<PAGE>
 
 
                     [LOGO OF THE AMERICAN FUNDS GROUP(R)]
 
--------------------------------------------------------------------------------
 
 
                                 Capital Income
                                   Builder(R)
 
                                   Prospectus
 
 
 
 
                                JANUARY 1, 1997
 
<PAGE>
 
CAPITAL INCOME BUILDER, INC.
333 South Hope Street
Los Angeles, CA 90071
 
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TABLE OF CONTENTS
 
<TABLE>
<S>                                                 <C>
Expenses                                             3
 ......................................................
Financial Highlights                                 4
 ......................................................
Investment Policies and Risks                        5
 ......................................................
Securities and Investment Techniques                 5
 ......................................................
Multiple Portfolio Counselor System                  8
 ......................................................
 
Investment Results                                   9
 ......................................................
Dividends,.Distributions.and.Taxes                  10
 ......................................................
Fund.Organization.and.Management                    11
 ......................................................
Shareholder Services                                14
 ......................................................
 
</TABLE>
 
--------------------------------------------------------------------------------
 
The fund strives for the accomplishment of two primary investment
objectives -- 1) to provide to shareholders a level of current income which
exceeds the average yield on U.S. stocks generally and 2) to provide to
shareholders a growing stream of income over the years. Secondarily, the fund
will seek growth of capital. The fund will invest in a diversified portfolio of
securities that include common stocks and fixed-income securities. Up to 40% of
the fund's assets may be invested in non-U.S. securities.
 
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
 
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
 
12-010-197
 
<PAGE>
 
================================================================================
 
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EXPENSES
 
The effect of the expenses described below is reflected in the fund's share
price or return.
 
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Annual fund operating expenses are paid out of the fund's
earned income.
 
SHAREHOLDER TRANSACTION EXPENSES
 
Maximum sales charge on purchases
(as a percentage of offering price)  5.75%
 
 ................................................................................
 
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
 
FUND OPERATING EXPENSES
(as a percentage of average net assets for the fiscal period ended October 31,
1996)
 
<TABLE> 
--------------------------------------------------------------------------------
<S>                                                                        <C> 
Management fees                                                            0.37%
 ................................................................................
12b-1 expenses                                                          0.22%/1/
 ................................................................................
Other expenses                                                             0.12%
 ................................................................................
Total fund operating expenses                                              0.71%
</TABLE>
 
/1/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
    annually. Due to these distribution expenses, long-term shareholders may pay
    more than the economic equivalent of the maximum front-end sales charge
    permitted by the National Association of Securities Dealers, Inc.
 
EXAMPLES
 
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
 
<TABLE> 
--------------------------------------------------------------------------------
<S>                                                                        <C> 
One year                                                                    $ 64
 ................................................................................
Three years                                                                 $ 79
 ................................................................................
Five years                                                                  $ 95
 ................................................................................
Ten years                                                                   $141
</TABLE>
 
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
 
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                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS                3
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<PAGE>
 
================================================================================
 
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FINANCIAL HIGHLIGHTS
   
The following information has been audited by Price Waterhouse LLP,
independent auditors. This table should be read together with the
financial statements which are included in the statement of additional
information and annual report.
     
PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
                                                    YEAR ENDED OCTOBER 31
                                                    .....................
                           1996    1995    1994    1993    1992    1991    1990     1989    1988    1987/1/
                          ------------------------------------------------------------------------------------
<S>                       <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>     <C>     <C>
Net asset value,
beginning of year         $36.27  $32.68  $34.42  $30.77  $28.67  $23.37   $25.05  $22.63  $21.22      $22.62
--------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income       1.95    1.69    1.73    1.53    1.44    1.37     1.39    1.30    1.15         .36
 ..............................................................................................................
Net realized and
unrealized gain (loss)
on investments              3.92    3.69   (1.62)   3.76    2.33    5.39    (1.76)   2.41    1.41       (1.40)
 ..............................................................................................................
Total income from
investment operations       5.87    5.38     .11    5.29    3.77    6.76     (.37)   3.71    2.56       (1.04)
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income          (1.94)  (1.69)  (1.73)  (1.53)  (1.44)  (1.46)   (1.31)  (1.29)  (1.15)       (.36)
 ..............................................................................................................
Distributions from net
realized gains              (.50)   (.10)   (.12)   (.11)   (.23)     --       --      --      --          --
 ..............................................................................................................
Total distributions        (2.44)  (1.79)  (1.85)  (1.64)  (1.67)  (1.46)   (1.31)  (1.29)  (1.15)       (.36)
 ..............................................................................................................
Net asset value,
end of year               $39.70  $36.27  $32.68  $34.42  $30.77  $28.67   $23.37  $25.05  $22.63      $21.22
--------------------------------------------------------------------------------------------------------------
Total return/2/           16.76%  16.98%    .47%  17.58%  13.46%  29.27%  (1.62)%  16.74%  12.27%  (4.62)%/3/
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions)             $5,418  $4,533  $3,629  $2,826  $1,203  $  563   $  206  $  195  $  126      $   53
 ..............................................................................................................
Ratio of expenses to
average net assets          .71%    .72%    .73%    .72%    .81%    .98%    1.01%   1.11%   1.16%     .36%/3/
 ..............................................................................................................
Ratio of net income to
average net assets         5.19%   4.96%   5.29%   4.69%   4.71%   5.09%    5.70%   5.44%   5.24%    1.17%/3/
 ..............................................................................................................
Average commissions paid
per share/4/               2.20c   2.10c   3.63c   2.90c   2.48c   5.32c    3.44c   4.07c   6.39c       7.04c
 ..............................................................................................................
Portfolio
turnover rate             27.56%  18.06%  36.19%  11.22%  16.57%  13.99%   24.68%  16.30%  35.88%       0%/3/
</TABLE>
 
/1/  The period ended October 31, 1987 represents the initial period of
     operations from July 30, 1987 to October 31, 1987.
 
/2/  Excludes maximum sales charge of 5.75%.
 
/3/  These figures are based on operations for the period shown and,
     accordingly, are not representative of a full year's operations.
 
/4/  Brokerage commissions paid on portfolio transactions increase the cost of
     securities purchased or reduce the proceeds of securities sold and are not
     reflected in the fund's statement of operations. Shares traded on a
     principal basis are excluded. Generally, non-U.S. commissions are lower
     than U.S. commissions when expressed as cents per share but higher when
     expressed as a percentage of transactions because of the lower per-share
     prices of many non-U.S. securities.
     
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4    CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
 
================================================================================
 
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INVESTMENT POLICIES AND RISKS
 
The fund is an equity-income mutual fund that strives for the accomplishment of
two primary investment objectives -- 1) to provide to shareholders a level of
current income which exceeds the average yield on U.S. stocks generally, using
as a measure the yield on the Standard & Poor's 500 Stock Composite Index and
2) to provide to shareholders a growing stream of income over the years.
Secondarily, the fund will seek growth of capital, in the sense that achieving
the objective of growing income implies that the fund will also, over time,
achieve significant capital growth.
 
The fund will invest in a diversified portfolio of securities that includes
common stocks and fixed-income securities including preferred stocks and
securities convertible into common stocks. Normally at least 50% of its total
assets will be invested in common stocks. Under normal market conditions, at
least 90% of the fund's portfolio will be invested in income-producing
securities. Up to 40% of the fund's assets may be invested in securities of
issuers that are domiciled outside the U.S. (which are generally denominated in
currencies other than the U.S. dollar), although there is no requirement that
the fund maintain investments in these securities. In addition, the fund may
invest in cash and cash equivalents. MORE INFORMATION ON THE FUND'S INVESTMENT
POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL INFORMATION.
 
