PURCHASE MAXIMUM FOR CLASS C SHARES $500,000 VALUING SHARES The fund's net asset value is the value of a single share. The fund calculates its net asset value, each day the New York Stock Exchange is open, as of 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. A contingent deferred sales charge may apply at the time you sell certain Class A, B and C shares. 16 Capital Income Builder / Prospectus
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Sales Charges CLASS A The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below. Any applicable sales charge will be paid directly from your investment and, as a result, will reduce the amount of your investment. [Download Table] SALES CHARGE AS A PERCENTAGE OF DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE --------------------------------------------------------------------------- Less than $25,000 5.75% 6.10% 5.00% --------------------------------------------------------------------------- $25,000 but less than $50,000 5.00% 5.26% 4.25% --------------------------------------------------------------------------- $50,000 but less than $100,000 4.50% 4.71% 3.75% --------------------------------------------------------------------------- $100,000 but less than $250,000 3.50% 3.63% 2.75% --------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% --------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% --------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% --------------------------------------------------------------------------- $1 million or more and certain other none none none investments described below --------------------------------------------------------------------------- CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE INVESTMENTS OF $1 MILLION OR MORE MAY BE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE IF SHARES ARE SOLD WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through retirement plans, endowments or foundations with $50 million or more in assets, and investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). 17 Capital Income Builder / Prospectus
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CLASS B AND C SHARES Class B and C shares are sold without any initial sales charge. American Funds Distributors pays 4% of the amount invested to dealers who sell Class B shares and 1% to dealers who sell Class C shares. For Class C shares, a contingent deferred sales charge of 1% applies if shares are sold within one year of purchase. For Class B shares, a contingent deferred sales charge may be applied to shares you sell within six years of purchase, as shown in the table below. [Download Table] CLASS B SHARES SOLD WITHIN YEAR 1 2 3 4 5 6 ---------------------------------------------------------------- CONTINGENT DEFERRED SALES CHARGE 5% 4% 4% 3% 2% 1% Shares acquired through reinvestment of dividend or capital gain distributions are not subject to a contingent deferred sales charge. In addition, the contingent deferred sales charge may be waived in certain circumstances. See "Contingent Deferred Sales Charge Waivers" below. The contingent deferred sales charge is based on the original purchase cost or the current market value of the shares being sold, whichever is less. For purposes of determining the contingent deferred sales charge, if you sell only some of your shares, shares that are not subject to any contingent deferred sales charge will be sold first, followed by shares that you have owned the longest. See "Plans of Distribution" below for ongoing compensation paid to your dealer or financial adviser for all share classes. CONVERSION OF CLASS B AND C SHARES Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date; however, Class 529-C shares will not convert to Class 529-F shares. The Internal Revenue Service currently takes the position that these automatic conversions are not taxable. Should its position change, the automatic conversion feature may be suspended. If this happens, you would have the option of converting your Class B, 529-B or C shares to the respective share classes at the anniversary dates described above, but you might face certain tax consequences as a result. CLASS F AND 529-E SHARES Class F and Class 529-E shares are sold without any initial or contingent deferred sales charge. 18 Capital Income Builder / Prospectus
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Sales Charge Reductions and Waivers You must let your investment dealer or American Funds Service Company know at the time you purchase shares if you qualify for a reduction in your Class A initial sales charge or waiver of your Class B or C contingent deferred sales charge. REDUCING YOUR CLASS A INITIAL SALES CHARGE You and your "immediate family" (your spouse and your children under the age of 21) may combine investments to reduce your Class A sales charge. AGGREGATING ACCOUNTS To receive a reduced Class A sales charge, investments made by you and your immediate family (see above) may be aggregated if made for your own account(s) and/or certain other accounts, such as: .trust accounts established by the above individuals. However, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the primary beneficiary of the trust; .solely controlled business accounts; .single-participant retirement plans. CONCURRENT PURCHASES You may combine simultaneous purchases of any class of shares of two or more American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION You may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in any class of shares of the American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to determine your Class A sales charge. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION You may reduce your Class A sales charges by establishing a Statement of Intention. A Statement of Intention allows you to combine all non-money market fund purchases of all share classes you intend to make over a 13-month period, as well as individual American Legacy variable annuity and life insurance policies, to determine the applicable sales charge. At your request, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of your account may be 19 Capital Income Builder / Prospectus
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held in escrow to cover additional Class A sales charges that may be due if your total investments over the 13-month period do not qualify for the applicable sales charge reduction. CONTINGENT DEFERRED SALES CHARGE WAIVERS The contingent deferred sales charge on Class A, B and C shares may be waived in the following cases: . when receiving payments through systematic withdrawal plans (up to 12% of the value of each fund account); . when receiving required minimum distributions from retirement accounts upon reaching age 70 1/2; . for redemptions due to death or post-purchase disability of the shareholder (this generally excludes trusts); or . for redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship (only applies to 529 share classes). Plans of Distribution The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. The plans provide for annual expenses of up to 0.30% for Class A shares, up to 0.50% for Class 529-A shares, 1.00% for Class B, 529-B, C and 529-C shares, up to 0.75% for Class 529-E shares, and up to 0.50% for Class F and 529-F shares. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The amount remaining for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier in the Annual Fund Operating Expenses Table. Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. The higher fees for Class B and C shares may cost you more over time than paying the initial sales charge for Class A shares. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 20 Capital Income Builder / Prospectus
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How to Sell Shares Once a sufficient period of time has passed to reasonably assure that checks or drafts (including certified or cashiers' checks) for shares purchased have cleared (normally 15 calendar days), you may sell (redeem) those shares in any of the following ways: THROUGH YOUR DEALER OR FINANCIAL ADVISER (CERTAIN CHARGES MAY APPLY) . Shares held for you in your dealer's name must be sold through the dealer. . Class F shares must be sold through your dealer or financial adviser. 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 $75,000; -- 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 that has been changed within the last 10 days. . American Funds Service Company reserves the right to require signature guarantee(s) on any redemptions. . Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR USING THE INTERNET . Redemptions by telephone, fax or the Internet (including American FundsLine(R) and American FundsLine OnLine(R)) are limited to $75,000 per American Funds shareholder each day. . Checks must be made payable to the registered shareholder. . Checks must be mailed to an address of record that has been used with the account for at least 10 days. TRANSACTIONS BY TELEPHONE, FAX OR THE INTERNET Generally, you are automatically eligible to use these services for redemptions and exchanges unless you notify us in writing that you do not want any or all of these services. You may reinstate these services at any time. Unless you decide not to have telephone, fax or Internet services on your account(s), 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 liabilities (including attorney fees) which may be incurred in connection with the exercise of these privileges, provided American Funds Service Company employs reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine. If reasonable procedures are not employed, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. 21 Capital Income Builder / Prospectus
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Distributions and Taxes DIVIDENDS AND DISTRIBUTIONS The fund intends to distribute dividends to you, usually in March, June, September and December. Capital gains, if any, are usually distributed in December. When a dividend or capital gain is distributed, the net asset value per share is reduced by the amount of the payment. You may elect to reinvest dividend and/or capital gain distributions to purchase additional shares of this fund or other American Funds, or you may elect to receive them in cash. Most shareholders do not elect to take capital gain distributions in cash because these distributions reduce principal value. Dividend and capital gain distributions by 529 share classes will be automatically reinvested. TAXES ON DISTRIBUTIONS Distributions you receive from the fund may be subject to income tax and may also be subject to state or local taxes - unless you are exempt from taxation. For federal tax purposes, any taxable dividends and distributions of short-term capital gains are treated as ordinary income. The fund's distributions of net long-term capital gains are taxable to you as long-term capital gains. Any taxable distributions you receive from the fund will normally be taxable to you when made, regardless of whether you reinvest distributions or receive them in cash. TAXES ON TRANSACTIONS Your redemptions, including exchanges, may result in a capital gain or loss for federal tax purposes. A capital gain or loss on your investment is the difference between the cost of your shares, including any sales charges, and the price you receive when you sell them. PLEASE SEE YOUR TAX ADVISER FOR MORE INFORMATION. HOLDERS OF 529 SHARES SHOULD REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR MORE INFORMATION REGARDING THE TAX CONSEQUENCES OF SELLING 529 SHARES. 22 Capital Income Builder / Prospectus
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Financial Highlights The financial highlights table is intended to help you understand the fund's results for the past five years and is currently only shown for Class A, B, C and F shares. A similar table will be shown for the 529 share classes beginning with the fund's 2002 fiscal year end. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request. [Download Table] CLASS A YEAR ENDED OCTOBER 31 2001 2000 1999 1998 1997 NET ASSET VALUE, BEGINNING OF $43.69 $44.90 $48.40 $46.14 $39.70 YEAR ------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 1.94/1/ 1.99/1/ 1.93 2.09 1.74 Net gains (losses) on securities (both 1.19/1/ .26/1/ (.70) 3.87 7.20 realized and unrealized) -------------------------------- Total from investment 3.13 2.25 1.23 5.96 8.94 operations ------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (2.08 ) (1.92 ) (1.92) (2.09) (1.77) investment income) Distributions (from capital (.94 ) (1.54 ) (2.81) (1.61) (.73) gains) ------------------------------------------------------------------------------- Total distributions (3.02 ) (3.46 ) (4.73) (3.70) (2.50) ------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $43.80 $43.69 $44.90 $48.40 $46.14 ------------------------------------------------------------------------------- TOTAL RETURN/2/ 7.39 % 5.55 % 2.53% 13.33% 23.16% ------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in $8,057 $7,368 $8,773 $8,747 $7,301 millions) ------------------------------------------------------------------------------- Ratio of expenses to average .66 % .67 % .64% .64% .65% net assets ------------------------------------------------------------------------------- Ratio of net income to 4.36 % 4.67 % 4.15% 4.35% 4.04% average net assets 1 Based on average shares outstanding. 2 Total returns exclude all sales charges, including contingent deferred sales charges. 23 Capital Income Builder / Prospectus
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[Download Table] CLASS B CLASS C CLASS F Year ended March 15, to March 15 to March 15 to October 31, October 31, October 31, October 31, 2001 2000/1/ 2001/1/ 2001/1/ ------------------------- NET ASSET VALUE, $43.69 $40.33 $44.15 $44.15 BEGINNING OF PERIOD ------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS/2/: Net investment income 1.60 .96 .81 .99 Net gains (losses) on securities (both 1.19 3.44 (.14) (.14) realized and unrealized) ------------------------------------------------------------------------------- Total from investment 2.79 4.40 .67 .85 operations ------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (1.74) (1.04) (1.02) (1.20) investment income) Distributions (from (.94) - - - capital gains) ------------------------------------------------------------------------------- Total distributions (2.68) (1.04) (1.02) (1.20) ------------------------------------------------------------------------------- NET ASSET VALUE, END $43.80 $43.69 $43.80 $43.80 OF PERIOD ------------------------------------------------------------------------------- TOTAL RETURN/3/ 6.55% 10.97% 1.52% 1.94% ------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of $ 118 $ 18 $ 65 $ 17 period (in millions) ------------------------------------------------------------------------------- Ratio of expenses to 1.41% 1.44%/4/ 1.51%/4/ .80%/4/ average net assets ------------------------------------------------------------------------------- Ratio of net income to 3.35% 3.90%/4/ 2.98%/4/ 3.70%/4/ average net assets 1 Based on operations for the period shown and, accordingly, not representative of a full year (unless otherwise noted). 2 Based on average shares outstanding. 3 Total returns exclude all sales charges, including contingent deferred sales charges. 4 Annualized. [Download Table] YEAR ENDED OCTOBER 31 2001 2000 1999 1998 1997 Portfolio turnover rate for all 36.60% 41.37% 20.56% 24.38% 27.65% classes of shares 24 Capital Income Builder / Prospectus
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NOTES 25 Capital Income Builder / Prospectus
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NOTES 26 Capital Income Builder / Prospectus
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NOTES 27 Capital Income Builder / Prospectus
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[logo - AMERICAN FUNDS(sm)] The right choice for the long term/SM/ [Download Table] FOR SHAREHOLDER SERVICES American Funds Service Company 800/421-0180 FOR RETIREMENT PLAN SERVICES Call your employer or plan administrator FOR DEALER SERVICES American Funds Distributors 800 /421-9900, ext. 11 FOR COLLEGEAMERICA American Funds Service Company 800 /421-0180, ext. 529 American FundsLine(R) FOR 24-HOUR INFORMATION 800/325-3590 American FundsLine OnLine(R) www.americanfunds.com Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. ----------------------------------------------------------------------------------- MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The shareholder reports contain additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). COLLEGEAMERICA PROGRAM DESCRIPTION The Program Description contains additional information about the policies and services related to CollegeAmerica accounts. STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains more detailed information on all aspects of the fund, including the fund's financial statements, and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the SAI, Codes of Ethics or CollegeAmerica Program Description, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. [RECYCLED LOGO] [Download Table] Printed on recycled paper Investment Company File No. 811-5085 CIB-010-0202/RRD ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES Capital International Capital Guardian Capital Research and Management Capital Bank and Trust American Funds
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CAPITAL INCOME BUILDER, INC. Part B Statement of Additional Information February 15, 2002 This document is not a prospectus but should be read in conjunction with the current prospectus of Capital Income Builder (the "fund" or "CIB") dated February 15, 2002. 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, California 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. They should contact their employer for details. TABLE OF CONTENTS [Download Table] Item Page No. ---- -------- Certain Investment Limitations and Guidelines . . . . . . . . . . . 2 Description of Certain Securities and Investment Techniques . . . . 2 Fundamental Policies and Investment Restrictions. . . . . . . . . . 8 Management of the Fund . . . . . . . . . . . . . . . . . . . . . . 11 Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 23 Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 28 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 34 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 38 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Shareholder Account Services and Privileges . . . . . . . . . . . . 42 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 45 General Information . . . . . . . . . . . . . . . . . . . . . . . . 45 Class A Share Investment Results and Related Statistics . . . . . . 47 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Financial Statements Capital Income Builder - Page 1
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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES The following limitations and guidelines are considered at the time of purchase, under normal circumstances, 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. INCOME PRODUCING SECURITIES . 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 straight debt securities rated BB by Standard & Poor's Corporation and Ba by Moody's Investors Service, Inc. 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. The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 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. These securities may include common stocks and securities with equity conversion or purchase rights. The prices of equity securities fluctuate based on changes in the financial condition of their issuers and on market and economic conditions. INVESTING IN SMALLER CAPITALIZATION STOCKS - The fund may invest in the stocks of smaller capitalization companies (typically companies with market capitalizations of less than $1.5 billion at the time of purchase). The Investment Adviser believes that the issuers of smaller capitalization stocks often provide attractive investment opportunities. However, investing in smaller capitalization stocks can involve greater risk than is customarily associated with investing in stocks of larger, more established companies. For example, smaller companies often have limited product lines, markets, or financial resources, may be dependent for management on one or a few key persons, and can be more susceptible to losses. Also, their securities may be thinly traded (and therefore have to be sold at a discount from current prices or sold in small lots over an extended period of time), may be followed by fewer investment research analysts, and may be subject to wider price swings, thus creating a greater chance of loss than securities of larger capitalization companies. DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow money. Issuers pay investors interest and generally 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 Capital Income Builder - Page 2
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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 increase when interest rates fall. Lower rated bonds, rated Ba or below by Moody's and BB or below by S&P or unrated but considered to be of equivalent quality, are described by the rating agencies as speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness than higher rated bonds, or they may already be in default. The market prices of these securities may fluctuate more than higher quality securities and may decline significantly in periods of general economic difficulty. It may be more difficult to dispose of, or to determine the value of, lower rated bonds. Certain risk factors relating to lower rated bonds are discussed below. SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - Lower rated bonds, like other bonds, may be sensitive to adverse economic changes and political and corporate developments and may be sensitive to interest rate changes. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience increased 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. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices and yields of lower rated bonds. PAYMENT EXPECTATIONS - Lower rated bonds, like other bonds, may contain redemption or call provisions. If an issuer exercises 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 to investors. If the issuer of a bond defaults on its obligations to pay interest or principal or enters into bankruptcy proceedings, the fund may incur losses or expenses in seeking recovery of amounts owed to it. 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 value and liquidity of lower rated bonds. The Investment Adviser 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, but there can be no assurance that it will be successful in doing so. INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. involves special risks, caused by, among other things: currency controls and fluctuating currency values; different accounting, auditing, and financial reporting regulations and practices in some countries; changing local and regional economic, political, and social conditions; expropriation or confiscatory taxation; 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. Capital Income Builder - Page 3
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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 invest in securities of issuers in developing countries only 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. CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency exchange rates. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Forward currency contracts entered into by the fund will involve the purchase or sale of one currency against the U.S. dollar. While entering into forward currency transactions could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain which might result from an increase in the value of the currency. The fund will not generally attempt to protect against all potential changes in exchange rates. The fund will segregate liquid assets which will be marked to market daily to meet its forward contract commitments to the extent required by the Securities and Exchange Commission. Certain provisions of the Internal Revenue Code may affect the extent to which the fund may enter into forward contracts. Such transactions may also affect the character and timing of income, gain or loss recognized by the fund for U.S. federal income tax purposes. SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in securities that have a combination of equity and debt characteristics. These securities may at times behave more like equity than debt and vice versa. Some types of convertible bonds or preferred stock automatically convert into common stock. The prices and yields of non-convertible preferred stock generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. Convertible bonds, convertible preferred stock, and other securities may sometimes be converted into common stock or other securities at a stated conversion ratio. These securities, prior to conversion, pay a fixed rate of interest or a dividend. Because convertible securities have both debt and equity characteristics, their value varies in response to many factors, including the value of the underlying equity, general market and economic conditions, and convertible market valuations, as well as changes in interest rates, credit spreads, and the credit quality of the issuer. U.S. TREASURY AND AGENCY SECURITIES - U.S. Treasury securities include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For these securities, the payment of principal and interest is unconditionally guaranteed by the U.S. government, and thus they are of the highest possible credit quality. Such securities are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity, will be paid in full. Capital Income Builder - Page 4
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U.S. agency securities include those issued by certain U.S. government instrumentalities and certain federal agencies. These securities 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. These agencies and instrumentalities include, but are not limited to: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Tennessee Valley Authority, and Federal Farm Credit Bank System. PASS-THROUGH SECURITIES - The fund may invest in various debt obligations backed by a pool of mortgages or other assets including, but not limited to, 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), 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 generally permit 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. 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 uncertainty 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 Capital Income Builder - Page 5
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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. CASH AND CASH EQUIVALENTS - These securities include: (i) commercial paper (e.g., short-term notes up to 9 months in maturity issued by corporations, governmental bodies or bank/ corporation sponsored conduits (asset-backed commercial paper)), (ii) commercial bank obligations (e.g., certificates of deposit, bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)), (iii) savings association and savings bank obligations (e.g., bank notes and certificates of deposit issued by savings banks or savings associations), (iv) securities of the U.S. government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (v) corporate bonds and notes that mature, or that may be redeemed, in one year or less. LOANS OF PORTFOLIO SECURITIES - The fund is authorized to lend portfolio securities to selected securities dealers or 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 33 1/3% of the value of its total assets, measured at the time any such loan is made. FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell securities at a future date. When the fund agrees to purchase such securities, it assumes the risk of any decline in value of the security beginning on the date of the agreement. When the fund agrees to sell such securities, it does not participate in further gains or losses with respect to the securities beginning on the date of the agreement. 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. The fund will not use these transactions for the purpose of leveraging and will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered into for leveraging purposes, to the extent the fund's aggregate commitments under these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject to market risk). Should market values of the fund's portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets would likely occur than were it not in such a position. The fund will not borrow money to settle these transactions and, therefore, will liquidate other portfolio Capital Income Builder - Page 6
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securities in advance of settlement if necessary to generate additional cash to meet its obligations thereunder. The fund may also enter into reverse repurchase agreements and "roll" transactions. 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. A "roll" transaction is the sale of mortgage-backed or other securities together with a commitment to purchase similar, but not identical securities at a later date. The fund assumes the rights and risks of ownership, including the risk of price and yield fluctuations as of the time of the agreement. 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" in Section 2(a)(23) of the Investment Company Act of 1940. 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 (no collateral is required for reverse repurchase agreements with banks). REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under which the fund buys a security and obtains a simultaneous commitment from the seller to repurchase the security at a specified time and price. Repurchase agreements permit the fund to maintain liquidity and earn income over periods of time as short as overnight. 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 the Investment Adviser. The fund will only enter into repurchase agreements involving securities in which it could otherwise invest and with selected banks and securities dealers whose financial condition is monitored by the Investment Adviser. If the seller under the repurchase agreement defaults, the fund may incur a loss if the value of the collateral securing the repurchase agreement has declined and may incur disposition costs in connection with liquidating the collateral. If bankruptcy proceedings are commenced with respect to the seller, realization of the collateral by the fund may be delayed or limited. REAL ESTATE INVESTMENT TRUSTS - The fund may invest in securities issued by real estate investment trusts (REITs), which are pooled investment vehicles that primarily invest in real estate or real estate related loans. REITs are not taxed on income distributed to shareholders provided they meet requirements imposed by the Internal Revenue Code. The risks associated with REIT debt investments are similar to the risks of investing in corporate-issued debt. In addition, the return on REITs is dependent on such factors as the skill of management and the real estate environment in general. Debt that is issued by REITs is typically rated by the credit rating agencies as investment grade or above. VARIABLE AND FLOATING RATE OBLIGATIONS - The interest rates payable on certain securities in which the fund may invest may not be fixed but may fluctuate based upon changes in market rates. Variable and floating rate obligations bear coupon rates that are adjusted at designated intervals, based on the then current market rates of interest. Variable and floating rate obligations permit the fund to "lock in" the current interest rate for only the period until the next scheduled rate adjustment, but the rate adjustment feature tends to limit the extent to which the market value of the obligation will fluctuate. RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject to restrictions on resale. Securities not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures adopted by the fund's board of directors, Capital Income Builder - Page 7
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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. * * * * * * PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. Short-term trading profits are not the fund's objective, and changes in its investments are generally accomplished gradually, though short-term transactions may occasionally be made. High portfolio turnover (100% or more) involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions, and may result in the realization of net capital gains, which are taxable when distributed to shareholders. Fixed-income securities are generally traded on a net basis and usually neither brokerage commissions nor transfer taxes are involved, although the price usually includes a profit to the dealer. A fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio was replaced once per year. See "Financial Highlights" in the prospectus for the fund's annual portfolio turnover for each of the last five fiscal periods. FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies and investment restrictions which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is defined in the Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (ii) more than 50% of the outstanding voting securities. All percentage limitations are considered at the time securities are purchased and are based on the fund's net assets unless otherwise indicated. None of the following investment restrictions involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. 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; Capital Income Builder - Page 8
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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. Capital Income Builder - Page 9
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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. Capital Income Builder - Page 10
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MANAGEMENT OF THE FUND BOARD OF DIRECTOR AND OFFICERS [Enlarge/Download Table] YEAR FIRST NUMBER OF BOARDS POSITION ELECTED WITHIN THE FUND WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH OTHER DIRECTORSHIPS/3/ HELD NAME AND AGE FUND OF THE FUND/1/ PAST 5 YEARS DIRECTOR SERVES BY DIRECTOR ----------------------------------------------------------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS ----------------------------------------------------------------------------------------------------------------------------------- H. Frederick Director 1987 Private Investor; former 19 Ducommun Incorporated;IHOP Christie President and Chief Corporation;Southwest Age: 68 Executive Officer, The Water Company Mission Group (non-utility holding company subsidiary of Southern California Edison Company) ----------------------------------------------------------------------------------------------------------------------------------- Merit E. Janow Director 2001 Professor, Columbia 2 None Age: 43 University, School of International and Public Affairs ----------------------------------------------------------------------------------------------------------------------------------- Mary Myers Kauppila Director 1992 Private Investor; Chairman 5 None Age: 47 and CEO, Ladera Management Company (venture capital and agriculture); former owner and President, Energy Investment, Inc. ----------------------------------------------------------------------------------------------------------------------------------- Gail L. Neale Director 1987 President, The Lovejoy 5 None Age: 67 Consulting Group, Inc. (a pro-bono consulting group advising non-profit organizations) ----------------------------------------------------------------------------------------------------------------------------------- Robert J. O'Neill Director 1992 Chairman of the Council; 3 None Age: 65 Australian Strategic Policy Institute; Adjunct Professor in Strategic and Defense Studies Center, Australian National University; former Chichele Professor of the History of War; and former Fellow, All Souls College, University of Oxford ----------------------------------------------------------------------------------------------------------------------------------- Donald E. Petersen Director 1992 Retired; former Chairman of 5 Axicon Technologies, Inc. Age: 75 the Board and Chief Executive Officer, Ford Motor Company ----------------------------------------------------------------------------------------------------------------------------------- Stefanie Powers Director 1989-1996 Actor; Founder and 2 None Age: 59 1997 President, The William Holden Wildlife Foundation ----------------------------------------------------------------------------------------------------------------------------------- Frank Stanton Director 1987 Retired; former President, 2 American Health Companies, Age: 93 CBS Inc. (1946-1973) Inc.; Sony Music Entertainment, Inc. ----------------------------------------------------------------------------------------------------------------------------------- Steadman Upham Director 2001 President and University 2 None Age: 52 Professor of Archaeology, Claremont Graduate University Education ----------------------------------------------------------------------------------------------------------------------------------- Charles Wolf, Jr. Director 1987 Senior Economic Adviser and 2 None Age: 77 Corporate Fellow in International Economics, The RAND Corporation; formerly Dean, the RAND Graduate School ----------------------------------------------------------------------------------------------------------------------------------- Capital Income Builder - Page 11
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[Enlarge/Download Table] PRINCIPAL OCCUPATION(S) DURING YEAR FIRST PAST 5 YEARS AND NUMBER OF BOARDS ELECTED POSITIONS HELD WITHIN THE FUND POSITION A DIRECTOR WITH AFFILIATED ENTITIES COMPLEX/2/ ON WHICH OTHER DIRECTORSHIPS/3/ WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER DIRECTOR HELD NAME AND AGE FUND OF THE FUND/1/ OF THE FUND OR OFFICER SERVES BY DIRECTOR OR OFFICER ----------------------------------------------------------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/4,5/ ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Haaga, Vice 1987 Executive Vice President and 16 None Jr. Chairman of Director, Capital Research and Age: 53 the Board Management Company; Director, American Funds Distributors, Inc.*; Director, The Capital Group Companies, Inc.* ----------------------------------------------------------------------------------------------------------------------------------- James B. Lovelace President 1992 Senior Vice President and 2 None Age: 45 and Director, Capital Research and Director Management Company ----------------------------------------------------------------------------------------------------------------------------------- Jon B. Lovelace DIrector 1987 Chairman Emeritus, Capital 2 None Age: 75 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- [Enlarge/Download Table] PRINCIPAL OCCUPATION(S) DURING POSITION YEAR FIRST ELECTED PAST 5 YEARS AND POSITIONS HELD WITH THE AN OFFICER WITH AFFILIATED ENTITIES NAME AND AGE FUND OF THE FUND/1/ OR THE PRINCIPAL UNDERWRITER OF THE FUND ----------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS/5/ ----------------------------------------------------------------------------------------------------------------------------------- Joyce E. Gordon Senior Vice 1996 Senior Vice President, Capital Research Company* Age: 45 President ----------------------------------------------------------------------------------------------------------------------------------- Janet A. McKinley Senior Vice 1992 Director, Capital Research and Management Company;Senior Vice Age: 47 President President, Capital Research Company* ----------------------------------------------------------------------------------------------------------------------------------- Catherine M. Ward Senior Vice 1987 Senior Vice President and Director, Capital Research and Age: 55 President Management Company; Director, American Funds Service Company*; Secretary and Director, Capital Group Research, Inc.*; Director, The Capital Group Companies, Inc.* ----------------------------------------------------------------------------------------------------------------------------------- Darcy Kopcho Vice President 1996 Executive Vice President and Research Director, Capital Research Age: 48 Company* ----------------------------------------------------------------------------------------------------------------------------------- Mark R. Macdonald Vice President 2001 Vice President - Investment Management Group, Capital Research Age: 42 and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Steven T. Watson Vice President 1997 Senior Vice President, Capital Research Company* Age: 46 ----------------------------------------------------------------------------------------------------------------------------------- Vincent P. Corti Secretary 1987 Vice President - Fund Business Management Group, Capital Age: 45 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- R. Marcia Gould Treasurer 1994 Vice President - Fund Business Management Group, Capital Age: 47 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Dayna G. Yamabe Assistant Treasurer 2001 Vice President - Fund Business Management Group, Capital Age: 34 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Capital Income Builder - Page 13
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* Company affiliated with Capital Research and Management Company. 1 Directors and officers of the fund serve until their resignation, removal or retirement. 2 Capital Research and Management Company manages the American Funds consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 This includes all directorships (other than those in the American Funds Group) that are held by each director as a director of a public company or a registered investment company. 4 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). 5 All of the officers listed are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as Investment Adviser. THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. Capital Income Builder - Page 14
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FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2001 [Download Table] AGGREGATE DOLLAR RANGE/1/ OF SHARES OWNED IN ALL FUNDS WITHIN AMERICAN FUNDS DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN NAME SHARES OWNED BY DIRECTOR ------------------------------------------------------------------------------- "NON-INTERESTED" DIRECTORS ------------------------------------------------------------------------------- H. Frederick Christie $50,001 - $100,000 Over $100,000 ------------------------------------------------------------------------------- Merit E. Janow $1 - $10,000 $10,001 - $50,000 ------------------------------------------------------------------------------- Mary Myers Kauppila Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Gail L. Neale $10,001 - $50,000 Over $100,000 ------------------------------------------------------------------------------- Robert J. O'Neill None None ------------------------------------------------------------------------------- Donald E. Petersen Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Stefanie Powers Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Frank Stanton Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Steadman Upham None None ------------------------------------------------------------------------------- Charles Wolf, Jr. $50,001 - $100,000 Over $100,000 ------------------------------------------------------------------------------- "INTERESTED" DIRECTORS/2/ ------------------------------------------------------------------------------- Paul G. Haaga, Jr. Over $100,000 Over $100,000 ------------------------------------------------------------------------------- James B. Lovelace Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Jon B. Lovelace Over $100,000 Over $100,000 ------------------------------------------------------------------------------- 1 Ownership disclosure is made using the following ranges: None; $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000 and Over $100,000. The amounts listed for "interested" directors include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan. 2 "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company, or its affiliated entities (including the fund's principal underwriter). DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED OCTOBER 31, 2001 No compensation is paid by the fund to any officer or Director who is a director, officer or employee of the Investment Adviser or its affiliates. The fund pays annual fees of $13,000 to Directors who are not affiliated with the Investment Adviser, plus $1,000 for each Board of Directors meeting attended, and $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. The fund also reimburses certain expenses of the Directors who are not affiliated with the Investment Adviser. Capital Income Builder - Page 15
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[Enlarge/Download Table] TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ ------------------------------------------------------------------------------------------ H. Frederick $17,500/3/ $203,620/3/ Christie ------------------------------------------------------------------------------------------ Merit E. Janow $ 0/4/ $ 0/4/ ------------------------------------------------------------------------------------------ Mary Myers Kauppila $18,500/3/ $104,000/3/ ------------------------------------------------------------------------------------------ Gail L. Neale $18,000/3/ $ 93,500/3/ ------------------------------------------------------------------------------------------ Robert J. O'Neill $18,500/3/ $ 46,500/3/ ------------------------------------------------------------------------------------------ Donald E. Petersen $18,000/3/ $103,500/3/ ------------------------------------------------------------------------------------------ Stefanie Powers $18,000 $ 38,000 ------------------------------------------------------------------------------------------ Frank Stanton $19,000 $ 41,000 ------------------------------------------------------------------------------------------ Steadman Upham $ 0/4/ $ 0/4/ ------------------------------------------------------------------------------------------ Charles Wolf, Jr. $17,500 $ 39,000 ------------------------------------------------------------------------------------------ 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 Directors. 2 Capital Research and Management Company manages the American Funds consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the 2001 fiscal year for participating Directors is as follows: H. Frederick Christie ($111,756), Mary Myers Kauppila ($197,045) and Donald E. Petersen ($62,140). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Directors. 4 Merit E. Janow and Steadman Upham were elected to the Board effective December 6, 2001, therefore, received no compensation from the fund during fiscal 2001. As of January 15, 2002, the officers and Directors of the fund and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. FUND ORGANIZATION AND THE BOARD OF DIRECTORS The fund, an open-end, diversified management investment company, was organized as a Maryland corporation on June 8, 1987. All fund operations are supervised by the fund's Board of Directors, which 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 above. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund has several different classes of shares, including classes A, B, C, F, 529-A, 529-B, 529-C, 529-E and 529-F. The 529 share classes are available only through CollegeAmerica to investors establishing qualified higher education savings accounts. The shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to Capital Income Builder - Page 16