The fund's investment restrictions (which are described in the statement of
additional information as fundamental) and objectives may not be changed
without shareholder approval. All other investment practices may be changed by
the fund's board of directors.
 
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVES CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
 
--------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
 
EQUITY SECURITIES
 
Equity securities represent an ownership position in a company. These
securities may include common stocks, preferred stocks, and securities with
equity conversion or purchase rights. The prices of equity securities fluctuate
based on changes in the financial condition of their issuers and on overall
market and economic conditions. The fund's results will be related to the
overall market for these securities.
 
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                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS                5
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<PAGE>
 
=============================================================================== 
 
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DEBT SECURITIES
 
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest, and must repay the amount borrowed at maturity. Some
debt securities, such as zero coupon bonds, do not pay current interest, but
are purchased at a discount from their face values.
 
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality and maturity. In general their prices decline when
interest rates rise and vice versa.
 
The fund may invest up to 5% of its total assets in debt securities rated Ba
and BB or below by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or in unrated securities that are determined to be of equivalent
quality. These securities are commonly known as "high-yield, high-risk" or
"junk" bonds. The market prices of these securities may fluctuate more than
higher-quality securities and may decline significantly in periods of general
economic difficulty.
 
The fund's investments in debt securities outside the U.S. will principally be
in securities issued or guaranteed as to principal and interest by governments
or their agencies or instrumentalities or by multinational agencies.
 
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
 
INVESTING IN VARIOUS COUNTRIES
 
The fund has the flexibility to invest outside the U.S. Investing outside the
U.S. involves special risks caused by, among other things: fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; greater market volatility; differing securities market
structures; and various administrative difficulties such as delays in clearing
and settling portfolio transactions or in receiving payment of dividends.
However, in the opinion of Capital Research and Management Company, investing
outside the U.S. also can reduce certain portfolio risks due to greater
diversification opportunities.
 
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
 
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6    CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
 
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CURRENCY TRANSACTIONS
 
The fund can purchase and sell currencies to facilitate securities transactions
and enter into forward currency contracts to hedge against changes in currency
exchange rates. While entering into forward currency transactions could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain which might result from an increase in
the value of the currency. Due to the expenses involved, the fund will not
generally attempt to protect against all potential changes in exchange rates.
 
FORWARD COMMITMENTS
 
The fund may enter into commitments to purchase or sell securities for which
payment and delivery for the securities take place at a future date. When the
fund purchases such securities it assumes the risk of any decline in value of
the securities beginning on the date of the agreement or purchase. When the
fund sells such securities, it does not participate in further gains or losses
with respect to the securities. If the other party to such a transaction fails
to deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss.
 
 
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                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS                7
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<PAGE>
 
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
 
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objectives and policies and by
Capital Research and Management Company's investment committee). In addition,
Capital Research and Management Company's research professionals make
investment decisions with respect to a portion of the fund's portfolio. The
primary individual portfolio counselors for the fund are listed below.
 