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voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Directors and set forth in the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 Plans adopted in connection with the distribution of shares and on other matters in which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. Note, CollegeAmerica account owners are technically not shareholders of the fund and accordingly, do not have the rights of a shareholder, including the right to vote any proxies relating to fund shares. 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 the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the board could be removed by a majority vote. REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly called and at which a quorum is present, shareholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast, remove any Director 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 will promptly call a meeting of shareholders for the purpose of voting upon the removal of any Directors when requested in writing to do so by the record holders of at least 10% of the outstanding shares. COMMITTEES OF THE BOARD OF DIRECTORS The fund has an Audit Committee comprised of Mary Myers Kauppila, Robert J. O'Neill and Frank Stanton, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee oversees the fund's accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund's principal service providers. The Committee acts as a liaison between the fund's independent accountants and the full Board of Directors. There were two Audit Committee meetings held during the 2001 fiscal year. The fund has a Nominating Committee comprised of Gail L. Neale, Donald E. Petersen, Stefanie Powers and Frank Stanton, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee periodically reviews such issues as the Board's composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Directors. The Committee also evaluates, selects and nominates candidates for independent directors to the full Board of Directors. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating Committee of the fund, c/o the fund's Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, Capital Income Builder - Page 17
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along with a written consent of the prospective nominee for consideration of his or her name by the Committee. There was one Nominating Committee meeting during the 2001 fiscal year. The fund has a Contracts Committee comprised of H. Frederick Christie, Mary Myers Kauppila, Gail L. Neale, Robert J. O'Neill, Donald E. Petersen, Stefanie Powers, Frank Stanton and Charles Wolf, Jr., none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee's function is to request, review and consider the information deemed necessary to evaluate the terms of certain agreements between the fund and its Investment Adviser or the Investment Adviser's affiliates, such as the investment advisory and service agreement, principal underwriting agreement, and plans of distribution under rule 12b-1, that the fund may enter into, renew or continue, and to make its recommendations to the full Board of Directors on these matters. There was one Contracts Committee meeting during the 2001 fiscal year. INVESTMENT ADVISER - The Investment Adviser, Capital Research and Management Company, founded in 1931, maintains research facilities in the U.S. and abroad (Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo) with a staff of professionals, many of whom have significant investment experience. The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment Adviser's research professionals travel several million miles a year, making more than 5,000 research visits in more than 50 countries around the world. The Investment Adviser believes that it is able to attract and retain quality personnel. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. The Investment Adviser is responsible for managing more than $350 billion of stocks, bonds and money market instruments and serves over 11 million shareholder accounts of all types throughout the world. These investors include privately owned businesses and large corporations as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the "Agreement") between the fund and the Investment Adviser will continue in effect until October 31, 2002, 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 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 it, 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). In determining whether to renew the Agreement each year, the Contracts Committee of the Board of Directors evaluates information provided by the Investment Adviser in accordance with Section 15(c) of the 1940 Act, and presents its recommendations to the full Board of Directors. At its most recent meeting, the Committee considered a number of factors in recommending Capital Income Builder - Page 18
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renewal of the existing Agreement, including the quality of services provided to the fund, fees and expenses borne by the fund, and financial results of the Investment Adviser. In reviewing the quality of services provided to the fund, the Committee reviewed comparative results data and fund expenses, noting that the fund's results were better than the majority of the eighteen funds in its peer group and that expenses also ranked among the lowest. The Committee also reviewed the Investment Adviser's trading practices and concluded that, based on its review of certain data, the Investment Adviser's dealings with most brokers was based primarily on best execution and not other factors. Based on their review, the Committee and the Board concluded that the advisory fees and other expenses of the fund are reasonable, both absolutely and on a relative basis, and that shareholders receive fair value for such fees and expenses. The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to: custodian, stock transfer and dividend disbursing fees and expenses; shareholder recordkeeping and administrative expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares of the fund (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's Plans of Distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to directors unaffiliated with the Investment Adviser; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data. The management fee is based upon the net assets of the fund and monthly gross investment income. Gross investment income is determined in accordance with generally accepted accounting principles and does not include gains or losses from sales of capital assets. 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 3%, 4%, 5%, 6%, and 7%, management fees would be 0.27%, 0.30%, 0.33%, 0.36%, and 0.39%, respectively. The Agreement provides for a management fee reduction to the extent that the annual ordinary operating expenses of the fund's Class A shares exceed 1 1/2% of the first $30 million of the net assets of the fund and 1% of the average net assets in excess thereof. Expenses which are not subject to these limitations are interest, taxes, and extraordinary expenses. 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. To the extent the fund's Capital Income Builder - Page 19
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management fee must be waived due to Class A share expense ratios exceeding this limit, management fees will be reduced similarly for all classes of shares of the fund or other Class A fees will be waived in lieu of management fees. For the fiscal years ended 2001, 2000, and 1999, the Investment Adviser received from the fund advisory fees of $25,719,000, $25,990,000, and $28,908,000, respectively. ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the Investment Adviser relating to the fund's Class C, F and 529 shares will continue in effect until October 31, 2002, 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 the vote of a majority of Directors who are not parties to the Administrative 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 Administrative Agreement provides that the fund may terminate the agreement at any time by vote of a majority of Directors who are not interested persons of the fund. The Investment Adviser has the right to terminate the Administrative Agreement upon 60 days' written notice to the fund. The Administrative Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). Under the Administrative Agreement, the Investment Adviser provides certain transfer agent and administrative services for shareholders of the fund's Class C and F shares, and all Class 529 shares. The Investment Adviser contracts with third parties, including American Funds Service Company, the fund's Transfer Agent, to provide these services. Services include, but are not limited to, shareholder account maintenance, transaction processing, tax information reporting, and shareholder and fund communications. In addition, the Investment Adviser monitors, coordinates and oversees the activities performed by third parties providing such services. As compensation for its services, the Investment Adviser receives transfer agent fees for transfer agent services provided to the fund's applicable share classes. Transfer agent fees are paid monthly according to a fee schedule contained in a Shareholder Services Agreement between the fund and American Funds Service Company. The Investment Adviser also receives an administrative services fee for administrative services provided to the fund's applicable share classes. Administrative services fees are paid monthly, accrued daily and calculated at the annual rate of 0.15% of the average daily net assets of each respective applicable share class. Administrative service fees paid for Class C and F shares for the fiscal period ended 2001 were $44,000 and $10,000, respectively. PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION - 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 Principal Underwriter receives revenues from sales of the fund's shares. For Class A and 529-A shares, the Principal Underwriter receives commission revenue consisting of that portion of the Class A and 529-A sales charge remaining after the allowances by the Principal Underwriter to investment dealers. For Class B and 529-B shares, the Principal Underwriter sells Capital Income Builder - Page 20
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the rights to the 12b-1 fees paid by the fund for distribution expenses to a third party and receives the revenue remaining after compensating investment dealers for sales of Class B and 529-B shares. The fund also pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers of Class B and 529-B shares. For Class C and 529-C shares, the Principal Underwriter receives any contingent deferred sales charges that apply during the first year after purchase. The fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers of Class C and 529-C shares. For Class 529-E shares, the fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers. For Class F and 529-F shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers who sell Class F and 529-F shares. Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were: [Enlarge/Download Table] COMMISSIONS, ALLOWANCE OR FISCAL YEAR/PERIOD REVENUE COMPENSATION ------------------------------------------------------------------- OR FEES RETAINED TO DEALERS -------------------------------------- CLASS A 2001 $3,779,000 $17,257,000 2000 $1,778,000 $ 8,086,000 1999 $5,326,000 $25,137,000 --------------------------------------------------------------------------------------------------------- CLASS B 2001 $ 680,000 $ 3,922,000 2000 $ 112,000 $ 704,000 --------------------------------------------------------------------------------------------------------- The fund has adopted Plans of Distribution (the "Plans"), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plans (see below). As required by rule 12b-1 and the 1940 Act, the Plans (together with the Principal Underwriting Agreement) have 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 Plans or the Principal Underwriting Agreement. Potential benefits of the Plans to the fund include: 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 Plans. The Plans may not be amended to increase materially the amount spent for distribution without shareholder approval. Plan expenses are reviewed quarterly and the Plans must be renewed annually by the Board of Directors. Under the Plans, the fund may annually expend the following amounts 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: (i) for Class A shares, up to 0.30% of its average daily net assets attributable to Class A shares; (ii) for Class 529-A shares, up to 0.50% of its average daily net assets attributable to Class 529-A shares; (iii) for Capital Income Builder - Page 21
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Class B and 529-B shares, 1.00% of its average daily net assets attributable to Class B and 529-B shares, respectively; (iv) for Class C and 529-C shares, 1.00% of its average daily net assets attributable to Class C and 529-C shares, respectively; (v) for Class 529-E shares, up to 0.75% of its average daily net assets attributable to Class 529-E shares; and (vi) for Class F and 529-F shares, up to 0.50% of its average daily net assets attributable to Class F and 529-F shares, respectively. For Class A and 529-A shares, (i) up to 0.25% is reimbursed to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) up to the amount allowable under the fund's Class A and 529-A 12b-1 limit is reimbursed to the Principal Underwriter for paying distribution-related expenses, including for Class A and 529-A shares dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge (including purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees, and retirement plans, endowments and foundations with $50 million or more in assets) ("no load purchases"). Commissions on no load purchases of Class A shares, in excess of the Class A and 529-A Plan limitations not reimbursed to the Principal Underwriter 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 these commissions are not recoverable. For Class B and 529-B shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including the financing of commissions paid to qualified dealers. For Class C and 529-C shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class 529-E shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.25% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class F and 529-F shares, 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers or advisers. Currently, no compensation is paid under the fund's Class F and 529-F Plans for distribution-related expenses. Capital Income Builder - Page 22
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During the 2001 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were: [Download Table] 12B-1 EXPENSES 12B-1 LIABILITY -------------------------- ACCRUED OUTSTANDING ---------------------------------------------------- CLASS A $18,965,000 $2,900,000 ------------------------------------------------------------------------------ CLASS B $ 585,000 $ 97,000 ------------------------------------------------------------------------------ CLASS C $ 172,000 $ 49,000 ------------------------------------------------------------------------------ CLASS F $ 9,000 $ 3,000 ------------------------------------------------------------------------------ OTHER COMPENSATION TO DEALERS - The Principal Underwriter, 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. Additional compensation may be paid to certain dealer firms to reimburse certain expenses associated with providing educational meetings to shareholders or prospective American Funds investors. These payments will be based principally on a pro rata share of a qualifying dealer's sales. The Principal Underwriter will, on an annual basis, determine the advisability of continuing these payments. TAXES AND DISTRIBUTIONS FUND TAXATION - The fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code ("Code"). A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including the excess of net short-term capital gain over net long-term capital losses) and generally is not subject to federal income tax to the extent that it distributes annually 100% of its investment company taxable income and net realized capital gains in the manner required under the Code. The fund intends to distribute annually all of its investment company taxable income and net realized capital gains and therefore does not expect to pay federal income tax, although in certain circumstances the fund may determine that it is in the interest of shareholders to distribute less than that amount. To be treated as a regulated investment company under Subchapter M of the Code, the fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such 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 assets is represented by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the fund's assets and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or two or more issuers which the fund controls and which are determined to be engaged in the same or similar trades or businesses. Capital Income Builder - Page 23
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Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year ending within the regulated investment company's taxable year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gain (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 during the periods described above. Although the fund intends to distribute its net investment income and net capital gains so as to avoid excise tax liability, the fund may determine that it is the interest of shareholders to distribute a lesser amount. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS - Dividends and capital gain distributions on fund shares will be reinvested in shares of the fund of the same class, unless shareholders indicate in writing that they wish to receive them in cash or in shares of the same class of other American Funds, as provided in the prospectus. Distributions of investment company taxable income and net realized capital gains to individual shareholders will be taxable whether received in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of that share on the reinvestment date. Dividend and capital gain distributions by 529 share classes will be automatically reinvested. DIVIDENDS - The fund intends to follow the practice of distributing substantially all of its investment company taxable income, which includes any excess of net realized short-term gains over net realized long-term capital losses. Investment company taxable income generally includes dividends, interest, net short-term capital gains in excess of net long-term capital losses, and certain foreign currency gains, if any, less expenses and certain foreign currency losses. Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the fund accrues receivables or liabilities denominated in a foreign currency and the time the fund actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of the fund's investment company taxable income to be distributed to its shareholders as ordinary income. If the fund invests in stock of certain passive foreign investment companies, the fund may be subject to U.S. federal income taxation on a portion of any "excess distribution" with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the fund's holding period for the Capital Income Builder - Page 24
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stock. The distribution or gain so allocated to any taxable year of the fund, other than the taxable year of the excess distribution or disposition, would be taxed to the fund at the highest ordinary income rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company's stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the fund's investment company taxable income and, accordingly, would not be taxable to the fund to the extent distributed by the fund as a dividend to its shareholders. To avoid such tax and interest, the fund intends to elect to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time. Under this election, deductions for losses are allowable only to the extent of any prior recognized gains, and both gains and losses will be treated as ordinary income or loss. The fund will be required to distribute any resulting income, even though it has not sold the security and received cash to pay such distributions. Upon disposition of these securities, any gain recognized is treated as ordinary income and loss is treated as ordinary loss to the extent of any prior recognized gain. Dividends from domestic corporations are expected to comprise some portion of the fund's gross income. To the extent that such dividends constitute any of the fund's gross income, a portion of the income distributions of the fund will be eligible for the deduction for dividends received by corporations. Shareholders will be informed of the portion of dividends which so qualify. The dividends-received deduction is reduced to the extent that either the fund shares, or the underlying shares of stock held by the fund, with respect to which dividends are received, are treated as debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held by the shareholder or the fund, as the case may be, for less than 46 days during the 90-day period beginning on the date which is 45 days before the date on which the shares become ex-dividend. Capital gain distributions are not eligible for the dividends-received deduction. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to the fund each year, even though the fund will not receive cash interest payments from these securities. This original issue discount (imputed income) will comprise a part of the investment company taxable income of the fund which must be distributed to shareholders in order to maintain the qualification of the fund as a regulated investment company and to avoid federal income taxation at the level of the fund. In addition, some of the bonds may be purchased by a fund at a discount that exceeds the original issue discount on such bonds, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any bond having a market discount may be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond or a fund may elect to include the market discount in income in tax years to which it is attributable. Generally, accrued market discount may be figured under either the ratable accrual method or constant interest method. If the fund has paid a premium over the face amount of a bond, the fund has the option of either amortizing the premium until bond maturity and reducing the fund's basis in the bond by the amortized amount, or not amortizing and treating the premium as part of the bond's basis. In the case of any debt security having a fixed maturity date of not more than one year from its date of issue, the gain realized on Capital Income Builder - Page 25
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disposition generally will be treated as short-term capital gain. In general, any gain realized on disposition of a security held less than one year is treated as short-term capital gain. Dividend and interest income received by the fund from sources outside the U.S. may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the U.S. may reduce or eliminate these foreign taxes, however. Most foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. CAPITAL GAIN DISTRIBUTIONS - The fund also intends to follow the practice of distributing the entire excess of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carry-forward of the fund. If any net long-term capital gains in excess of net short-term capital losses are retained by the fund for reinvestment, requiring federal income taxes to be paid thereon by the fund, the fund intends to elect to treat such capital gains as having been distributed to shareholders. As a result, each shareholder will report such capital gains as long-term capital gains taxable to individual shareholders at a maximum 20% capital gains rate, will be able to claim a pro rata share of federal income taxes paid by the fund on such gains as a credit against personal federal income tax liability, and will be entitled to increase the adjusted tax basis on fund shares by the difference between a pro rata share of the retained gains and such shareholder's related tax credit. SHAREHOLDER TAXATION - In January of each year, individual shareholders of the fund will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also may be subject to state and local taxes on distributions received from the fund. Distributions of the excess of net long-term capital gains over net short-term capital losses which the fund properly designates as "capital gain dividends" generally will be taxable to individual shareholders at a maximum 20% capital gains rate, regardless of the length of time the shares of the fund have been held by such shareholders. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain during such six-month period. Distributions by the fund result in a reduction in the net asset value of the fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution would nevertheless be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of investment capital. For this reason, investors should consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive a partial return of investment capital upon the distribution, which will nevertheless be taxable to them. Redemptions of shares, including exchanges for shares of another American Fund, may result in federal, state and local tax consequences (gain or loss) to the shareholder. However, conversion from one class to another class in the same fund should not be a taxable event. Capital Income Builder - Page 26
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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 will not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purposes 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 funds. Also, any loss realized on a redemption or exchange of shares of the 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. The fund will be required to report to the IRS all distributions of investment company taxable income and capital gains as well as gross proceeds from the redemption or exchange of fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of investment company taxable income and capital gains and proceeds from the redemption or exchange of a regulated investment company may be subject to withholding of federal income tax in the case of non-exempt U.S. shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law. Withholding may also be required if the fund is notified by the IRS or a broker that the taxpayer identification number furnished by the shareholder is incorrect or that the shareholder has previously failed to report interest or dividend income. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by the shareholder. Shareholders should consult their tax advisers about the application of federal, state and local tax law in light of their particular situation. UNLESS OTHERWISE NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F SHARES. CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO COLLEGEAMERICA ACCOUNTS. Capital Income Builder - Page 27
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PURCHASE OF SHARES [Download Table] METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS ------------------------------------------------------------------------------- See "Purchase $50 minimum (except where a Minimums" for initial lower minimum is noted under investment minimums. "Purchase Minimums"). ------------------------------------------------------------------------------- By contacting Visit any investment Mail directly to your your investment dealer dealer who is investment dealer's address registered in the printed on your account state where the statement. purchase is made, has a sales agreement with American Funds Distributors and is authorized to sell a CollegeAmerica account in the case of 529 shares. ------------------------------------------------------------------------------- By mail Make your check Fill out the account additions payable to the fund form at the bottom of a recent and mail to the account statement, make your address indicated on check payable to the fund, the account write your account number on application. Please your check, and mail the check indicate an investment and form in the envelope dealer on the account provided with your account application. statement. ------------------------------------------------------------------------------- By telephone Please contact your Complete the "Investments by investment dealer to Phone" section on the account open account, then application or American follow the procedures FundsLink Authorization Form. for additional Once you establish the investments. 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 "Shareholder Account Services and Privileges - Telephone and Internet Purchases, Redemptions and Exchanges" below). ------------------------------------------------------------------------------- By Internet Please contact your Complete the American FundsLink investment dealer to Authorization Form. Once you open account, then establish the privilege, you, follow the procedures your financial advisor or any for additional person with your account investments. information may access American FundsLine OnLine(R) on the Internet and make investments by computer (subject to conditions noted in "Shareholder Account Services and Privileges - Telephone and Internet Purchases, Redemptions and Exchanges" below). ------------------------------------------------------------------------------- By wire Call 800/421-0180 to Your bank should wire your obtain your account additional investments in the number(s), if same manner as described under necessary. Please "Initial Investment." indicate an investment dealer on the account. Instruct your bank to wire funds to: Wells Fargo Bank 155 Fifth Street, Sixth Floor San Francisco, CA 94106 (ABA#121000248) For credit to the account of: American Funds Service Company a/c# 4600-076178 (fund name) (your fund acct. no.) ------------------------------------------------------------------------------- The fund and the Principal Underwriter reserve the right to reject any purchase order. Generally, Class F shares are generally only available to fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. Class B and C shares are generally not available to certain employer-sponsored retirement plans, such as 401(k) plans, 457 plans, employer-sponsored 403(b) plans, and money purchase pension and Capital Income Builder - Page 28
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profit sharing plans. Class 529 shares may be purchased by investors only through CollegeAmerica accounts. Class 529-E shares may only be purchased by investors participating in CollegeAmerica through an eligible employer plan. In addition, the state tax-exempt funds are only offered in certain states, and tax-exempt funds in general should not serve as retirement plan investments. PURCHASE MINIMUMS - The minimum initial investment for all funds in The American Funds Group, except the money market funds and the state tax-exempt funds, is $250. The minimum initial investment for the money market funds (The Cash Management Trust of America, The Tax-Exempt Money Fund of America, and The U.S. Treasury Money Fund of America) and the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, and The Tax-Exempt Fund of Virginia) is $1,000. Purchase 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. The minimum is $50 for additional investments (except for retirement plan payroll deductions as noted above). PURCHASE MAXIMUM FOR CLASS B SHARES - The maximum purchase order for Class B shares for all American Funds is $100,000. Direct purchases of Class B shares of The Cash Management Trust of America are not permitted; shares may be acquired only by exchanging from Class B shares of other American Funds. For investments above $100,000, Class A shares are generally a less expensive option over time due to sales charge reductions or waivers. PURCHASE MAXIMUM FOR CLASS C SHARES - The maximum purchase order for Class C shares for all American Funds is $500,000. Direct purchases of Class C shares of The Cash Management Trust of America are not permitted; shares may be acquired only by exchanging from Class C shares of other American Funds. FUND NUMBERS - Here are the fund numbers for use with our automated telephone line, American FundsLine/(R)/ (see description below): [Enlarge/Download Table] FUND NUMBERS ---------------------------------------- FUND CLASS A CLASS B CLASS C CLASS F -------------------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . 002 202 302 402 American Balanced Fund/(R)/ . . . . . . . . . . . . . . 011 211 311 411 American Mutual Fund/(R)/ . . . . . . . . . . . . . . . 003 203 303 403 Capital Income Builder/(R)/ . . . . . . . . . . . . . . 012 212 312 412 Capital World Growth and Income Fund/SM/ . . . . . . . 033 233 333 433 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . 016 216 316 416 Fundamental Investors/SM/ . . . . . . . . . . . . . . . 010 210 310 410 The Growth Fund of America/(R)/ . . . . . . . . . . . . 005 205 305 405 The Income Fund of America/(R)/ . . . . . . . . . . . . 006 206 306 406 The Investment Company of America/(R)/ . . . . . . . . 004 204 304 404 The New Economy Fund/(R)/ . . . . . . . . . . . . . . . 014 214 314 414 New Perspective Fund/(R)/ . . . . . . . . . . . . . . . 007 207 307 407 New World Fund/SM/ . . . . . . . . . . . . . . . . . . 036 236 336 436 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . 035 235 335 435 Washington Mutual Investors Fund/SM/ . . . . . . . . . 001 201 301 401 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . . . 040 240 340 440 American High-Income Trust/SM/ . . . . . . . . . . . . 021 221 321 421 The Bond Fund of America/SM/ . . . . . . . . . . . . . 008 208 308 408 Capital World Bond Fund/(R)/ . . . . . . . . . . . . . 031 231 331 431 Intermediate Bond Fund of America/SM/ . . . . . . . . . 023 223 323 423 Limited Term Tax-Exempt Bond Fund of America/SM/ . . . 043 243 343 443 The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . 019 219 319 419 The Tax-Exempt Fund of California/(R)/* . . . . . . . . 020 220 320 420 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . 024 224 324 424 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . 025 225 325 425 U.S. Government Securities Fund/SM/ . . . . . . . . . . 022 222 322 422 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . . . 009 209 309 409 The Tax-Exempt Money Fund of America/SM/ . . . . . . . 039 N/A N/A N/A The U.S. Treasury Money Fund of America/SM/ . . . . . . 049 N/A N/A N/A ___________ *Available only in certain states. Capital Income Builder - Page 29
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[Download Table] FUND NUMBERS --------------------------------------------- CLASS CLASS CLASS CLASS CLASS FUND 529-A 529-B 529-C 529-E 529-F ------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . 1002 1202 1302 1502 1402 American Balanced Fund/(R)/ . . 1011 1211 1311 1511 1411 American Mutual Fund/(R)/ . . . 1003 1203 1303 1503 1403 Capital Income Builder/(R)/ . . 1012 1212 1312 1512 1412 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . 1033 1233 1333 1533 1433 EuroPacific Growth Fund/(R)/ . 1016 1216 1316 1516 1416 Fundamental Investors/SM/ . . . 1010 1210 1310 1510 1410 The Growth Fund of America/(R)/ 1005 1205 1305 1505 1405 The Income Fund of America/(R)/ 1006 1206 1306 1506 1406 The Investment Company of America/(R)/. . . . . . . . . . 1004 1204 1304 1504 1404 The New Economy Fund/(R)/ . . . 1014 1214 1314 1514 1414 New Perspective Fund/(R)/ . . . 1007 1207 1307 1507 1407 New World Fund/SM/ . . . . . . 1036 1236 1336 1536 1436 SMALLCAP World Fund/(R)/ . . . 1035 1235 1335 1535 1435 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . 1001 1201 1301 1501 1401 BOND FUNDS American High-Income Trust/SM/ 1021 1221 1321 1521 1421 The Bond Fund of America/SM/ . 1008 1208 1308 1508 1408 Capital World Bond Fund/(R)/ . 1031 1231 1331 1531 1431 Intermediate Bond Fund of America/SM/ . . . . . . . . . . 1023 1223 1323 1523 1423 U.S. Government Securities Fund/SM/. . . . . . . . . . . . 1022 1222 1322 1522 1422 MONEY MARKET FUND The Cash Management Trust of America/(R)/. . . . . . . . . . 1009 1209 1309 1509 1409 Capital Income Builder - Page 30
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SALES CHARGES CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares of 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 "Fund Numbers" above for a listing of the funds.) [Enlarge/Download Table] DEALER SALES CHARGE AS COMMISSION PERCENTAGE OF THE: AS PERCENTAGE ------------------ OF THE AMOUNT OF PURCHASE AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING -INVESTED- PRICE PRICE ----------------------------------------------------------------------- -------- ----- ----- STOCK AND STOCK/BOND FUNDS Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00% $25,000 but less than $50,000 . . . 5.26 5.00 4.25 $50,000 but less than $100,000. . 4.71 4.50 3.75 BOND FUNDS Less than $100,000 . . . . . . . . 3.90 3.75 3.00 STOCK, STOCK/BOND, AND BOND FUNDS $100,000 but less than $250,000 . 3.63 3.50 2.75 $250,000 but less than $500,000 . 2.56 2.50 2.00 $500,000 but less than $750,000 . 2.04 2.00 1.60 $750,000 but less than $1 million 1.52 1.50 1.20 $1 million or more. . . . . . . . none none (see below) ------------------------------------------------------------------------------ CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED SALES CHARGE (CDSC) MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers from retirement plans with assets invested in the American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may invest with no sales charge and are not subject to a CDSC. 403(b) plans may be treated as employer-sponsored plans for sales charge purposes if: (i) the American Funds are principal investment options; (ii) the employer facilitates the enrollment process by, for example, allowing for onsite group enrollment meetings held during working hours; and (iii) there is only one dealer firm assigned to the plans. 403(b) plans meeting these criteria may invest with no sales charge and are not subject to a CDSC if investing $1 million or more or having 100 or more eligible employees. Investments made through accounts that purchased Class A shares of the fund before March 15, 2001 and are part of certain qualified fee-based programs, and retirement plans, endowments or foundations with $50 million or more in assets, may also be made with no sales charge and are not subject to a CDSC. A dealer concession of up to 1% may be paid by the fund under its Class A Plan of Distribution on investments made with no initial sales charge. Capital Income Builder - Page 31
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In addition, Class A shares of the stock, stock/bond and bond funds may be sold at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to, the funds managed by Capital Research and Management Company, current or retired employees of Washington Management Corporation, current or retired employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members and employees 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 the Principal Underwriter (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) insurance company separate accounts; (5) accounts managed by subsidiaries of The Capital Group Companies, Inc.; (6) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation; (7) an individual or entity with a substantial business relationship with The Capital Group Companies, Inc. or its affiliates, as determined by a Vice President or more senior officer of the Capital Research and Management Company Fund Administration and Compliance Unit; and (8) wholesalers and full-time employees directly supporting wholesalers involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. CONTINGENT DEFERRED SALES CHARGE ON CLASS A AND C SHARES - Except as described above, a CDSC of 1% applies to redemptions of Class A shares of the American Funds, other than the money market funds, made within 12 months following the purchase of Class A shares of $1 million or more made without an initial sales charge. A CDSC of 1% also applies to redemptions of Class C shares of the American Funds made within 12 months following the purchase of the Class C shares. 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 the longest are assumed to be redeemed first for purposes of calculating this CDSC. The CDSC may be waived in certain circumstances. See "CDSC Waivers for Class A Shares" and "CDSC Waivers for Class B and C Shares" below. Capital Income Builder - Page 32
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CLASS B SALES CHARGES - Class B shares are sold without any initial sales charge. However, a CDSC may be applied to shares you sell within six years of purchase, as shown in the table below: [Download Table] CONTINGENT DEFERRED SALES CHARGE ON SHARES SOLD WITHIN YEAR AS A % OF SHARES BEING SOLD -------------------------------------------------------------------------- 1 5.00% 2 4.00 3 4.00 4 3.00 5 2.00 6 1.00 There is no CDSC on appreciation in share value above the initial purchase price or on shares acquired through reinvestment of dividends or capital gain distributions. In addition, the CDSC may be waived in certain circumstances. See "CDSC Waivers for Class B and C shares" below. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. In processing redemptions of Class B shares, shares that are not subject to any CDSC will be redeemed first followed by shares that you have owned the longest during the six-year period. CLASS F AND CLASS 529-E SALES CHARGE - Class F and 529-E shares are sold with no initial or contingent deferred sales charge. DEALER COMMISSIONS AND COMPENSATION - For Class A shares, commissions (up to 1%) are paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored defined contribution-type plan investing $1 million or more or with 100 or more eligible employees, IRA rollover accounts (as described in "Individual Retirement Account (IRA) Rollovers" below), and for purchases made at net asset value by certain retirement plans, endowments and foundations with assets of $50 million or more. Commissions on investments in Class A shares are paid at the following rates: 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. Commissions are based on cumulative investments and are not annually reset. For Class B shares, compensation equal to 4.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class B shares. For Class C shares, compensation equal to 1.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class C shares. CONVERSION OF CLASS B AND C SHARES - Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date. Class 529-C shares will not convert to Class 529-F shares. The conversion of shares is subject to the Internal Revenue Service's continued position that the conversions are not subject to federal income tax. In the event the Internal Revenue Service no longer takes this position, the Capital Income Builder - Page 33
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automatic conversion feature may be suspended, in which event no further conversions of Class B or C shares would occur while such suspension remained in effect. In that event, at your option, Class B shares could be exchanged for Class A shares and Class C shares for Class F shares on the basis of the relative net asset values of the two classes, without the imposition of a sales charge or fee; however, such an exchange could constitute a taxable event for you. Absent such an exchange, Class B and C shares would continue to be subject to higher expenses for longer than eight years and ten years, respectively. SALES CHARGE REDUCTIONS AND WAIVERS REDUCING YOUR CLASS A SALES CHARGE - You and your "immediate family" (your spouse and your children under age 21) may combine investments to reduce your costs. You must let your investment dealer or American Funds Service Company (the "Transfer Agent") know at the time you purchase shares 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 been purchased at once. This includes purchases made during the previous 90 days, but does not include future appreciation of your investment or reinvested distributions. The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $25,000 or more for equity funds and $100,000 or more for bond funds 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 use 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. The dealer assigned to the account at the end of the period will receive an appropriate commission adjustment. If the difference is not paid by the close of the Statement 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. Accordingly, upon your request, the sales charge paid on investments made 90 days prior to the Statement revision will be adjusted to reflect the revised Statement. Existing holdings eligible for rights of accumulation (see below), including Class A shares held in a fee-based arrangement, other classes of shares of the American Funds, and any individual investments in American Legacy variable annuities and variable life insurance policies (American Legacy, American Legacy II and American Legacy III Capital Income Builder - Page 34
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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. The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder's death. When the 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 total monthly investment will be multiplied by 13 and then multiplied by 1.5. The current value of existing American Funds investments (other than money market fund investments) and any rollovers or transfers reasonably anticipated to be invested in non-money market American Funds during the 13-month period are added to the figure determined above. The sum is the Statement amount and applicable breakpoint level. On the first investment and all other investments made pursuant to the Statement, a sales charge will be assessed according to the sales charge breakpoint thus determined. There will be no retroactive adjustments in sales charges on investments 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 made by you and your immediate family (your spouse and your children under the age of 21), if all parties are purchasing shares for their own accounts and/or: .individual-type employee benefit plan(s), such as an IRA, 403(b) plan (see exception below), or single-participant Keogh-type plan; .business accounts solely controlled by you or your immediate family (for example, you own the entire business); .trust accounts established by you or your immediate family. However, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the person who is the primary beneficiary of the trust; .endowments or foundations established and controlled by you or your immediate family; or .CollegeAmerica accounts. Accounts will be aggregated at the account owner level. Class 529-E accounts may only be aggregated with an eligible employer plan. Individual purchases by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are: .for a single trust estate or fiduciary account, including employee benefit plans other than the individual-type employee benefit plans described above; Capital Income Builder - Page 35
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.made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding individual-type employee benefit plans described above; .for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares; .for non-profit, charitable or educational organizations (or any employer-sponsored retirement plan for such an endowment or foundation) or any endowments or foundations established and controlled by the organization; or .for participant accounts of a 403(b) plan that is treated as an employer-sponsored plan (see "Class A Purchases Not Subject to Sales Charges" above), or made for two or more 403(b) plans that are treated as employer-sponsored plans of a single employer or affiliated employers as defined in the 1940 Act. 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 all classes of shares of two or more funds in The American Funds Group, as well as individual holdings in American Legacy variable annuities and variable life insurance policies. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of the money market funds are excluded. RIGHTS OF ACCUMULATION - Subject to the limitations described under the aggregation policy, you may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in all share classes of 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 variable annuities and variable life insurance policies. Direct purchases of the money market funds are excluded. CDSC WAIVERS FOR CLASS A SHARES - Any CDSC on Class A shares may be waived in the following cases: (1) Exchanges (except if shares acquired by exchange are then redeemed within 12 months of the initial purchase). (2) Distributions due to death or post-purchase disability of a shareholder. In the case of joint tenant accounts, if one joint tenant dies, the surviving joint tenant(s), at the time they notify the Transfer Agent of the decedent's death and remove his/her name from the account, may redeem shares from the account without incurring a CDSC. Redemptions subsequent to the notification to the Transfer Agent of the death of one of the joint owners will be subject to a CDSC. Capital Income Builder - Page 36