   
<TABLE>
<CAPTION>
                                                                 YEARS OF EXPERIENCE AS
                                                                INVESTMENT PROFESSIONAL
                                                                     (APPROXIMATE)
                                                               ..........................
                                                                WITH CAPITAL
                                         YEARS OF EXPERIENCE    RESEARCH AND
PORTFOLIO COUNSELORS                    AS PORTFOLIO COUNSELOR   MANAGEMENT
 FOR CAPITAL INCOME                   FOR CAPITAL INCOME BUILDER    COMPANY OR
      BUILDER         PRIMARY TITLE(S)        (APPROXIMATE)     ITS AFFILIATES TOTAL YEARS
-----------------------------------------------------------------------------------------
<S>                   <C>               <C>                    <C>            <C>
JON B.                Chairman of the   Since the fund         45 years       45 years
LOVELACE              Board of the      began
                      fund; Vice        operations*
                      Chairman of the
                      Board and
                      Chairman of the
                      Executive
                      Committee,
                      Capital
                      Research and
                      Management
                      Company
-----------------------------------------------------------------------------------------
JAMES B.              Executive Vice    9 years                15 years       15 years
LOVELACE              President of
                      the fund; Vice
                      President,
                      Capital
                      Research and
                      Management
                      Company
-----------------------------------------------------------------------------------------
JANET A.              Senior Vice       Since the fund         15 years       21 years
MCKINLEY              President of      began
                      the fund;         operations*
                      Senior Vice
                      President,
                      Capital
                      Research
                      Company**
-----------------------------------------------------------------------------------------
WILLIAM R.            Senior Vice       Since the fund         27 years       34 years
GRIMSLEY              President and     began
                      Director,         operations*
                      Capital
                      Research and
                      Management
                      Company
-----------------------------------------------------------------------------------------
THIERRY               Chairman of the   Since the fund         34 years       34 years
VANDEVENTER           Board and Chief   began
                      Executive         operations*
                      Officer,
                      Capital
                      Research
                      Company**
-----------------------------------------------------------------------------------------
</TABLE>
    
 * The fund began operations July 1987.
** Company affiliated with Capital Research and Management Company.
 
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8    CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
 
================================================================================
 
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INVESTMENT RESULTS
 
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
 
 
X  TOTAL RETURN is the change in value of an investment in the fund over a
   given period, assuming reinvestment of any dividends and capital gain
   distributions.
 
X  YIELD refers to the income the fund expects to earn based on its current
   portfolio over a given period of time, expressed as an annual percentage
   rate. Because yield is calculated using a formula mandated by the Securities
   and Exchange Commission, this yield may be different than the income
   actually paid to shareholders.
 
X  DISTRIBUTION RATE reflects dividends that were paid by the fund. The
   distribution rate is calculated by annualizing the most recent quarterly
   dividend and dividing by the average price per share over the last 3 months.
 
                               INVESTMENT RESULTS
                     (FOR PERIODS ENDED SEPTEMBER 30, 1996)
 
<TABLE>
<CAPTION>
                  THE FUND       THE FUND
                   AT NET       AT MAXIMUM
                ASSET VALUE   SALES CHARGE/1/ S&P 500/2/
--------------------------------------------------------------------------------
<S>             <C>           <C>             <C>
AVERAGE ANNUAL
TOTAL RETURNS:
 ................................................................................
One year          13.40%           6.88%        20.32%
 ................................................................................
Five years        12.17%          10.85%        15.21%
 ................................................................................
Lifetime/3/       11.93%          11.21%        12.16%
--------------------------------------------------------------------------------
</TABLE> 
   
Yield/1/: 4.08%
Distribution Rate: 4.60%
     
/1/  These fund results were calculated according to a standard formula that is
     required for all stock and bond funds. The maximum sales charge has been
     deducted.
 
/2/  The Standard & Poor's 500 Index represents stocks. This index is unmanaged
     and does not reflect sales charges, commissions or expenses.
 
/3/  The Fund began investment operations on July 30, 1987.
 
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                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS                9
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<PAGE>
 
================================================================================
 
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                             [CHART APPEARS HERE]
 
1988    12.45
1989    19.98
1990     3.89
1991    25.70
1992    10.00
1993    15.28
1994    -2.26
1995    25.05
 
 
Past results are not an indication of future results.
--------------------------------------------------------------------------------
 
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
DIVIDENDS AND DISTRIBUTIONS
 
The fund declares dividends from its net investment income daily and usually
distributes such accrued dividends to shareholders in March, June, September
and December. Capital gains, if any, are usually distributed in December. When
a dividend or capital gain is distributed, the net asset value per share is
reduced by the amount of the payment.
 
FEDERAL TAXES
 
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
 
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all dividends and capital gains paid during
the prior year. Such
 
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10   CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
 
================================================================================
 
distributions may also be subject to state or local taxes. The tax treatment of
redemptions from a retirement plan account may differ from redemptions from an
ordinary shareholder account.
 