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(3) Distributions from 403(b) plans or IRAs due to attainment of age 59-1/2, and required minimum distributions from retirement accounts upon the attainment of age 70-1/2. Such distributions may not exceed 12% of the value of the account annually. (4) Tax-free returns of excess contributions to IRAs. (5) Redemptions through systematic withdrawal plans (see "Automatic Withdrawals" below), not exceeding 12% each year of the lesser of the original purchase cost or the current market value of the shares being sold that would otherwise be subject to a CDSC. (6) For Class 529-A shareholders only, redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship. CDSC WAIVERS FOR CLASS B AND C SHARES - Any CDSC on Class B and C shares may be waived in the following cases: (1) Redemptions through systematic withdrawal plans ("SWPs") (see "Automatic Withdrawals" below) not exceeding 12% each year of the lesser of the original purchase cost or the current market value of the shares being sold that would otherwise be subject to a CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC will be redeemed next until the 12% limit is reached. The 12% SWP limit is calculated on a pro rata basis at the time the first payment is made and is recalculated thereafter on a pro rata basis at the time of each SWP payment. Shareholders who establish a SWP should be aware that the amount of that payment not subject to a CDSC may vary over time depending on fluctuations in net asset value of their account. This privilege may be revised or terminated at any time. (2) Required minimum distributions taken from retirement accounts upon the attainment of age 70-1/2. Such distributions may not exceed 12% of the value of the account annually. (3) Distributions due to death or post-purchase disability of a shareholder. In the case of joint tenant accounts, if one joint tenant dies, the surviving joint tenant(s), at the time they notify the Transfer Agent of the decedent's death and remove his/her name from the account, may redeem shares from the account without incurring a CDSC. Redemptions subsequent to the notification to the Transfer Agent of the death of one of the joint owners will be subject to a CDSC. (4) For Class 529-B and 529-C shareholders only, redemptions due to a beneficiary's death, post-purchase disability or receipt of a scholarship. CDSC waivers on Class A, B and C shares are allowed only in the cases listed above. For example, CDSC waivers will not be allowed for: .Redemptions of dividend and capital gain distributions, redemptions of appreciated shares, redemptions through SWPs, and required minimum distributions, to the extent in aggregate they exceed 12% of an account value; or .Redemptions of Class 529-B and 529-C shares due to: termination of CollegeAmerica; a determination by the Internal Revenue Service that Capital Income Builder - Page 37
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CollegeAmerica does not qualify as a qualified tuition program under the Code; proposal or enactment of law that eliminates or limits the tax-favored status of CollegeAmerica; or the Virginia College Savings Plan eliminating the fund as an option for additional investment within CollegeAmerica. INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS EFFECTIVE THROUGH MAY 14, 2002 Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information. An IRA rollover involving plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in Class A shares at net asset value and will not be subject to a contingent deferred sales charge. Dealers who initiate and are responsible for such investments will be compensated pursuant to the schedule applicable to Class A share investments of $1 million or more (see "Dealer Commissions and Compensation" above). EFFECTIVE MAY 15, 2002 Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information. An IRA rollover involving plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: 1) Class A shares at net asset value; 2) Class A shares subject to the applicable initial sales charge; 3) Class B shares; 4) Class C shares; or 5) Class F shares. Plan assets invested in Class A shares with a sales charge, B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class and described in the fund's current prospectus and statement of additional information. Plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees (i.e., shares do not have to age). Dealer commissions will be paid only on IRA rollovers of $1 million or more according to the schedule applicable to Class A share investments of $1 million or more (see "Dealer Commissions and Compensation" above). IRA rollovers that do not indicate which share class plan assets should be invested in and which do not have an adviser associated with the account will be invested in Class F shares. Additional plan assets may be rolled into the account holding F shares; however, subsequent contributions will not be allowed to be invested in F shares. Capital Income Builder - Page 38
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PRICE OF SHARES Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received and accepted by the fund or the Transfer Agent; the offering or net asset value 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 or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase and sell orders to the Principal Underwriter. Orders received by the investment dealer or authorized designee, 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 do not always indicate prices at which you will be purchasing and redeeming shares of the fund, since such 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 as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange each day the Exchange is open. If, for example, the Exchange closes at 1:00 p.m., the fund's share price would still be determined as of 4:00 p.m. New York time. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' 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. Short-term securities maturing within 60 days are valued at amortized cost which approximates market value. Assets or liabilities initially expressed in terms of non-U.S. 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 procedures adopted by authority of the fund's Board. The fair value of all other assets is added to the value of securities to arrive at the total assets; Capital Income Builder - Page 39
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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 the Transfer Agent, dealer or any of their designees. Sales of certain Class A, B and C shares may be subject to a CDSC. Generally, Class F shares may only be sold through fee-based programs of investment firms and registered investment advisers with special agreements with the fund's distributor. You may sell (redeem) other classes of 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 $75,000; -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 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. The Transfer Agent reserves the right to require a signature guarantee on any redemptions. -Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. -You must include with your written request any shares you wish to sell that are in certificate form. Capital Income Builder - Page 40
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TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR USING THE INTERNET - Redemptions by telephone, fax or the Internet (including American FundsLine/(R)/ and American FundsLine OnLine/(R)/) are limited to $75,000 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 of registered shareholders exactly as indicated on your checking account signature card. - Check writing is not available for any of the 529 share classes or B, C or F share classes of The Cash Management Trust of America. If you sell Class A, B or C shares and request a specific dollar amount to be sold, we will sell sufficient shares so that the sale proceeds, after deducting any applicable CDSC, equals the dollar amount requested. 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 1940 Act), 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 in any fund in The American Funds Group within 90 days after the date of the redemption or distribution. Proceeds from a Class B share redemption where a CDSC was charged will be reinvested in Class A shares. Proceeds from any other type of redemption and all dividend and capital gain distributions will be reinvested in the same share class from which the original redemption or distribution was made. Any CDSC on Class B or C shares will be credited to your account. Redemption proceeds of Class A shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by the Transfer Agent. Capital Income Builder - Page 41
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SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES The following services and privileges are generally available to all shareholders. However, certain services and privileges may not be available for Class 529 shareholders or if your account is held with an investment dealer. AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make monthly or quarterly investments in 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. The Transfer Agent will then invest your money into the fund you specified on or around the date you specified. If the date you specified falls on a weekend or holiday, your money will be invested on the following business day. However, if the following business day falls in the next month, your money will be invested on the business day immediately preceding the weekend or holiday. 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 the Transfer Agent. AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested in additional shares of the same class and fund at net asset value 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, the Transfer Agent or your investment dealer. Dividend and capital gain distributions paid by the 529 share classes will automatically be reinvested. If you have elected to receive dividends and/or capital gain distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from American Funds Service Company with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - For all share classes, except the 529 classes of shares, you may cross-reinvest dividends and capital gains ("distributions") of the same share class 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 distributions 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. Capital Income Builder - Page 42
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EXCHANGE PRIVILEGE - You may only exchange shares into other funds in The American Funds Group within the same class. However, exchanges from Class A shares of The Cash Management Trust of America may be made to Class B or C shares of any other American Fund for dollar cost averaging purposes. 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. Exchanges of Class F shares generally may only be done through fee-based programs of investment firms that have special agreements with the fund's distributor and certain registered investment advisers. Exchanges from Class A, C or F shares to the corresponding 529 share class, particularly in the case of Uniform Gifts to Minors Act or Uniform Transfer to Minors Act custodial accounts, may result in significant legal and tax consequences as described in the CollegeAmerica Program Description. Please consult your financial adviser prior to making such an exchange. You may exchange shares of other classes by writing to the Transfer Agent (see "Selling Shares"), by contacting your investment dealer, by using American FundsLine and American FundsLine OnLine (see "American FundsLine and American FundsLine OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "American Funds Service Company Service Areas" in the prospectus for the appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone and Internet Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type retirement plans for which Capital Bank and Trust Company serves as trustee may not be exchanged by telephone, Internet, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "Price of Shares" above.) THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. AUTOMATIC EXCHANGES - For all share classes, except the 529 classes of shares, you may automatically exchange shares of the same class 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. AUTOMATIC WITHDRAWALS - For all share classes, except the 529 classes of shares, you may automatically withdraw shares from any of the funds in The American Funds Group. You can make automatic withdrawals of $50 or more as often as you wish if your account is worth at least $10,000, or up to four times a year for an account worth at least $5,000. You can designate the day of each period for withdrawals and request that checks be sent to you or someone else. Withdrawals may also be electronically deposited to your bank account. The Transfer Agent will withdraw your money from the fund you specify on or around the date you specify. If the date you specified falls on a weekend or holiday, the redemption will take place on the previous business day. However, if the previous business day falls in the preceding month, the redemption will take place on the following business day after the weekend or holiday. 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 Capital Income Builder - Page 43
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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 the Transfer Agent. Dividend and capital gain reinvestments, purchases through automatic investment plans and certain retirement plans, as well as automatic exchanges and withdrawals will be confirmed at least quarterly. AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share balance, the price of your shares, or your most recent account transaction, redeem shares (up to $75,000 per American Funds shareholder each day) from non-retirement plan accounts, or exchange shares around the clock with American FundsLine and American FundsLine OnLine. To use these services, call 800/325-3590 from a TouchTone(TM) telephone or access the American Funds website on the Internet at www.americanfunds.com. Redemptions and exchanges through American FundsLine and American FundsLine OnLine are subject to the conditions noted above and in "Telephone and Internet 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 - Fund Numbers"), personal identification number (generally the last four digits of your Social Security number or other tax identification number associated with your account) and account number. TELEPHONE AND INTERNET PURCHASES, REDEMPTIONS AND EXCHANGES - By using the telephone (including American FundsLine) or the Internet (including American FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange options, you agree to hold the fund, the Transfer Agent, 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 the Transfer Agent (you may also reinstate them at any time by writing the Transfer Agent). If the Transfer Agent does not employ reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the fund by telephone because of technical difficulties, market conditions, or a natural disaster, redemption and exchange requests may be made in writing only. REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder for their then current net asset value per share if at such time the shareholder of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the fund's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Directors of the fund may from time to time adopt. SHARE CERTIFICATES - Shares are credited to your account and certificates are not issued unless you request them by writing to the Transfer Agent. Certificates are not available for the 529 share classes. Capital Income Builder - Page 44
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EXECUTION OF PORTFOLIO TRANSACTIONS The Investment Adviser places orders for the fund's portfolio securities transactions. The Investment Adviser strives to obtain the best available prices in its portfolio transactions taking into account the costs and quality of executions. When, in the opinion of the Investment Adviser, two or more brokers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the fund or who have provided investment research, statistical, or other related services to the Investment Adviser. The fund does not consider that it has an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. There are occasions on which portfolio transactions for the fund may be executed as part of concurrent authorizations to purchase or sell the same security for other 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 transactions. The fund is required to disclose information regarding investments in the securities of broker-dealers (or parent companies 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, ABN AMRO Bank and JPMorgan Chase & Co. 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 ABN AMRO Bank in the amount of $11,884,000 and equity securities of JPMorgan Chase & Co. in the amount of $99,503,000 as of the close of its most recent fiscal year. Brokerage commissions paid on portfolio transactions for the fiscal years ended 2001, 2000 and 1999, amounted to $9,736,000, $7,658,000, and $3,190,000, respectively. GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as Custodian. If the fund holds non-U.S. securities, the Custodian may hold these securities pursuant to sub-custodial arrangements in non-U.S. banks or non-U.S. 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 $4,874,000 for Class A shares and $41,000 for Class B shares for the 2001 fiscal year. Capital Income Builder - Page 45
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INDEPENDENT ACCOUNTANTS - PricewaterhouseCoopers LLP, 350 South Grand Avenue, Los Angeles, CA 90071, serves as the fund's independent accountants 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, independent accountants, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent accountants is reviewed and determined annually by the Board of Directors. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS - The fund's fiscal year ends on October 31. Shareholders are provided updated prospectuses annually and 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. In addition, shareholders may also receive proxy statements for the fund. 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 prospectuses, shareholder reports and proxy statements. To receive additional copies of a prospectus, report or proxy statement, shareholders should contact the Transfer Agent. PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company and its affiliated companies, including the fund's principal underwriter, have adopted codes of ethics which allow for personal investments, including securities in which the fund may invest from time to time. 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. OTHER INFORMATION - 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 FOR CLASS A SHARES -- OCTOBER 31, 2001 [Download Table] Net asset value and redemption price per share (Net assets divided by shares outstanding) . . . . . . . . . $43.80 Maximum offering price per share (100/94.25 of net asset value per share, which takes into account the fund's current maximum sales charge). . . . . . . . . . . . . . . . . . . . . . . . $46.47 Capital Income Builder - Page 46
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CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was 3.48% based on a 30-day (or one month) period ended October 31, 2001, 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 as required by the Securities and Exchange Commission: 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 five- and ten-year average annual total returns at the maximum offering price for the periods ended October 31, 2001 were 1.20%, 8.86%, and 10.83%, respectively. The fund's one-year total return and five- and ten-year average annual total returns at net asset value for the periods ended October 31, 2001 were 7.39%, 10.15%, and 11.49%, respectively. The average 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. In calculating average annual total return at the maximum offering price, the fund assumes: (1) deduction of the maximum sales load 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. In addition, the fund will provide lifetime average total return figures. From time to time, the fund may calculate investment results for Class B, C, and F shares, as well as the 529 share classes. 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. These total returns may be calculated over periods in addition to those described above. Total return for the unmanaged indices will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for advisory fees, brokerage costs or administrative expenses. The fund may include information on its investment results and/or comparisons of its investment results to various unmanaged indices (such as the Dow Jones Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock Index) or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present or prospective shareholders. The fund may also, 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. Capital Income Builder - Page 47
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The fund may refer to results and surveys compiled by organizations such as CDA/ Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar, Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer to results published in various newspapers and 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 illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans. The fund may compare its investment results with 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, fuels, transportation, and other goods and services that people buy for day-to-day living). Capital Income Builder - Page 48
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APPENDIX Description of Commercial Paper Ratings MOODY'S 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. S&P 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." Description of Bond Ratings BOND RATINGS - The ratings of Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P) represent their opinions as to the quality of the municipal bonds which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal bonds with the same maturity, coupon and rating may have different yields, while municipal bonds of the same maturity and coupon with different ratings may have the same yield. Moody's rates the long-term debt securities issued by various entities from ------- "Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Ratings are described as follows: Capital Income Builder - Page 49
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"Bonds which are rated Aaa are judged to be of the best quality. They 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." "Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities." "Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. 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." "Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often 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. Uncertainty of position characterizes bonds in this class." "Bonds which are rated 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." "Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest." "Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings." "Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing." S&P rates the long-term debt securities of various entities in categories --- ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Ratings are described as follows: AAA "An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong." Capital Income Builder - Page 50
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AA "An obligation rated 'AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong." A "An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions that obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong." BBB "An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions." BB "An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation." B "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation." CCC "An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation." CC "An obligation rated 'CC' is currently highly vulnerable to nonpayment." C "A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying." Capital Income Builder - Page 51
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D "An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized." Capital Income Builder - Page 52 [Download Table] Capital Income Builder, Inc. Investment Portfolio, October 31, 2001 [pie chart] Percent of Net Largest Industry Holdings Assets Banks 14.34 Electric Utilities 10.09 Real Estate 6.60 Tobacco 5.32 Insurance 3.48 Other Industries 29.87% Bonds & Notes 19.17% Cash & Equivalents 11.13% [end pie chart] [Download Table] Capital Income Builder, Inc. Investment Portfolio, October 31, 2001 Percent of Net Ten Largest Equity Holdings Assets Philip Morris 2.1 NiSource 1.7 XL Capital 1.6 Pinnacle West Capital 1.5 PowerGen 1.4 Bank of Nova Scotia 1.4 Archstone-Smith Trust 1.4 Wachovia 1.4 Royal Bank of Canada 1.3 Southern Co. 1.3 [Enlarge/Download Table] Capital Income Builder Investment Portfolio, October 31, 2001 Shares or Market Principal Value Equity Securities Amount (Millions) ENERGY OIL & GAS - 3.44% BP PLC (formerly BP Amoco PLC) (ADR) 500,000 $ 24.170 ChevronTexaco Corp. (formerly Chevron Corp.) 1,100,000 97.405 El Paso Corp. 6.625% FELINE PRIDES 100,000 3.333 convertible preferred 2002 Fortum Oyj 4,600,000 21.784 Kerr-McGee Corp. 282,800 16.289 Royal Dutch Petroleum Co. (New York registered) 1,105,000 55.813 "Shell" Transport and Trading Co., PLC 1,100,000 49.005 (New York registered) TonenGeneral Sekiyu KK 2,000,000 16.080 283.879 MATERIALS CHEMICALS - 0.62% Dow Chemical Co. 1,550,000 51.537 CONTAINERS & PACKAGING - 0.10% Chesapeake Corp. 300,000 8.496 METALS & MINING - 0.81% Hoganas AB, Class B 940,000 13.938 WMC Ltd. 4,943,800 23.220 Worthington Industries, Inc. 2,261,900 29.405 PAPER & FOREST PRODUCTS - 2.23% Georgia-Pacific Corp., Georgia-Pacific Group 480,000 14.760 7.50% PEPS convertible preferred 2002, units Holmen AB, Class B 650,000 13.969 M-real Oyj, Class B 5,050,000 31.385 Norske Skogindustrier ASA, Class A 2,962,500 46.413 PaperlinX Ltd. 4,500,000 9.492 Rayonier Inc. 615,600 26.335 Stora Enso Oyj, Class R 1,000,000 12.177 Westvaco Corp. 1,200,000 29.460 310.587 CAPITAL GOODS AEROSPACE & DEFENSE - 0.26% RC Trust I 8.25% convertible preferred 2006, units 382,000 21.831 BUILDING PRODUCTS - 0.20% Uponor Oyj 1,111,800 16.246 ELECTRICAL EQUIPMENT - 0.82% Hubbell Inc., Class B 2,473,000 67.562 INDUSTRIAL CONGLOMERATES - 0.30% Hunting PLC 4,260,000 11.479 Hutchison Delta Finance Ltd. 7.00% $11,000,000 13.007 convertible debentures 2001 /1/ MACHINERY - 0.54% Cummins Capital Trust I 7.00% 100,000 4.600 QUIPS convertible preferred 2031 /1/ IHC Caland NV 813,513 40.689 175.414 COMMERCIAL SERVICES & SUPPLIES COMMERCIAL SERVICES & SUPPLIES - 0.42% Michael Page International PLC /2/ 21,353,300 35.145 TRANSPORTATION AIRLINES - 0.40% Qantas Airways Ltd. 16,686,094 33.011 ROAD & RAIL - 0.42% CSX Corp. 600,000 20.220 SMRT Corp. Ltd. 34,163,000 14.244 TRANSPORTATION INFRASTRUCTURE - 0.50% Aurea Concesiones de Infraestructuras SA 1,100,000 21.779 BRISA-Auto-Estradas de Portugal, SA /1/ 2,170,000 19.378 108.632 AUTOMOBILES & COMPONENTS AUTOMOBILES - 0.23% Ford Motor Co. 1,200,000 19.260 CONSUMER DURABLES & APPAREL HOUSEHOLD DURABLES - 0.17% Newell Rubbermaid Inc. 500,000 13.820 MEDIA MEDIA - 0.15% South China Morning Post (Holdings) Ltd. 23,824,000 12.600 RETAILING SPECIALTY RETAIL - 0.09% DFS Furniture Co. PLC 1,391,430 7.600 FOOD & DRUG RETAILING FOOD & DRUG RETAILING - 0.07% Safeway PLC 1,147,500 5.850 FOOD, BEVERAGE & TOBACCO BEVERAGES - 0.60% Foster's Group Ltd. 20,173,526 49.162 (formerly Foster's Brewing Group Limited) FOOD PRODUCTS - 2.28% General Mills, Inc. 900,000 41.328 H.J. Heinz Co. 1,800,000 76.392 Kellogg Co. 600,000 18.300 Sara Lee Corp. 2,326,500 51.858 TOBACCO - 5.32% Altadis SA 2,624,995 43.211 Gallaher Group PLC 11,587,464 78.479 Imperial Tobacco Ltd. 1,400,000 17.526 Philip Morris Companies Inc. 3,715,000 173.862 R.J. Reynolds Tobacco Holdings, Inc. 1,450,000 81.258 UST Inc. 1,350,000 45.373 676.749 HOUSEHOLD & PERSONAL PRODUCTS HOUSEHOLD PRODUCTS - 0.27% WD-40 Co. /2/ 979,650 22.062 BANKS BANKS - 14.34% ABN AMRO Holding NV 776,808 11.884 Alliance & Leicester PLC 989,700 10.119 AmSouth Bancorporation 1,500,000 25.935 Australia and New Zealand Banking Group Ltd. 2,456,986 22.065 BancWest Corp. 800,000 27.960 Bank of America Corp. 1,770,000 104.412 Bank of Ireland 5,515,532 49.004 Bank of Nova Scotia 4,241,600 117.199 BANK ONE CORP. 2,211,000 73.383 Barclays PLC 1,250,000 37.687 Comerica Inc. 1,500,000 69.135 Commonwealth Bank of Australia 1,071,060 16.067 Hang Seng Bank Ltd. 4,570,400 45.853 HSBC Holdings PLC 3,637,184 39.405 Huntington Bancshares Inc. 910,000 14.041 JCG Holdings Ltd. 29,432,000 16.698 Lloyds TSB Group PLC 2,250,000 22.743 National Australia Bank Ltd. 1,436,854 22.112 National City Corp. 2,625,000 69.300 Royal Bank of Canada 3,650,000 107.637 United Bankshares, Inc. 1,775,000 48.280 Valley National Bancorp 661,500 19.772 Wachovia Corp. (merged with First Union Corp.) 3,998,000 114.343 Washington Mutual, Inc. 750,000 22.642 Wells Fargo & Co. 568,000 22.436 Westpac Banking Corp. 7,293,755 54.341 1,184.453 DIVERSIFIED FINANCIALS DIVERSIFIED FINANCIALS - 2.01% ING Groep NV 2,655,300 66.344 J.P. Morgan Chase & Co. 2,814,000 99.503 165.847 INSURANCE INSURANCE - 3.48% American International Group, Inc. 229,573 18.044 (formerly American General Corp.) Irish Life & Permanent PLC 8,092,500 85.768 Lincoln National Corp. 1,270,000 53.784 XL Capital Ltd., Class A 1,492,800 129.665 287.261 REAL ESTATE REAL ESTATE - 6.60% AMB Property Corp. 1,625,000 39.504 Apartment Investment and Management Co., Class A 1,175,000 49.315 Archstone-Smith Trust 4,784,585 115.787 (formerly Archstone Communities Trust) Cabot Industrial Trust 535,000 12.744 Equity Residential Properties Trust 1,090,000 28.285 Health Care Property Investors, Inc. 1,545,000 57.505 HKR International Ltd. 29,038,000 6.441 Hongkong Land Holdings Ltd. 11,996,000 19.314 Kerry Properties Ltd. 39,981,351 31.269 Kimco Realty Corp. 1,361,500 66.564 Nationwide Health Properties, Inc. 1,400,000 27.580 ProLogis Trust 762,346 15.194 Washington Real Estate Investment Trust 515,900 12.459 Weingarten Realty Investors 1,260,000 63.050 545.011 SOFTWARE & SERVICES IT CONSULTING & SERVICES - 0.52% Electronic Data Systems Corp., 7.625% 779,500 42.717 convertible preferred 2004 TECHNOLOGY HARDWARE & EQUIPMENT ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.36% Solectron Corp. 0% LYON convertible notes 2020 $65,000,000 29.553 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 2.86% Hellenic Telecommunications Organization SA 3,500,000 56.826 SBC Communications Inc. 1,400,000 53.354 Swisscom AG 251,391 69.942 Telecom Corp. of New Zealand Ltd. 12,240,000 23.258 WorldCom, Inc. - MCI Group 2,800,000 33.180 WIRELESS TELECOMMUNICATION SERVICES - 0.22% AT&T Broadband 7.00% PIES convertible preferred 2002 707,000 18.007 254.567 UTILITIES ELECTRIC UTILITIES - 10.09% American Electric Power Co., Inc. 870,000 36.453 Beijing Datang Power Generation Co. Ltd., Class H 87,500,000 31.973 Consolidated Edison, Inc. 2,110,800 83.355 Dominion Resources, Inc. 250,000 15.280 Duke Energy Corp., 8.25% convertible 1,351,600 37.169 preferred 2004, units GPU, Inc. 450,000 17.842 Innogy Holdings PLC 2,300,000 6.851 Northeast Utilities 197,400 3.484 Pinnacle West Capital Corp. 2,950,000 124.342 PowerGen PLC 10,982,500 119.250 Scottish and Southern Energy PLC 5,100,000 49.026 Scottish Power PLC 15,631,160 89.929 Shandong International Power Development Co. Ltd., 93,048,000 20.758 Class H Southern Co. 4,462,100 106.644 TXU Corp. 800,000 36.672 TXU Corp., Series C, 8.75% convertible 1,075,000 53.632 preferred 2004, units GAS UTILITIES - 1.71% NiSource Inc. 5,928,516 140.802 NiSource, Inc. 0% convertible preferred 2004 /3/ 330,799 .728 MULTI-UTILITIES - 1.64% United Utilities PLC 3,930,000 35.604 Williams Companies, Inc. 3,469,250 100.157 WATER UTILITIES - 0.91% American Water Works Co., Inc. 1,850,000 75.110 1,185.061 MISCELLANEOUS Other equity securities in initial period of acquisition 389.349 TOTAL EQUITY SECURITIES (cost: $4,694.968 million) 5,755.417 Principal Bonds & Notes Amount Corporate, Mortgage - & Asset-Backed Securities A. H. Belo Corp. 7.125% 2007 5,000,000 4.846 Aetna Inc.: 7.375% 2006 10,000,000 10.392 7.875% 2011 3,435,000 3.502 Airplanes Pass Through Trust: /4/ Class B, 3.275% 2019 /5/ 19,866,870 16.491 Class C, 8.15% 2019 /6/ 2,868,668 1.865 Allegiance Corp. 7.80% 2016 3,000,000 3.394 American Airlines Inc., Series 2001-2, 10,560,000 11.107 Class B, 8.608% 2011 /1/ AOL Time Warner Inc. 6.125% 2006 2,200,000 2.296 AT&T Wireless Services, Inc. 7.875% 2011 10,000,000 10.753 Atlas Air, Inc., Pass Through Trusts, Series 1998-1: /4/ Class B, 7.68% 2014 4,648,814 4.479 Class A, 7.38% 2019 3,791,480 3.780 BAE SYSTEMS 2001 Asset Trust Pass 7,975,908 8.303 Through Trusts, Series 2001, Class B, 7.156% 2011 /1/ /4/ Bear Stearns Commercial Mortgage Securities Inc., 26,666,049 28.688 Series 1999-WF2, Class A-1, 6.80% 2031 /4/ BHP Finance Ltd. 6.69% 2006 6,480,000 6.882 British Telecommunications PLC 8.125% 2010 15,000,000 16.998 Capital One Bank 6.875% 2006 10,000,000 10.103 CenturyTel, Inc., Series H, 8.375% 2010 8,000,000 8.858 Chase Commercial Mortgage Securities Corp., Series 2000-1, 9,360,624 10.354 Class A-1, 7.656% 2032 /4/ Clear Channel Communications, Inc. 6.625% 2008 8,245,000 8.356 Coast-to-Coast Motor Vehicle Owner Trust, Series 2000-A, 10,300,000 10.969 Class A-4, 7.33% 2006 /1/ /4/ Columbia/HCA Healthcare Corp.: 6.87% 2003 4,425,000 4.514 6.91% 2005 8,595,000 8.853 7.25% 2008 5,000,000 5.200 Compaq Computer Corp. 6.20% 2003 14,500,000 15.000 CompuCredit Credit Card Master Note Business Trust, Series 2001A, 2.915% 2008 /1/ /5/ Container Corp. of America 9.75% 2003 10,000,000 9.946 Continental Airlines, Inc.: /4/ 3,500,000 3.605 Series 1997-1, Class C-1, 7.42% 2007 Series 2001-1, Class B, 7.373% 2015 2,176,550 1.865 Series 1997-1, Class A, 7.461% 2016 1,000,000 .918 Series 1997-4, Class A, 6.90% 2018 2,681,767 2.621 Series 2000-1, Class B, 8.388% 2020 4,538,762 4.220 Continental Auto Receivables Owner Trust, 5,431,848 4.617 Series 2000-A, Class A4, 7.42% 2004 /1/ /4/ 8,250,000 8.810 Cox Radio, Inc. 6.625% 2006 CS First Boston Mortgage Securities Corp., 10,325,000 10.733 Series 1998-C1, Class C, 6.78% 2040 /4/ 6,550,000 6.959 Dana Corp. 9.00% 2011 /1/ Delta Air Line, Inc. 1991 Equipment 6,200,000 5.332 Certificates Trust, Series K, 10.00% 2014 /1/ /4/ 2,000,000 1.764 Deutsche Telekom International Finance BV 7.75% 2005 Federated Department Stores, Inc. 6.625% 2011 5,000,000 5.405 Ford Motor Credit Co.: 15,000,000 14.594 6.875% 2006 7.25% 2011 15,000,000 15.359 7.375% 2011 7,000,000 7.061 Fort James Corp. 6.875% 2007 15,000,000 15.275 Fox/Liberty Networks, LLC, FLN Finance, Inc. 8.875% 2007 10,050,000 9.841 France Telecom 7.45% 2006 /1/ /5/ 7,000,000 7.350 Gemstone Investor Limited, 7.71% 2004 /1/ 10,000,000 10.694 General Motors Acceptance Corp.: 11,000,000 11.065 6.125% 2006 6.875% 2011 15,880,000 15.815 GMAC Commercial Mortgage Securities, Inc., 600,000 .589 Series 1998-C1, Class D, 6.974% 2030 /4/ 14,595,000 15.241 Harrah's Operating Company, Inc. 7.125% 2007 /1/ Hasbro, Inc. 7.95% 2003 7,000,000 7.147 Household Finance Corp. 6.375% 2011 10,000,000 9.925 Humana Inc. 7.25% 2006 5,000,000 5.087 J.P. Morgan Commercial Mortgage Finance Corp., 10,000,000 10.374 Series 1995-C1, Class A-2, 7.445% 2010 /4/ /5/ 2,494,201 2.527 Jet Equipment Trust, Series 1995-B, Class C, 9.71% 2015 /1/ /4/ 5,000,000 3.835 Kellogg Co. 6.00% 2006 Kraft Foods Inc.: 5,750,000 6.035 4.625% 2006 5.625% 2011 1,000,000 1.000 Lenfest Communications, Inc. 8.375% 2005 3,000,000 3.017 Liberty Media Corp. 7.875% 2009 1,500,000 1.677 Metris Master Trust: /1/ /4/ /5/ 12,000,000 12.243 Series 2000-1, Class C, 4.458% 2008 Series 2001-3, Class C, 4.163% 2009 11,000,000 10.757 MGM Mirage Inc. 8.50% 2010 2,500,000 2.473 Midland Cogeneration Venture LP, Secured Lease 5,000,000 5.024 Obligation Bonds, Series C-91, 10.33% 2002 /4/ 815,162 .836 MMCA Auto Owner Trust: /4/ Series 2000-2, Class B, 7.42% 2005 Series 2001-2, Class B, 5.75% 2007 8,000,000 8.726 Series 2001-3, Class B Note, 3.48% 2008 /5/ 500,000 .517 Money Store Residential Trust 1997-1, Class M-1, 6,000,000 5.996 7.085% 2016 /4/ 15,000,000 15.451 Monumental Global Funding Trust II, Series 2001-A, 6.05% 2006 /1/ 15,000,000 15.664 Motorola, Inc.: 6.75% 2006 7.625% 2010 7,000,000 7.052 8.00% 2011 /1/ 13,000,000 13.147 Nabisco, Inc. 6.375% 2035 /5/ 15,250,000 15.333 News America Holdings Inc. 8.50% 2005 10,020,000 10.452 NPF XII, Inc. Health Care Receivables 1,000,000 1.091 Securitization Program, Class A: /1/ /4/ Series 2001-1, 3.238% 2004 /5/ Series 2001-3, 5.52% 2007 3,000,000 3.001 PanAmSat Corp. 6.00% 2003 5,000,000 5.000 Pegasus Aviation Lease Securitization: /1/ /4/ 5,000,000 4.926 Series 2000-1: Class A-1, 3.045% 2015 /5/ Class A-2, 8.37% 2030 9,028,710 8.614 Series 2001-1, Class B-2, 7.27% 2031 1,000,000 1.004 Prestige Auto Receivables Trust, Series 2001-1A, Class A, 3,915,397 3.617 5.26% 2009 /1/ /4/ 5,888,491 6.029 Providian Master Trust, Series 2000-3, Class C, 7.60% 2007 /1/ /4/ 5,000,000 5.112 Royal Caribbean Cruises Ltd.: 7.25% 2006 8.75% 2011 4,500,000 3.195 Security National Mortgage Loan Trust, Series 2000-1, 2,500,000 1.700 Class A-2, 8.75% 2024 /1/ /4/ 6,800,000 7.217 SocGen Real Estate Co. LLC, Series A, 7.64% (undated) /1/ /5/ Southwest Airlines Co. Pass Through Trusts, 8,000,000 8.409 Series 2001-1: /4/ Class A-2, 5.496% 2006 Class B, 6.126% 2006 1,400,000 1.414 Starwood Asset Receivables Trust, Series 2000-1, 8,500,000 8.585 Class D, 3.87% 2022 /1/ /4/ /5/ 10,000,000 9.986 Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.529% 2027 /1/ /4/ /5/ 8,854,748 9.649 TELUS Corp.: 7.50% 2007 8.00% 2011 750,000 .800 Toys "R" Us, Inc. 7.625% 2011 /1/ 1,100,000 1.198 TRW Inc.: 6,025,000 6.026 8.75% 2006 7.125% 2009 10,000,000 10.964 Univision Communications Inc. 7.85% 2011 /1/ 2,000,000 1.989 Viacom Inc.: 1,500,000 1.587 6.40% 2006 6.625% 2011 3,000,000 3.197 Vodafone AirTouch PLC: 12,800,000 13.407 7.625% 2005 7.75% 2010 5,000,000 5.471 Voicestream Wireless Corp., 10.375% 2009 5,000,000 5.605 WCG Note Trust 8.25% 2004 /1/ 12,950,000 14.862 Williams Companies, Inc. 7.125% 2011 38,000,000 39.299 Williams Holdings of Delaware, Inc.: 17,500,000 18.163 6.25% 2006 6.50% 2008 20,000,000 20.504 WMX Technologies, Inc.: 2,500,000 2.511 6.375% 2003 7.00% 2006 2,749,000 2.873 7.375% 2010 1,900,000 2.029 7.10% 2026 1,000,000 1.068 World Omni Master Owner Trust, Series 2000-1, Class B, 8,000,000 8.371 2.975% 2005 /4/ /5/ 6,000,000 6.000 Xerox Equipment Lease Owner Trust, Series 2001-1 , Class A 4.525% 2008 /1/ /4/ /5/ 5,308,331 5.322 839.752 U.S. Treasuries Obligations 6.50% May 2002 10.75% May 2003 100,000,000 102.578 11.125% August 2003 150,000,000 169.078 11.875% November 2003 90,000,000 103.627 6.50% May 2005 110,000,000 130.298 3.375% January 2007 /7/ 7,500,000 8.330 8.375% August 2008 11,203,300 11.588 Principal Strip 0% 2008 43,000,000 47.287 8.75% November 2008 1,520,000 1.142 6.375% August 2027 100,000,000 111.953 9,000,000 10.682 696.563 Governments & Governmental Authorities /4/ Fannie Mae: 6.00% 2016 6.50% 2031 20,000,000 20.556 7.00% 2016 - 2031 7,972,115 8.196 Fannie Mae Trust, Series 2001-50, Class BA 7.00% 2041 13,950,973 14.550 3,000,000 3.157 46.459 TOTAL BONDS & NOTES (cost: $1,545.040 million) 1,582.774 Short-Term Securities Principal Amount Federal Agency Discount Notes Fannie Mae 2.04%-3.79% due 11/1/2001-1/31/2002 Federal Home Loan Banks 2.05%-3.50% due 267,000,000 266.354 11/2/2001-4/19/2002 134,000,000 133.367 Freddie Mac 2.05%-3.47% due 11/19/2001-1/31/2002 184,600,000 183.999 583.720 Corporate Short-Term Notes Alcoa Inc. 2.52% due 11/9/2001 BellSouth Corp. 2.20%-2.45% due 12/12/2001-2/8/2002 /1/ 25,000,000 24.984 E.W. Scripps Co. 2.25%-3.23% due 12/10/2001-1/16/2002 /1/ 50,000,000 49.800 Equilon Enterprises LLC 2.42%-2.43% due 11/13-11/28/2001 20,000,000 19.918 Estee Lauder Companies Inc. 2.30%-2.50% due 25,000,000 24.960 12/14/2001-1/9/2002 /1/ 20,000,000 19.931 Gillette Co. 3.43% due 11/6-11/9/2001 /1/ Marsh USA Inc. 3.83% due 11/1/2001 /1/ 33,266,000 33.241 Triple-A One Funding Corp. 2.39% due 11/20/2001 /1/ 25,000,000 24.997 Verizon Network Funding Co. 2.20%-3.33% 16,200,000 16.179 due 11/7-12/11/2001 63,400,000 63.296 277.306 U.S. Treasury Securities U.S. Treasury Bills 2.05%-3.43% due 11/8/2001-4/4/2002 54,200,000 54.024 TOTAL SHORT-TERM SECURITIES (cost: $915.022 million) 915.050 TOTAL INVESTMENT SECURITIES (cost: $7,155.030 million) Excess of cash and receivables over payables 8,253.241 3.697 NET ASSETS $8,256.938 /1/ Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to public may require registration. /2/ The fund owns 5.69% and 6.23% of the outstanding voting securities of Michael Page International PLC and WD-40 Co., respectively, and thus are considered n affiliate as defined under the a Investment Company Act of 1940. /3/ Non-income-producing security. /4/ Pass-through securities backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturities are shorter than the stated maturities. /5/ Coupon rate may change periodically. /6/ Valued under procedures established by the Board of Directors. /7/ Index-linked bond whose principal amount moves with a government retail price index. ADR = American Depositary Receipts See Notes to Financial Statements Equity Securities Percent ENERGY of Net OIL & GAS - 3.44% Assets BP PLC (formerly BP Amoco PLC) (ADR) ChevronTexaco Corp. (formerly Chevron Corp.) El Paso Corp. 6.625% FELINE PRIDES convertible preferred 2002 .29% Fortum Oyj 1.18 Kerr-McGee Corp. .04 Royal Dutch Petroleum Co. (New York registered) "Shell" Transport and Trading Co., PLC .26 (New York registered) .20 TonenGeneral Sekiyu KK 1.27 MATERIALS .20 CHEMICALS - 0.62% 3.44 Dow Chemical Co. CONTAINERS & PACKAGING - 0.10% Chesapeake Corp. METALS & MINING - 0.81% .62 Hoganas AB, Class B WMC Ltd. .10 Worthington Industries, Inc. PAPER & FOREST PRODUCTS - 2.23% .17 Georgia-Pacific Corp., Georgia-Pacific Group .28 7.50% PEPS convertible preferred 2002, units .36 Holmen AB, Class B M-real Oyj, Class B .18 Norske Skogindustrier ASA, Class A PaperlinX Ltd. .17 Rayonier Inc. .38 Stora Enso Oyj, Class R .56 Westvaco Corp. .11 .32 .15 CAPITAL GOODS .36 AEROSPACE & DEFENSE - 0.26% 3.76 RC Trust I 8.25% convertible preferred 2006, units BUILDING PRODUCTS - 0.20% Uponor Oyj ELECTRICAL EQUIPMENT - 0.82% .26 Hubbell Inc., Class B INDUSTRIAL CONGLOMERATES - 0.30% .20 Hunting PLC Hutchison Delta Finance Ltd. 7.00% .82 convertible debentures 2001 /1/ MACHINERY - 0.54% .14 Cummins Capital Trust I 7.00% .16 QUIPS convertible preferred 2031 /1/ IHC Caland NV .05 COMMERCIAL SERVICES & SUPPLIES .49 COMMERCIAL SERVICES & SUPPLIES - 0.42% 2.12 Michael Page International PLC /2/ TRANSPORTATION AIRLINES - 0.40% .42 Qantas Airways Ltd. ROAD & RAIL - 0.42% CSX Corp. SMRT Corp. Ltd. .40 TRANSPORTATION INFRASTRUCTURE - 0.50% Aurea Concesiones de Infraestructuras SA .25 BRISA-Auto-Estradas de Portugal, SA /1/ .17 .26 AUTOMOBILES & COMPONENTS .24 AUTOMOBILES - 0.23% 1.32 Ford Motor Co. CONSUMER DURABLES & APPAREL HOUSEHOLD DURABLES - 0.17% .23 Newell Rubbermaid Inc. MEDIA MEDIA - 0.15% .17 South China Morning Post (Holdings) Ltd. RETAILING SPECIALTY RETAIL - 0.09% .15 DFS Furniture Co. PLC FOOD & DRUG RETAILING FOOD & DRUG RETAILING - 0.07% .09 Safeway PLC FOOD, BEVERAGE & TOBACCO BEVERAGES - 0.60% .07 Foster's Group Ltd. (formerly Foster's Brewing Group Limited) FOOD PRODUCTS - 2.28% General Mills, Inc. .60 H.J. Heinz Co. Kellogg Co. Sara Lee Corp. .50 TOBACCO - 5.32% .93 Altadis SA .22 Gallaher Group PLC .63 Imperial Tobacco Ltd. Philip Morris Companies Inc. .52 R.J. Reynolds Tobacco Holdings, Inc. .95 UST Inc. .21 2.11 .98 HOUSEHOLD & PERSONAL PRODUCTS .55 HOUSEHOLD PRODUCTS - 0.27% 8.20 WD-40 Co. /2/ BANKS .27 BANKS - 14.34% ABN AMRO Holding NV Alliance & Leicester PLC AmSouth Bancorporation Australia and New Zealand Banking Group Ltd. .14 BancWest Corp. .12 Bank of America Corp. .31 Bank of Ireland .27 Bank of Nova Scotia .34 BANK ONE CORP. 1.26 Barclays PLC .59 Comerica Inc. 1.42 Commonwealth Bank of Australia .89 Hang Seng Bank Ltd. .46 HSBC Holdings PLC .84 Huntington Bancshares Inc. .19 JCG Holdings Ltd. .56 Lloyds TSB Group PLC .48 National Australia Bank Ltd. .17 National City Corp. .20 Royal Bank of Canada .28 United Bankshares, Inc. .27 Valley National Bancorp .84 Wachovia Corp. (merged with First Union Corp.) 1.30 Washington Mutual, Inc. .59 Wells Fargo & Co. .24 Westpac Banking Corp. 1.38 .27 .27 DIVERSIFIED FINANCIALS .66 DIVERSIFIED FINANCIALS - 2.01% 14.34 ING Groep NV J.P. Morgan Chase & Co. .80 INSURANCE 1.21 INSURANCE - 3.48% 2.01 American International Group, Inc. (formerly American General Corp.) Irish Life & Permanent PLC Lincoln National Corp. .22 XL Capital Ltd., Class A 1.04 .65 REAL ESTATE 1.57 REAL ESTATE - 6.60% 3.48 AMB Property Corp. Apartment Investment and Management Co., Class A Archstone-Smith Trust (formerly Archstone Communities Trust) .48 Cabot Industrial Trust .60 Equity Residential Properties Trust 1.40 Health Care Property Investors, Inc. HKR International Ltd. .16 Hongkong Land Holdings Ltd. .34 Kerry Properties Ltd. .70 Kimco Realty Corp. .08 Nationwide Health Properties, Inc. .23 ProLogis Trust .38 Washington Real Estate Investment Trust .81 Weingarten Realty Investors .33 .18 .15 SOFTWARE & SERVICES .76 IT CONSULTING & SERVICES - 0.52% 6.60 Electronic Data Systems Corp., 7.625% convertible preferred 2004 TECHNOLOGY HARDWARE & EQUIPMENT ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.36% .52 Solectron Corp. 0% LYON convertible notes 2020 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES - 2.86% .36 Hellenic Telecommunications Organization SA SBC Communications Inc. Swisscom AG Telecom Corp. of New Zealand Ltd. .69 WorldCom, Inc. - MCI Group .64 WIRELESS TELECOMMUNICATION SERVICES - 0.22% .85 AT&T Broadband 7.00% PIES convertible preferred 2002 .28 .40 UTILITIES .22 ELECTRIC UTILITIES - 10.09% 3.08 American Electric Power Co., Inc. Beijing Datang Power Generation Co. Ltd., Class H Consolidated Edison, Inc. Dominion Resources, Inc. .44 Duke Energy Corp., 8.25% convertible preferred 2004, units .39 GPU, Inc. 1.01 Innogy Holdings PLC .19 Northeast Utilities .45 Pinnacle West Capital Corp. .22 PowerGen PLC .08 Scottish and Southern Energy PLC .04 Scottish Power PLC 1.51 Shandong International Power Development Co. Ltd., 1.44 Class H .59 Southern Co. 1.09 TXU Corp. .25 TXU Corp., Series C, 8.75% convertible 1.29 preferred 2004, units GAS UTILITIES - 1.71% 1.10 NiSource Inc. NiSource, Inc. 0% convertible preferred 2004 /3/ MULTI-UTILITIES - 1.64% United Utilities PLC 1.71 Williams Companies, Inc. WATER UTILITIES - 0.91% .43 American Water Works Co., Inc. 1.21 .91 MISCELLANEOUS 14.35 Other equity securities in initial period of acquisition TOTAL EQUITY SECURITIES (cost: $4,694.968 million) 4.72 69.70 Bonds & Notes Corporate, Mortgage - & Asset-Backed Securities A. H. Belo Corp. 7.125% 2007 Aetna Inc.: 7.375% 2006 .06 7.875% 2011 Airplanes Pass Through Trust: /4/ Class B, 3.275% 2019 /5/ .17 Class C, 8.15% 2019 /6/ Allegiance Corp. 7.80% 2016 American Airlines Inc., Series 2001-2, Class B, 8.608% 2011 /1/ .22 AOL Time Warner Inc. 6.125% 2006 .04 AT&T Wireless Services, Inc. 7.875% 2011 .13 Atlas Air, Inc., Pass Through Trusts, Series 1998-1: /4/ .03 Class B, 7.68% 2014 .13 Class A, 7.38% 2019 BAE SYSTEMS 2001 Asset Trust Pass Through Trusts, Series 2001, Class B, 7.156% 2011 /1/ /4/ .10 Bear Stearns Commercial Mortgage Securities Inc., .10 Series 1999-WF2, Class A-1, 6.80% 2031 /4/ BHP Finance Ltd. 6.69% 2006 .35 British Telecommunications PLC 8.125% 2010 Capital One Bank 6.875% 2006 .08 CenturyTel, Inc., Series H, 8.375% 2010 .21 Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-1, 7.656% .12 Clear Channel Communications, Inc. 6.625% 2008 .11 Coast-to-Coast Motor Vehicle Owner Trust, Series 2000-A, .13 Class A-4, 7.33% 2006 /1/ /4/ .10 Columbia/HCA Healthcare Corp.: .13 6.87% 2003 6.91% 2005 7.25% 2008 Compaq Computer Corp. 6.20% 2003 CompuCredit Credit Card Master Note Business .22 Trust, Series 2001A, 2.915% 2008 /1/ /5/ Container Corp. of America 9.75% 2003 .18 Continental Airlines, Inc.: /4/ .12 Series 1997-1, Class C-1, 7.42% 2007 .04 Series 2001-1, Class