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
 
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
 
--------------------------------------------------------------------------------
 
FUND ORGANIZATION AND MANAGEMENT
 
FUND ORGANIZATION AND VOTING RIGHTS
 
The fund, an open-end, diversified management investment company, was organized
as a Maryland corporation in 1987. All fund operations are supervised by the
fund's board of directors who meet periodically and perform duties required by
applicable state and federal laws. Members of the board who are not employed by
Capital Research and Management Company or its affiliates are paid certain fees
for services rendered to the fund as described in the statement of additional
information. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund. The fund does not hold
annual meetings of shareholders. However, significant corporate matters which
require shareholder approval, such as certain elections of board members or a
change in a fundamental investment policy, will be presented to shareholders at
a meeting called for such purpose. Shareholders have one vote per share owned.
At the request of the holders of at least 10% of the shares, the fund will hold
a meeting at which any member of the board could be removed by a majority vote.
 
THE INVESTMENT ADVISER
 
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund.
 
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                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS               11
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
The management fee paid by the fund to Capital Research and Management Company
is composed of a management fee, which may not exceed 0.24% of the fund's
average net assets annually and declines at certain asset levels, and 3% of the
fund's gross investment income. The total management fee paid by the fund for
the previous fiscal year is listed earlier under "Expenses."
 
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's "code of ethics."
 
PLAN OF DISTRIBUTION
 
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
plan were incurred within the preceding 12 months and accrued while the plan is
in effect. The 12b-1 fee paid by the fund for the last fiscal year is listed
earlier under "Expenses."
 
PORTFOLIO TRANSACTIONS
 
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the underwriter, generally referred to as a
concession or discount. On occasion, securities may be purchased directly from
an issuer, in which case no commissions or discounts are paid. In the over-the-
counter market, purchases and sales are transacted directly with principal
market-makers except in those circumstances where it appears better prices and
executions are available elsewhere.
 
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
 
 
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12   CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
 
================================================================================
 
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
 
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
 
                  AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
 
                   CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
                            (8 A.M. TO 8 P.M. ET):
                                 800/421/0180
 
                                     [MAP]
 
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
Fax: 714/671-7080
 
WESTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas 78265-9522
Fax: 210/530-4050
 
EASTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana 46206-6007
Fax: 317/735-6620
 
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia 23501-2280
Fax: 804/670-4773
 
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                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS               13
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
SHAREHOLDER SERVICES
 
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
 
The services described may not be available through some retirement plans. If
you are investing through a retirement plan, you should contact your plan
administrator/trustee about what services are available and with questions
about your account.
 
--------------------------------------------------------------------------------
 
PURCHASING SHARES
 
HOW TO PURCHASE SHARES
 
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, wire, or
bank debit. You may also establish or add to your account by exchanging shares
from any of your other accounts in The American Funds Group. The fund and
American Funds Distributors reserve the right to reject any purchase order.
 
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
 
X Automatic Investment Plan
 
  You may invest monthly or quarterly through automatic withdrawals from your
  bank account.
 
X Automatic Reinvestment
 
  You may reinvest your dividends and capital gain distributions into the
  fund (with no sales charge). This will be done automatically unless you
  elect to have the dividends and/or capital gain distributions paid to you
  in cash.
 
X Cross-Reinvestment
 
  You may invest your dividend and capital gain distributions into any other
  fund in The American Funds Group.
 
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14   CAPITAL INCOME BUILDER, INC. / PROSPECTUS
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<PAGE>
 
================================================================================
 
X Exchange Privilege
 
  You may exchange your shares into other funds in The American Funds Group
  generally with no sales charge. Exchanges of shares from the money market
  funds that were initially purchased with no sales charge will generally be
  subject to the appropriate sales charge. You may also elect to
  automatically exchange shares among any of the funds in The American Funds
  Group. Exchange requests may be made in writing, by telephone including
  American FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
  CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
 
X Retirement Plans
 
  You may invest in the fund through various retirement plans. For further
  information contact your investment dealer or American Funds Distributors.
 