B, 7.373% 2015 Series 1997-1, Class A, 7.461% 2016 Series 1997-4, Class A, 6.90% 2018 Series 2000-1, Class B, 8.388% 2020 Continental Auto Receivables Owner Trust, Series 2000-A, Class A4, 7.42% 2004 /1/ /4/ .17 Cox Radio, Inc. 6.625% 2006 .11 CS First Boston Mortgage Securities Corp., Series 1998-C1, Class C, 6.78% 2040 /4/ .13 Dana Corp. 9.00% 2011 /1/ .08 Delta Air Line, Inc. 1991 Equipment Certificates Trust, Series K, 10.00% 2014 /1/ /4/ .06 Deutsche Telekom International Finance BV 7.75% 2005 .02 Federated Department Stores, Inc. 6.625% 2011 Ford Motor Credit Co.: .07 6.875% 2006 .18 7.25% 2011 7.375% 2011 Fort James Corp. 6.875% 2007 Fox/Liberty Networks, LLC, FLN Finance, Inc. 8.875% 2007 .46 France Telecom 7.45% 2006 /1/ /5/ .12 Gemstone Investor Limited, 7.71% 2004 /1/ .09 General Motors Acceptance Corp.: .13 6.125% 2006 .13 6.875% 2011 GMAC Commercial Mortgage Securities, Inc., Series 1998-C1, Class D, 6.974% 2030 /4/ .20 Harrah's Operating Company, Inc. 7.125% 2007 /1/ .18 Hasbro, Inc. 7.95% 2003 Household Finance Corp. 6.375% 2011 .09 Humana Inc. 7.25% 2006 .12 J.P. Morgan Commercial Mortgage Finance Corp., .06 Series 1995-C1, Class A-2, 7.445% 2010 /4/ /5/ .13 Jet Equipment Trust, Series 1995-B, .03 Class C, 9.71% 2015 /1/ /4/ Kellogg Co. 6.00% 2006 .05 Kraft Foods Inc.: 4.625% 2006 .07 5.625% 2011 Lenfest Communications, Inc. 8.375% 2005 Liberty Media Corp. 7.875% 2009 .05 Metris Master Trust: /1/ /4/ /5/ .02 Series 2000-1, Class C, 4.458% 2008 .15 Series 2001-3, Class C, 4.163% 2009 MGM Mirage Inc. 8.50% 2010 Midland Cogeneration Venture LP, Secured Lease .16 Obligation Bonds, Series C-91, 10.33% 2002 /4/ .06 MMCA Auto Owner Trust: /4/ .01 Series 2000-2, Class B, 7.42% 2005 Series 2001-2, Class B, 5.75% 2007 Series 2001-3, Class B Note, 3.48% 2008 /5/ .11 Money Store Residential Trust 1997-1, Class M-1, .01 7.085% 2016 /4/ .07 Monumental Global Funding Trust II, .19 Series 2001-A, 6.05% 2006 /1/ Motorola, Inc.: .19 6.75% 2006 7.625% 2010 8.00% 2011 /1/ Nabisco, Inc. 6.375% 2035 /5/ News America Holdings Inc. 8.50% 2005 .43 NPF XII, Inc. Health Care Receivables .13 Securitization Program, Class A: /1/ /4/ .01 Series 2001-1, 3.238% 2004 /5/ Series 2001-3, 5.52% 2007 PanAmSat Corp. 6.00% 2003 .04 Pegasus Aviation Lease Securitization: /1/ /4/ .06 Series 2000-1: .06 Class A-1, 3.045% 2015 /5/ Class A-2, 8.37% 2030 Series 2001-1, Class B-2, 7.27% 2031 Prestige Auto Receivables Trust, Series 2001-1A, Class A, 5.26% 2009 /1/ /4/ .16 Providian Master Trust, Series 2000-3, .07 Class C, 7.60% 2007 /1/ /4/ Royal Caribbean Cruises Ltd.: .06 7.25% 2006 8.75% 2011 Security National Mortgage Loan Trust, Series 2000-1, Class A-2, 8.75% 2024 /1/ /4/ .06 SocGen Real Estate Co. LLC, Series A, 7.64% .09 (undated) /1/ /5/ Southwest Airlines Co. Pass Through Trusts, Series 2001-1: /4/ .10 Class A-2, 5.496% 2006 Class B, 6.126% 2006 Starwood Asset Receivables Trust, Series 2000-1, Class D, 3.87% 2022 /1/ /4/ /5/ .12 Structured Asset Securities Corp., Series 1998-RF2, .12 Class A, 8.529% 2027 /1/ /4/ /5/ TELUS Corp.: .12 7.50% 2007 8.00% 2011 Toys "R" Us, Inc. 7.625% 2011 /1/ TRW Inc.: .02 8.75% 2006 .07 7.125% 2009 Univision Communications Inc. 7.85% 2011 /1/ Viacom Inc.: .16 6.40% 2006 .02 6.625% 2011 Vodafone AirTouch PLC: 7.625% 2005 .20 7.75% 2010 Voicestream Wireless Corp., 10.375% 2009 WCG Note Trust 8.25% 2004 /1/ .13 Williams Companies, Inc. 7.125% 2011 .18 Williams Holdings of Delaware, Inc.: .48 6.25% 2006 6.50% 2008 WMX Technologies, Inc.: 6.375% 2003 .50 7.00% 2006 7.375% 2010 7.10% 2026 World Omni Master Owner Trust, Series 2000-1, Class B, 2.975% 2005 /4/ /5/ .18 Xerox Equipment Lease Owner Trust, Series 2001-1 , .07 Class A 4.525% 2008 /1/ /4/ /5/ .06 U.S. Treasuries Obligations 10.17 6.50% May 2002 10.75% May 2003 11.125% August 2003 11.875% November 2003 6.50% May 2005 3.375% January 2007 /7/ 8.375% August 2008 Principal Strip 0% 2008 8.75% November 2008 6.375% August 2027 8.44 8.44 Governments & Governmental Authorities /4/ Fannie Mae: 6.00% 2016 6.50% 2031 7.00% 2016 - 2031 Fannie Mae Trust, Series 2001-50, Class BA 7.00% 2041 .52 .04 .56 TOTAL BONDS & NOTES (cost: $1,545.040 million) 19.17 Short-Term Securities Federal Agency Discount Notes Fannie Mae 2.04%-3.79% due 11/1/2001-1/31/2002 Federal Home Loan Banks 2.05%-3.50% due 11/2/2001-4/19/2002 3.22 Freddie Mac 2.05%-3.47% due 11/19/2001-1/31/2002 1.62 2.23 Corporate Short-Term Notes 7.07 Alcoa Inc. 2.52% due 11/9/2001 BellSouth Corp. 2.20%-2.45% due 12/12/2001-2/8/2002 /1/ E.W. Scripps Co. 2.25%-3.23% due 12/10/2001-1/16/2002 /1/ .30 Equilon Enterprises LLC 2.42%-2.43% due 11/13-11/28/2001 .60 Estee Lauder Companies Inc. 2.30%-2.50% due .24 12/14/2001-1/9/2002 /1/ .30 Gillette Co. 3.43% due 11/6-11/9/2001 /1/ .24 Marsh USA Inc. 3.83% due 11/1/2001 /1/ Triple-A One Funding Corp. 2.39% due 11/20/2001 /1/ .41 Verizon Network Funding Co. 2.20%-3.33% .30 due 11/7-12/11/2001 .20 .77 U.S. Treasury Securities 3.36 U.S. Treasury Bills 2.05%-3.43% due 11/8/2001-4/4/2002 .65 TOTAL SHORT-TERM SECURITIES (cost: $915.022 million) 11.08 TOTAL INVESTMENT SECURITIES (cost: $7,155.030 million) Excess of cash and receivables over payables 99.95 .05 100.00% [Download Table] Capital Income Builder Financial statements Statement of assets and liabilities at October 31, 2001 (dollars in millions) Assets: Investment securities at market (cost: $7,155.030) $8,253.241 Cash 1.657 Receivables for - Sales of investments $26.909 Sales of fund's shares 21.265 Dividends and interest 50.872 Other .556 99.602 8,354.500 Liabilities: Payables for - Purchases of investments 38.725 Repurchases of fund's shares 5.193 Dividends on fund's shares 47.583 Management services 2.063 Other expenses 3.998 97.562 Net assets at October 31, 2001 $8,256.938 Total authorized capital stock - 400,000,000 shares, $.01 par value Class A shares: Net assets $8,056.795 Shares outstanding 183,947,803 Net asset value per share $43.80 Class B shares: Net assets $117.853 Shares outstanding 2,690,722 Net asset value per share $43.80 Class C shares: Net assets $65.526 Shares outstanding 1,496,057 Net asset value per share $43.80 Class F shares: Net assets $16.764 Shares outstanding 382,730 Net asset value per share $43.80 See notes to financial statements Statement of operations for the year ended October 31, 2001 (dollars in millions) Investment income: Income: Dividends $228.548 Interest 167.394 $395.942 Expenses: Management services fee 25.719 Distribution expenses - Class A 18.965 Distribution expenses - Class B .585 Distribution expenses - Class C .172 Distribution expenses - Class F .009 Transfer agent fee - Class A 4.874 Transfer agent fee - Class B .041 Administrative services fees - Class C .044 Administrative services fees - Class F .010 Reports to shareholders .251 Registration statement and prospectus .233 Postage, stationery and supplies .758 Directors' fees .136 Auditing and legal fees .064 Custodian fee .885 Taxes other than federal income tax .094 Other expenses .040 52.880 Net investment income $343.062 Realized gain and unrealized depreciation on investments: Net realized gain 264.462 Net unrealized depreciation on investment (72.028) Net realized gain and unrealized depreciation on investments 192.434 Net increase in net assets resulting from operations $535.496 See notes to financial statements Statement of changes in net assets (dollars in millions) Year Ended October 2001 2000 Operations: Net investment income $343.062 $359.132 Net realized gain on investments 264.462 236.081 Net unrealized depreciation on investments (72.028) (232.473) Net increase in net assets resulting from operations 535.496 362.740 Dividends and distributions paid to shareholders: Dividends from net investment income: Class A (364.69) (344.133) Class B (2.27) (0.21) Class C (0.66) - Class F (0.17) - Distributions from net realized gain on investments: Class A (157.10) (294.288) Class B (0.48) - Total dividends and distributions (525.36) (638.631) Capital share transactions: Proceeds from shares sold 1,225.149 529.464 Proceeds from shares issued in reinvestment of net investment income dividends and distributions of net realized gain on investments 450.844 580.245 Cost of shares repurchased (815.674) (2,220.107) Net increase (decrease) in net assets resulting from capital share transactions 860.319 (1,110.398) Total increase (decrease) in net assets 870.454 (1,386.289) Net assets: Beginning of year 7,386.484 8,772.773 End of year (including distributions in excess of net investment income and undistributed net investment income: $(9.085) and $18.160, respectively) $8,256.938 $7,386.484 See notes to financial statements 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. The fund offers four classes of shares as described below: Class A shares are sold with an initial sales charge of up to 5.75%. Class B shares are sold without an initial sales charge but are subject to a contingent deferred sales charge ("CDSC") paid upon redemption. This charge declines from 5% to zero over a period of six years. Class B shares automatically convert to Class A shares after eight years. Class C shares are sold without an initial sales charge but are subject to a CDSC of 1% for redemptions within one year of purchase. Class C shares automatically convert to Class F shares after ten years. Class F shares, which are sold exclusively through fee-based programs, are sold without an initial sales charge or CDSC. Holders of all classes of shares have equal pro rata rights to assets, dividends, liquidation and other rights. Each class has identical voting rights, except for exclusive rights to vote on matters affecting only its class. Each class of shares may have different distribution, administrative services and transfer agent fees and expenses. Differences in class-specific expenses will result in the payment of different per-share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. 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. Short-term securities maturing within 60 days are valued at amortized cost, which approximates market value. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Securities and other 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 fund's Board of Directors. NON-U.S. CURRENCY TRANSLATION - Assets and 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 and other assets and liabilities are combined with the net realized and unrealized gain or loss on investment securities for financial reporting purposes. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are accounted for as of the trade date. Realized gains and losses from securities transactions are determined based on specific identified cost. In the event securities are purchased on a delayed delivery or when-issued basis, the fund will instruct the custodian to segregate liquid assets sufficient to meet its payment obligations in these transactions. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Original issue discounts on fixed-income securities are amortized daily over the expected life of the security. Amortization of market discounts on securities is recognized upon disposition. The fund does not amortize premiums on fixed-income securities. On November 1, 2001, the fund will begin amortizing market premiums and discounts on fixed-income securities daily over the expected life of fixed-income securities to conform with a recent change in generally accepted accounting principles for mutual funds. Adopting this change will not impact the fund's net asset value but will result in changes to the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations. These adjustments will be based on the fixed-income securities held by the fund on November 1, 2001. Because the fund determines its required distributions under federal income tax laws, adoption of this principle will not affect the amount of distributions paid to shareholders. 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. CLASS ALLOCATIONS - Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net asset values. Distribution expenses, administrative services fees, certain transfer agent fees and other applicable class-specific expenses are accrued daily and charged to the respective share class. 2. NON-U.S. INVESTMENTS INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain countries involve special investment risks. These risks may include, but are not limited to, investment and repatriation restrictions, revaluation of currencies, adverse political, social and economic developments, government involvement in the private sector, limited and less reliable investor information, lack of liquidity, certain local tax law considerations, and limited regulation of the securities markets. TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid. For the year ended October 31, 2001, non-U.S. taxes paid were $8,541,000. CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends, interest, sales of non-U.S. bonds and notes, and other receivables and payables, on a book basis, were $688,000 for the year ended October 31, 2001. 3. FEDERAL INCOME TAXATION The fund complies with the requirements of the Internal Revenue Code applicable to regulated investment companies and intends to distribute all of its net taxable income and net capital gains for the fiscal year. As a regulated investment company, the fund is not subject to income taxes if such distributions are made. Required distributions are based on net investment income determined on a tax basis and may differ from such amounts for financial reporting purposes. In addition, the fiscal year in which amounts are distributed may differ from the year in which the net investment income is earned and the net gains are realized by the fund. As of October 31, 2001, the cost of investment securities for federal income tax reporting purposes was $7,155,815,000. Net unrealized appreciation on investments aggregated $1,097,426,000; $1,231,210,000 related to appreciated securities and $133,784,000 related to depreciated securities. For the year ended October 31, 2001, the fund realized tax basis net capital gains of $264,119,000. Net gains related to non-U.S. currency and other transactions of $1,128,000 were treated as an adjustment to ordinary income for federal income tax purposes. Other capital losses of $785,000 were deferred for federal income tax purposes. 4. FEES AND TRANSACTIONS WITH RELATED PARTIES INVESTMENT ADVISORY FEE - The fee of $25,719,000 for management services was incurred pursuant to an agreement with Capital Research and Management Company ("CRMC") with which officers and certain Directors of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees accrued daily, based on a series of rates beginning with 0.240% per annum of the first $1 billion of net assets decreasing to 0.150% of such assets in excess of $8 billion. The agreement also provides for monthly fees, accrued daily, of 3% of the fund's monthly gross investment income. For the year ended October 31, 2001, the management services fee was equivalent to an annualized rate of 0.325% of average daily net assets. DISTRIBUTION EXPENSES - The fund has adopted plans of distribution under which it may finance activities primarily intended to sell fund shares, provided the categories of expenses are approved in advance by the fund's Board of Directors. The plans provide for annual expenses, based on average daily net assets, of up to 0.30% for Class A shares, 1.00% for Class B and Class C shares, and up to 0.50% for Class F shares. All share classes may use up to 0.25% of these expenses to pay service fees, or to compensate American Funds Distributors, Inc.("AFD"), the principal underwriter of the fund's shares, for paying service fees to firms that have entered into agreements with AFD for providing certain shareholder services. The balance may be used for approved distribution expenses as follows: CLASS A SHARES - Approved categories of expense include reimbursements to AFD for commissions paid to dealers and wholesalers in respect of certain shares sold without a sales charge. Those reimbursements are permitted for amounts billed to the fund within the prior 15 months but only to the extent that the overall 0.30% annual expense limit for Class A shares is not exceeded. For the year ended October 31, 2001, aggregate distribution expenses were $18,965,000, equivalent to an annualized rate of 0.24% of average daily net assets attributable to Class A shares. CLASS B SHARES - In addition to service fees of 0.25%, approved categories of expense include fees of 0.75% per annum of average daily net assets attributable to Class B shares payable to AFD. AFD sells the rights to receive such payments (as well as any contingent deferred sales charges payable in respect of shares sold during the period) in order to finance the payment of dealer commissions. For the year ended October 31, 2001, aggregate distribution expenses were $585,000, equivalent to an annualized rate of 1.00% of average daily net assets attributable to Class B shares. CLASS C SHARES - In addition to service fees of 0.25%, the Board of Directors has approved the payment of 0.75% per annum of average daily net assets attributable to Class C shares to AFD to compensate firms selling Class C shares of the fund. For the period ended October 31, 2001, aggregate distribution expenses were $172,000, equivalent to an annualized rate of 1.00% of average daily net assets attributable to Class C shares. CLASS F SHARES - The plan has an expense limit of 0.50%. However, the Board of Directors has presently approved expenses under the plan of 0.25% per annum of average daily net assets attributable to Class F shares. For the period ended October 31, 2001, aggregate distribution expenses were $9,000, equivalent to an annualized rate of 0.25% of average daily net assets attributable to Class F shares. As of October 31, 2001, aggregate distribution expenses payable to AFD were $3,049,000. AFD received $3,779,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's Class A shares for the year ended October 31, 2001. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying Statement of Operations. TRANSFER AGENT FEE - A fee of $4,915,000 was incurred during the year ended October 31, 2001, pursuant to an agreement with American Funds Service Company ("AFS"), the transfer agent for the fund. As of October 31, 2001, aggregate transfer agent fees payable to AFS for Class A and Class B shares were $407,000. ADMINISTRATIVE SERVICES FEES - The fund has an administrative services agreement with CRMC for Class C and Class F shares. Pursuant to this agreement, CRMC provides transfer agency and other related shareholder services. CRMC may contract with third parties to perform these services. Under the agreement, the fund pays CRMC a fee equal to 0.15% per annum of average daily net assets of Class C and Class F shares, plus amounts payable for certain transfer agency services according to a specified schedule. For the period ended October 31, 2001, total fees under the agreement were $54,000. As of October 31, 2001, aggregate administrative services fees payable to CRMC for Class C and Class F shares were $11,000. DEFERRED DIRECTORS'FEES - Since the adoption of the deferred compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to defer the receipt of part or all of their compensation. Deferred compensation amounts, which remain in the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. As of October 31, 2001, the cumulative amount of these liabilities was $377,000. Directors' fees on the Statement of Operations include the current fees (either paid in cash or deferred) and the net increase or decrease in the value of deferred compensation. AFFILIATED OFFICERS AND DIRECTORS - CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Officers and certain Directors 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. 5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities of $3,091,781,000 and $2,345,988,000, respectively, during the year ended October 31, 2001. Pursuant to the custodian agreement, the fund receives credits against its custodian fee for imputed interest on certain balances with the custodian bank. For the year ended October 31, 2001, the custodian fee of $885,000 includes $108,000 that was paid by these credits rather than in cash. For the year ended October 31, 2001, the fund reclassified $2,518,000 from undistributed net investment income to undistributed net realized gains; and reclassified $94,947,000 from undistributed net realized gains to additional paid-in capital to reflect permanent differences between book and tax reporting. As of October 31, 2001, net assets consisted of the following: [Download Table] (dollars in millions) Capital paid in on shares of capital stock $6,936.514 Distributions in excess of net investment income (9.085) Undistributed net realized gain 231.309 Net unrealized appreciation 1,098.200 Net assets $8,256.938 Capital share transactions in the fund were as follows: [Download Table] Year Ended October 2001 Amount (Millions) Class A Shares: Sold $ 1,034.028 Reinvestment of dividends and distributions 448.473 Repurchased (807.473) Net increase (decrease) in Class A 675.028 Class B Shares: /1/ Sold 104.283 Reinvestment of dividends and distributions 1.959 Repurchased (5.014) Net increase in Class B 101.228 Class C Shares: /2/ Sold 67.893 Reinvestment of dividends and distributions .338 Repurchased (1.274) Net increase in Class C 66.957 Class F Shares: /2/ Sold 18.945 Reinvestment of dividends and distributions .074 Repurchased (1.913) Net increase in Class F 17.106 Total net increase (decrease) in fund $ 860.319 /1/ Class B shares were not offered before March 15, 2000. /2/ Class C and Class F shares were not offered before March 15, 2001. Year Ended October 2001 Shares Class A Shares: 23,199,484 Sold 10,317,626 Reinvestment of dividends and distributions (18,202,942) Repurchased 15,314,168 Net increase (decrease) in Class A Class B Shares: /1/ 2,335,543 Sold 45,074 Reinvestment of dividends and distributions (113,381) Repurchased 2,267,236 Net increase in Class B Class C Shares: /2/ 1,517,329 Sold 7,848 Reinvestment of dividends and distributions (29,120) Repurchased 1,496,057 Net increase in Class C Class F Shares: /2/ 423,905 Sold 1,718 Reinvestment of dividends and distributions (42,893) Repurchased 382,730 Net increase in Class F 19,460,191 Total net increase (decrease) in fund /1/ Class B shares were not offered before March 15, 2000. /2/ Class C and Class F shares were not offered before March 15, 2001. Amount (Millions) Class A Shares: $ 511.386 Sold 580.132 Reinvestment of dividends and distributions (2,219.953) Repurchased (1,128.435) Net increase (decrease) in Class A Class B Shares: /1/ 18.078 Sold .113 Reinvestment of dividends and distributions (.154) Repurchased 18.037 Net increase in Class B Class C Shares: /2/ - Sold - Reinvestment of dividends and distributions - Repurchased - Net increase in Class C Class F Shares: /2/ - Sold - Reinvestment of dividends and distributions - Repurchased - Net increase in Class F $ (1,110.398) Total net increase (decrease) in fund /1/ Class B shares were not offered before March 15, 2000. /2/ Class C and Class F shares were not Shares offered before March 15, 2001. Class A Shares: 12,051,067 Sold 13,874,734 Reinvestment of dividends and distributions (52,677,443) Repurchased (26,751,642) Net increase (decrease) in Class A Class B Shares: /1/ 424,465 Sold 2,630 Reinvestment of dividends and distributions (3,609) Repurchased 423,486 Net increase in Class B Class C Shares: /2/ - Sold - Reinvestment of dividends and distributions - Repurchased - Net increase in Class C Class F Shares: /2/ - Sold - Reinvestment of dividends and distributions - Repurchased - Net increase in Class F (26,328,156) Total net increase (decrease) in fund /1/ Class B shares were not offered before March 15, 2000. /2/ Class C and Class F shares were not offered before March 15, 2001. [Download Table] Per-share data and ratios Class A Year Ended 2001 2000 Net asset value, beginning of year $43.69 $44.90 Income from investment operations : Net investment income 1.94 1.99 Net gains (losses) on securities 1.19 .26 (both realized and unrealized) Total from investment operations 3.13 2.25 Less distributions : Dividends (from net investment income) (2.08) (1.92) Distributions (from capital gains) (.94) (1.54) Total distributions (3.02) (3.46) Net asset value, end of year $43.80 $43.69 Total return (2) 7.39% 5.55% Ratios/supplemental data: Net assets, end of year (in millions) $8,057 $7,368 Ratio of expenses to average net assets .66% .67% Ratio of net income to average net assets 4.36% 4.67% Class B Year ended March 15 to October 31, October 31, 2001 2000 (3) Net asset value, beginning of period $43.69 $40.33 Income from investment operations : Net investment income (1) 1.60 .96 Net gains (losses) on securities 1.19 3.44 (both realized and unrealized) (1) Total from investment operations 2.79 4.40 Less distributions : Dividends (from net investment income) (1.74) (1.04) Distributions (from capital gains) (.94) - Total distributions (2.68) (1.04) Net asset value, end of period $43.80 $43.69 Total return (2) 6.55% 10.97% Ratios/supplemental data: Net assets, end of period (in millions) $118 $18 Ratio of expenses to average net assets 1.41% 1.44% Ratio of net income to average net assets 3.35% 3.90% Supplemental data - all classes Year Ended 31-Oct 2001 2000 Portfolio turnover rate 36.60% 41.37% 1) Based on average shares outstanding. 