SHARE PRICE
 
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
 
SHARE CERTIFICATES
 
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
 
 
 
--------------------------------------------------------------------------------
                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS               15
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
INVESTMENT MINIMUMS
 
<TABLE>
----------------------------------------------------------------
<S>                                                       <C>
To establish an account                                   $1,000
 For a retirement plan account                            $  250
 For a retirement plan account through payroll deduction  $   25
To add to an account                                      $   50
 For a retirement plan account                            $   25
</TABLE>
 
SALES CHARGES
 
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
                                   SALES CHARGE AS A
                                     PERCENTAGE OF
                                  ..................
                                                              DEALER
                                                NET       CONCESSION AS
                                  OFFERING      AMOUNT    % OF OFFERING
INVESTMENT                         PRICE       INVESTED       PRICE
-----------------------------------------------------------------------
<S>                                <C>         <C>        <C>
Less than $50,000                      5.75%     6.10%         5.00%
 .......................................................................
$50,000 but less than $100,000         4.50%     4.71%         3.75%
 .......................................................................
$100,000 but less than $250,000        3.50%     3.63%         2.75%
 .......................................................................
$250,000 but less than $500,000        2.50%     2.56%         2.00%
 .......................................................................
$500,000 but less than $1 million      2.00%     2.04%         1.60%
 .......................................................................
$1 million or more and certain
other investments described below   see below  see below    see below
</TABLE>
 
PURCHASES NOT SUBJECT TO SALES CHARGES
 
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital
 
--------------------------------------------------------------------------------
16   CAPITAL INCOME BUILDER, INC. / PROSPECTUS
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
Research and Management Company and its affiliated companies are not subject to
a sales charge.
 
ADDITIONAL DEALER COMPENSATION
 
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
 
REDUCING YOUR SALES CHARGE
 
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
 
X Aggregation
 
  Investments that may be aggregated include those made by you, your spouse
  and your children under the age of 21, if all parties are purchasing shares
  for their own account(s), including any business account solely "controlled
  by," as well as any retirement plan or trust account solely for the benefit
  of, these individuals. Investments made for multiple employee benefit plans
  of a single employer or "affiliated" employers may be aggregated provided
  they are not also aggregated with individual accounts. Finally, investments
  made by a common trust fund or other diversified pooled account not
  specifically formed for the purpose of accumulating fund shares may be
  aggregated.
 
  Purchases made for nominee or street name accounts will generally not be
  aggregated with those made for other accounts unless qualified as described
  above.
 
X Concurrent Purchases
 
  You may combine concurrent purchases of two or more funds in The American
  Funds Group, except direct purchases of the money market funds. Shares of
  the money market funds purchased through an exchange, reinvestment or
  cross-reinvestment from a fund having a sales charge do qualify.
 
 
--------------------------------------------------------------------------------
                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS               17
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
X Right of Accumulation
 
  You may take into account the current value of your existing holdings in
  The American Funds Group to determine your sales charge. Direct purchases
  of the money market funds are excluded.
 
X Statement of Intention
 
  You may enter into a non-binding commitment to invest a certain amount in
  non-money market fund shares over a 13-month period. A portion of your
  account may be held in escrow to cover additional sales charges which may
  be due if your total investments over the statement period are insufficient
  to qualify for the applicable sales charge reduction.
 
--------------------------------------------------------------------------------
 
SELLING SHARES
 
HOW TO SELL SHARES
 
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). In addition, you may sell shares in amounts of $50 or
more automatically. If you sell shares through your investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
    
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 15 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's checks) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
     
--------------------------------------------------------------------------------
18   CAPITAL INCOME BUILDER, INC. / PROSPECTUS
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made payable to the registered shareholder(s) and is
mailed to the address of record on the account, provided the address has been
used with the account for at least 15 days. Additional documentation may be
required for sale of shares held in corporate, partnership or fiduciary
accounts.
 