2) Total returns exclude all sales charges, including contingent deferred sales charges. 3) Based on operations for the period shown and, accordingly, not representative of a full year (unless otherwise noted). 4) Annualized. Net asset value, beginning of year October 31 Income from investment operations : 1999 1998 Net investment income $48.40 $46.14 Net gains (losses) on securities (both realized and unrealized) 1.93 2.09 Total from investment operations (.70) 3.87 Less distributions : Dividends (from net investment income) 1.23 5.96 Distributions (from capital gains) (1.92) (2.09) Total distributions (2.81) (1.61) Net asset value, end of year (4.73) (3.70) Total return (2) $44.90 $48.40 Ratios/supplemental data: 2.53% 13.33% Net assets, end of year (in millions) Ratio of expenses to average net assets $8,773 $8,747 Ratio of net income to average net assets .64% .64% 4.15% 4.35% Class C Class F Net asset value, beginning of period March 15 to March 15 to October 31, October 31, Income from investment operations : 2001 (3) 2001 (3) Net investment income (1) $44.15 $44.15 Net gains (losses) on securities (both realized and unrealized) (1) .81 .99 Total from investment operations (.14) (.14) Less distributions : Dividends (from net investment income) .67 .85 Distributions (from capital gains) (1.02) (1.20) Total distributions - - Net asset value, end of period (1.02) (1.20) Total return (2) $43.80 $43.80 Ratios/supplemental data: 1.52% 1.94% Net assets, end of period (in millions) Ratio of expenses to average net assets $65 $17 Ratio of net income to average net assets 1.51% .80% Supplemental data - all classes 2.98% 3.70% Portfolio turnover rate 1999 1998 20.56% 24.38% Net asset value, beginning of year 1997 $39.70 Income from investment operations : Net investment income 1.74 Net gains (losses) on securities (both realized and unrealized) 7.20 Total from investment operations 8.94 Less distributions : Dividends (from net investment income) (1.77) Distributions (from capital gains) (.73) Total distributions (2.50) Net asset value, end of year $46.14 Total return (2) 23.16% Ratios/supplemental data: Net assets, end of year (in millions) $7,301 Ratio of expenses to average net assets .65% Ratio of net income to average net assets 4.04% 1997 27.65% Report of Independent Accountants To the Board of Directors and Shareholders of Capital Income Builder: 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 (the "Fund") at October 31, 2001, the results of its operations, the changes in its net assets and the per-share data and ratios for the each of the periods presented in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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, 2001, by correspondence with the custodian, provide a reasonable basis for our opinion expressed above. PRICEWATERHOUSECOOPERS LLP Los Angeles, California November 30, 2001 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 certain distributions received by shareholders during such fiscal year. During the fiscal year ended October 31, 2001, the fund paid a long-term capital gain distribution of $157,572,000. The fund also designated 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, 31% 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, 13% 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 INFORMATION ABOVE IS 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 2002 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON THEIR 2001 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. PART C OTHER INFORMATION CAPITAL INCOME BUILDER, INC. ITEM 23. EXHIBITS (a) Articles Supplementary as filed with the State of Maryland on 1/18/02 (b) Previously filed (see Post-Effective Amendment No. 18 Filed 3/13/01) (c) Previously filed (see Post-Effective Amendment No. 18 Filed 3/13/01) (d) Previously filed (see Post-Effective Amendment No. 16 filed 3/8/00) (e) Form of Amended and Restated Principal Underwriting Agreement (f) None (g) Previously filed (see Post-Effective Amendment No. 15 filed 1/7/00) (h) Form of Amended and Restated Administrative Services Agreement; and Form of Amended Shareholder Services Agreement dated 7/1/01 (i) Legal opinion for Classes 529-A, 529-B, 529-C, 529-E and 529-F Shares (j) Consent of Independent Accountants (k) None (l) None (m) Forms of Plans of Distribution relating to Class 529-A, 529-B, 529-C, 529-E and 529-F Shares (n) Form of Amended and Restated Multiple Class Plan (o) None (p) Code of Ethics ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None ITEM 25. INDEMNIFICATION Registrant is a joint-insured under an Investment Advisor/Mutual Fund Errors and Omissions Policies written by American International Surplus Lines Insurance Company, Chubb Custom Insurance Company and ICI Mutual Insurance Company which insures its officers and directors against certain liabilities. However, in no event will Registrant maintain insurance to indemnify any such person for any act for which Registrant itself is not permitted to indemnify the individual. ITEM 25. INDEMNIFICATION (CONTINUED) Article VIII of the Articles of Incorporation of the Fund provides that "The Corporation shall indemnify (1) its directors to the full extent provided by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures provided by such laws; (2) its officers to the same extent it shall indemnify its directors; and (3) its officers who are not directors to such further extent as shall be authorized by the Board of Directors and be consistent with law. The foregoing shall not limit the authority of the Corporation to indemnify other employees and agents. Any indemnification by the Corporation shall be consistent with the requirements of law, including the Investment Company Act of 1940." Subsection (b) of Section 2-418 of the General Corporation Law of Maryland empowers a corporation to indemnify any person who was or is party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against reasonable expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually incurred by him in connection with such action, suit or proceeding unless it is established that: (i) the act or omission of the person was material to the cause of action adjudicated in the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty; or (ii) the person actually received an improper personal benefit of money, property or services; or (iii) with respect to any criminal action or proceeding, the person had reasonable cause to believe that the act or omission was unlawful. Indemnification under subsection (b) of Section 2-418 may not be made by a corporation unless authorized for a specific proceeding after a determination has been made that indemnification is permissible in the circumstances because the party to be indemnified has met the standard of conduct set forth in subsection (b). This determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding, or, if such a quorum cannot be obtained, then by a majority vote of a committee of the Board consisting solely of two or more directors not, at the time, parties to such proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate; (ii) by special legal counsel selected by the Board of Directors of a committee of the Board by vote as set forth in subparagraph (i), or, if the requisite quorum of the full Board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full Board in which directors who are parties may participate; or (iii) by the stockholders (except that shares held by any party to the specific proceeding may not be voted). A court of appropriate jurisdiction may also order indemnification if the court determines that a person seeking indemnification is entitled to reimbursement under subsection (b). Section 2-418 further provides that indemnification provided for by Section 2-418 shall not be deemed exclusive of any rights to which the indemnified party may be entitled; that the scope of indemnification extends to directors, officers, employees or agents of a constituent corporation absorbed in a consolidation or merger and persons serving in that capacity at the request of the constituent corporation for another; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against and incurred by such person in any such capacity or arising out of such person's status as such whether or not the corporation would have the power to indemnify such person against such liabilities under Section 2-418. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER None ITEM 27. PRINCIPAL UNDERWRITERS (a) American Funds Distributors, Inc. is the Principal Underwriter of shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds Income Series, The American Funds Tax-Exempt Series I, The American Funds Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., Capital World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash Management Trust of America, EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., The Investment Company of America, Intermediate Bond Fund 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 Money Fund of America, U.S. Treasury Money Fund of America and Washington Mutual Investors Fund, Inc. [Enlarge/Download Table] (b) (1) (2) (3) NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT David L. Abzug Vice President None P.O. Box 2248 Agoura Hills, CA 91376 John A. Agar Vice President None P.O. Box 7326 Little Rock, AR 72207 Robert B. Aprison Vice President None 2983 Bryn Wood Drive Madison, WI 53711 L William W. Bagnard Vice President None Steven L. Barnes Senior Vice President None 7490 Clubhouse Road Suite 100 Boulder, CO 80301 B Carl R. Bauer Vice President None Michelle A. Bergeron Senior Vice President None 4160 Gateswalk Drive Smyrna, GA 30080 J. Walter Best, Jr. Regional Vice President None 9013 Brentmeade Blvd. Brentwood, TN 37027 Joseph T. Blair Senior Vice President None 148 E. Shore Ave. Groton Long Point, CT 06340 John A. Blanchard Vice President None 6421 Aberdeen Road Mission Hills, KS 66208 Ian B. Bodell Senior Vice President None P.O. Box 1665 Brentwood, TN 37024-1665 Mick L. Brethower Senior Vice President None 601 E. Whitestone Blvd. Building 6, Suite 115 Cedar Park, TX 78613 Alan Brown Vice President None 4129 Laclede Avenue St. Louis, MO 63108 B J. Peter Burns Vice President None Cody Callaway Regional Vice President None 803 South Desert Palm Place Broken Arrow, OK 74012 Matthew Carlisle Regional Vice President None 4500 Fairvista Drive Charlotte, NC 28269 Damian Carroll Regional Vice President None 40 Ten Acre Road New Britain, CT 06052 Brian C. Casey Vice President None 8002 Greentree Road Bethesda, MD 20817 Victor C. Cassato Senior Vice President None 609 W. Littleton Blvd., Suite 310 Littleton, CO 80120 Christopher J. Cassin Senior Vice President None 19 North Grant Street Hinsdale, IL 60521 Denise M. Cassin Vice President None 1301 Stoney Creek Drive San Ramon, CA 94583 L David Charlton Senior Vice President None L Larry P. Clemmensen Director None L Kevin G. Clifford Director, President and Co-Chief None Executive Officer H Cheri Coleman Assistant Vice President None Ruth M. Collier Senior Vice President None 29 Landsdowne Drive Larchmont, NY 10538 S David Coolbaugh Vice President None Carlo O. Cordasco Regional Vice President None 101 Five Forks Lane Hampton, VA 23669 Thomas E. Cournoyer Vice President None 2333 Granada Boulevard Coral Gables, FL 33134 Douglas A. Critchell Senior Vice President None 3521 Rittenhouse Street, N.W. Washington, D.C. 20015 William F. Daugherty Regional Vice President None 1216 Highlander Way Mechanicsburg, PA 17050 Guy E. Decker Regional Vice President None 2990 Topaz Lane Carmel, IN 46032 Daniel J. Delianedis Vice President None Edina Executive Plaza 5200 Willson Road, Suite 150 Edina, MN 55424 James A. DePerno, Jr. Regional Vice President None 91 Church Street East Aurora, NY 14052 L Bruce DePriester Senior Vice President None Tom Dickson Regional Vice President None 108 Wilmington Court Southlake, TX 76092 Michael A. DiLella Vice President None P. O. Box 661 Ramsey, NJ 07446 G. Michael Dill Senior Vice President None 505 E. Main Street Jenks, OK 74037 Kirk D. Dodge Senior Vice President None 2627 Mission Street San Marino, CA 91108 Peter J. Doran Director, Executive Vice None President 100 Merrick Road, Suite 216W Rockville Centre, NY 11570 L Michael J. Downer Secretary None Michael J. Dullaghan Regional Vice President None 5040 Plantation Grove Lane Roanoke, VA 24012 S J. Steven Duncan Senior Vice President None Robert W. Durbin Vice President None 74 Sunny Lane Tiffin, OH 44883 I Lloyd G. Edwards Senior Vice President None Timothy L. Ellis Regional Vice President None 1441 Canton Mart Road, Suite 9 Jackson, MS 39211 John R. Fodor Senior Vice President None 15 Latisquama Road Southborough, MA 01772 Daniel B. Frick Regional Vice President None 845 Western Avenue Glen Ellyn, IL 60137 Clyde E. Gardner Senior Vice President None Route 2, Box 3162 Osage Beach, MO 65065 L Linda Gardner Assistant Vice President None B Evelyn K. Glassford Vice President None Jack E. Goldin Regional Vice President None 7995 Northwest 20th Street Pembroke Pines, FL 33024 Jeffrey J. Greiner Vice President None 12210 Taylor Road Plain City, OH 43064 L Paul G. Haaga, Jr. Director Chairman of the Board B Mariellen Hamann Vice President None Derek S. Hansen Regional Vice President None 13033 Ridgedale Drive, PMB 147 Minnetonka, MN 55305 David E. Harper Senior Vice President None 150 Old Franklin School Road Pittstown, NJ 08867 H Mary Pat Harris Vice President None Steve Hipsley Regional Vice President None 100 Kaydeross Park Road Saratoga Springs, NY 12866 Ronald R. Hulsey Senior Vice President None 6744 Avalon Dallas, TX 75214 Robert S. Irish Vice President None 1225 Vista Del Mar Drive Delray Beach, FL 33483 Michael J. Johnston Director None 630 Fifth Avenue, 36th Floor New York, NY 10111 B Damien M. Jordan Senior Vice President None John P. Keating Regional Vice President None 2285 Eagle Harbor Parkway Orange Park, FL 32003 Dorothy Klock Vice President None 555 Madison Avenue, 29th Floor New York, NY 10022 H Dianne L. Koske Assistant Vice President Andrew R. LeBlanc Regional Vice President None 78 Eton Road Garden City, NY 11530 B Karl A. Lewis Vice President None T. Blake Liberty Vice President None 5506 East Mineral Lane Littleton, CO 80122 Mark J. Lien Regional Vice President None 1103 Tulip Tree Lane West Des Moines, IA 50266 L Lorin E. Liesy Vice President None I Kelle Lindenberg Assistant Vice President None Louis K. Linquata Regional Vice President None 5214 Cass Street Omaha, NE 68132 LW Robert W. Lovelace Director None Brendan T. Mahoney Regional Vice President None 29 Harvard Drive Sudbury, MA 01776 Stephen A. Malbasa Director, Senior Vice None President 13405 Lake Shore Blvd. Cleveland, OH 44110 Steven M. Markel Senior Vice President None 5241 South Race Street Greenwood Village, CO 80121 L J. Clifton Massar Director, Senior Vice None President L E. Lee McClennahan Senior Vice President None James R. McCrary Regional Vice President None 28812 Crestridge Rancho Palos Verdes, CA 90275 L Scott F. McIntyre Senior Vice President None S John V. McLaughlin Senior Vice President None Terry W. McNabb Vice President None 2002 Barrett Station Road St. Louis, MO 63131 Scott Meade Regional Vice President None P.O. Box 122 Rye Beach, NH 03871 Monty Moncrief Regional Vice President None 55 Chandler Creek The Woodlands, TX 77381 William E. Noe Vice President None 304 River Oaks Road Brentwood, TN 37027 Peter A. Nyhus Vice President None 3084 Wilds Ridge Court Prior Lake, MN 55372 Eric P. Olson Vice President None 62 Park Drive Glenview, IL 60025 Jeffrey A. Olson Regional Vice President None 930 S. Cowley Street, #305 Spokane, WA 99202 Gary A. Peace Regional Vice President None 291 Kaanapali Drive Napa, CA 94558 Samuel W. Perry Regional Vice President None 4730 East Indian School Road Suite 120 Phoenix, AZ 85018 David K. Petzke Regional Vice President None 4016 Saint Lucia Street Boulder, CO 80301 Fredric Phillips Senior Vice President None 175 Highland Avenue, 4th Floor Needham, MA 02494 B Candance D. Pilgrim Assistant Vice President None Carl S. Platou Vice President None 7455 80th Place, S.E. Mercer Island, WA 98040 S Richard P. Prior Vice President None Mark S. Reischmann Regional Vice President None 5485 East Mineral Lane Littleton, CO 80122 Steven J. Reitman Senior Vice President None 212 The Lane Hinsdale, IL 60521 Brian A. Roberts Vice President None 425 South Pitt Street Alexandria, VA 22314 L Julie D. Roth Vice President None L James F. Rothenberg Director None Douglas F. Rowe Vice President None 414 Logan Ranch Road Georgetown, TX 78628 Christopher S. Rowey Vice President None 10538 Cheviot Drive Los Angeles, CA 90064 H Steve Rubin Assistant Vice President None Dean B. Rydquist Senior Vice President None 1080 Bay Pointe Crossing Alpharetta, GA 30005 Richard R. Samson Senior Vice President None 4604 Glencoe Avenue, #4 Marina del Rey, CA 90292 Paul V. Santoro Regional Vice President None 17 Willow Street Boston, MA 02108 Joseph D. Scarpitti Vice President None 31465 St. Andrews Westlake, OH 44145 Shannon D. Schofield Regional Vice President None 201 McIver Street Greenville, SC 29601 L R. Michael Shanahan Director None Brad W. Short Regional Vice President None 1601 Seal Way Seal Beach, CA 90740 David W. Short Chairman of the Board and None 1000 RIDC Plaza, Suite 212 Co-Chief Executive Officer Pittsburgh, PA 15238 William P. Simon Senior Vice President None 912 Castlehill Lane Devon, PA 19333 Jerry L. Slater Regional Vice President None 4152 42nd Avenue, NE Seattle, WA 98105 Rodney G. Smith Senior Vice President None 100 N. Central Expressway Suite 1214 Richardson, TX 75080 S Sherrie L. Snyder-Senft Vice President None Anthony L. Soave Regional Vice President None 8831 Morning Mist Drive Clarkston, MI 48348 L Therese L. Soullier Assistant Vice President None Nicholas D. Spadaccini Vice President None 855 Markley Woods Way Cincinnati, OH 45230 L Kristen J. Spazafumo Assistant Vice President None Daniel S. Spradling Senior Vice President None 181 Second Avenue Suite 228 San Mateo, CA 94401 B Raymond Stein Assistant Vice President None LW Eric H. Stern Director None Brad Stillwagon Regional Vice President None 2438 Broadmeade Road Louisville, KY 40205 B Max D. Stites Vice President None Thomas A. Stout Vice President None 1004 Ditchley Road Virginia Beach, VA 23451 Craig R. Strauser Vice President None 3 Dover Way Lake Oswego, OR 97034 Francis N. Strazzeri Senior Vice President None 3021 Kensington Trace Tarpon Springs, FL 34689 L Lisa F. Swaiman Vice President None L Drew W. Taylor Assistant Vice President None Gary J. Thoma Regional Vice President None 21 White Cloud HCR 1 Box 172-A Keshena, WI 54135 Cindy Thompson Regional Vice President None 23412 Pacific Park Drive, #5C Aliso Viejo, CA 92656 L James P. Toomey Vice President None I Christopher E. Trede Vice President None George F. Truesdail Senior Vice President None 400 Abbotsford Court Charlotte, NC 28270 Scott W. Ursin-Smith Vice President None 60 Reedland Woods Way Tiburon, CA 94920 J. David Viale Regional Vice President None 39 Old Course Drive Newport Beach, CA 92660 Gerald J. Voss Regional Vice President None The Pines at Four Hills 3900 S. Southeastern Ave., #110 Sioux Falls, SD 57103 Thomas E. Warren Vice President None 7347 Turnstone Road Sarasota, FL 34242 L J. Kelly Webb Senior Vice President, None Treasurer and Controller Gregory J. Weimer Vice President None 206 Hardwood Drive Venetia, PA 15367 B Timothy W. Weiss Director None SF Gregory W. Wendt Director None George J. Wenzel Regional Vice President None 251 Barden Road Bloomfield, MI 48304 H J. D. Wiedmaier Assistant Vice President None SF N. Dexter Williams, Jr. Senior Vice President None Timothy J. Wilson Vice President None 113 Farmview Place Venetia, PA 15367 B Laura L. Wimberly Vice President None H Marshall D. Wingo Director, Senior Vice None President L Robert L. Winston Director, Senior Vice None President William R. Yost Senior Vice President None 9320 Overlook Trail Eden Prairie, MN 55347 Jonathan A. Young Regional Vice President None 329 Downing Drive Chesapeake, VA 23322 Scott D. Zambon Regional Vice President None 2887 Player Lane Tustin Ranch, CA 92782 __________ L Business Address, 333 South Hope Street, Los Angeles, CA 90071 LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025 B Business Address, 135 South State College Boulevard, Brea, CA 92821 S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251 SF Business Address, One Market, Steuart Tower, Suite 1800, San Francisco, CA 94105-1016 H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513 I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240 (c) None ITEM 28. LOCATION OF ACCOUNTS AND RECORDS Accounts, books and other records required by Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended, are maintained and held in the offices of its investment adviser, Capital Research and Management Company, 333 South Hope Street, Los Angeles, California 90071, and/or 135 South State College Boulevard, Brea, California 92821. Registrant's records covering shareholder accounts are maintained and kept by its transfer agent, American Funds Service Company, 135 South State College Boulevard, Brea, California 92821; 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240; 3500 Wiseman Boulevard, San Antonio, Texas 78251; and 5300 Robin Hood Road, Norfolk, VA 23513. Registrant's records covering portfolio transactions are maintained and kept by its custodian, JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017-2070. ITEM 29. MANAGEMENT SERVICES None ITEM 30. UNDERTAKINGS n/a SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, and State of California, on the 12th day of February, 2002. CAPITAL INCOME BUILDER, INC. By /s/ James B. Lovelace (James B. Lovelace, Chairman of the Board) Pursuant to the requirements of the Securities Act of 1933, this amendment to Registration Statement has been signed below on February 12, 2002, by the following persons in the capacities indicated. [Download Table] SIGNATURE TITLE (1) Principal Executive Officer: /s/ James B. Lovelace Chairman of the Board (James B. Lovelace) (2) Principal Financial Officer and Principal Accounting Officer: /s/ R. Marcia Gould Treasurer (R. Marcia Gould) (3) Directors: H. Frederick Christie* Director /s/ Paul G. Haaga, Jr. (Paul G. Haaga, Jr.) Vice Chairman of the Board Merit E. Janow Director Mary Myers Kauppila Director /s/ James B. Lovelace (James B. Lovelace) Chairman of the Board Jon B. Lovelace* Director Gail L. Neale* Director Robert J. O'Neill Director Donald E. Petersen* Director Stefanie Powers Director Frank Stanton* Director Steadman Upham Director Charles Wolf, Jr.* Director *By /s/ Vincent P. Corti (Vincent P. Corti, Attorney-in-Fact) Counsel represents that this amendment does not contain disclosures that would make the amendment ineligible for effectiveness under the provisions of rule 485(b). /s/ Kristine M. Nishiyama (Kristine M. Nishiyama)

Dates Referenced Herein   and   Documents Incorporated By Reference

Referenced-On Page
This 486BPOS Filing   Date First   Last      Other Filings
12/31/96433
9/30/99433
3/15/00111
3/15/015111485BPOS
10/31/011111124F-2NT, N-30D, NSAR-B
11/1/01111
11/30/01111
12/6/0175
12/31/01674
1/15/0275
2/12/02111
Filed On / Filed As Of / Effective As Of2/15/02160
5/14/0297485BPOS
5/15/0297485BPOS
10/31/02777924F-2NT, N-30D, N-30D/A, NSAR-B
 
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