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
--------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
 
AMERICAN FUNDSLINE(R)
 
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
 
TELEPHONE PURCHASES, SALES AND EXCHANGES
 
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
 
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
 
--------------------------------------------------------------------------------
                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS               19
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
 
ACCOUNT STATEMENTS
 
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
 
--------------------------------------------------------------------------------
20  CAPITAL INCOME BUILDER, INC. / PROSPECTUS
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
NOTES
 
 
 
 
 
 
--------------------------------------------------------------------------------
                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS               21
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
NOTES
 
 
--------------------------------------------------------------------------------
22   CAPITAL INCOME BUILDER, INC. / PROSPECTUS
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
NOTES
 
 
 
 
--------------------------------------------------------------------------------
                      CAPITAL INCOME BUILDER, INC. / PROSPECTUS               23
--------------------------------------------------------------------------------
 
<PAGE>
 
================================================================================
 
<TABLE>
<CAPTION>
  FOR SHAREHOLDER                 FOR DEALER                                 FOR 24-HOUR
  SERVICES                        SERVICES                                   INFORMATION
  <S>                             <C>                                        <C>
  American Funds                  American Funds                             American
  Service Company                 Distributors                               FundsLine(R)
  800/421-0180 ext. 1             800/421-9900 ext. 11                       800/325-3590
</TABLE>
 
 Telephone conversations may be recorded or monitored for
 verification, recordkeeping and quality assurance purposes.
 
 --------------------------------------------------------------
 
 OTHER FUND INFORMATION           
 
 ANNUAL/SEMI-ANNUAL               STATEMENT OF ADDITIONAL
 REPORT TO SHAREHOLDERS           INFORMATION (SAI)
                                 
 Includes financial               Contains more detailed          
 statements, detailed             information on all aspects of   
 performance information,         the fund, including the         
 portfolio holdings, a            fund's financial statements.    
 statement from portfolio                                          
 management and the auditor's
 report.
 
                                  A current SAI has been filed
                                  with the Securities and
 CODE OF ETHICS                   Exchange Commission and is
                                  incorporated by reference (is
                                  legally part of the
                                  prospectus).
 
 Includes a description of the
 fund's personal investing
 policy.
 
 
 To request a free copy of any of the documents above:
 
 
 Call American Funds   or         Write to the Secretary 
 Service Company                  of the Fund
 800/421-0180 ext. 1              333 South Hope Street
                                  Los Angeles, CA 90071
 
 
 
 
 This prospectus has been printed on recycled paper.
 
 
                                               [RECYCLE
                                                LOGO]
 
--------------------------------------------------------------------------------
24  CAPITAL INCOME BUILDER, INC. / PROSPECTUS
--------------------------------------------------------------------------------
 
<PAGE>
 
 
                        CAPITAL  INCOME  BUILDER,  INC.
 
                                   PART B
                    STATEMENT OF ADDITIONAL INFORMATION
                             JANUARY 1, 1997
 
This document is not a prospectus but should be read in conjunction with the
current Prospectus of Capital Income Builder, Inc. (the fund or CIB) dated
January 1, 1997.  The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
 
CAPITAL INCOME BUILDER, INC.
ATTENTION:  SECRETARY
333 SOUTH HOPE STREET
LOS ANGELES, CA  90071
(213) 486-9200
 
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
 
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
ITEM                                                         PAGE NO.   
                                                                        
<S>                                                          <C>        
Description of Securities and Investment Techniques                     
                                                             2          
Certain Risk Factors Relating to High-Yield Bonds                       
                                                             4          
Investment Restrictions                                                 
                                                             5          
Fund Directors and Officers                                             
                                                             7          
Management                                                              
                                                             12         
Dividends, Distributions and Federal Taxes                              
                                                             14         
Purchase of Shares                                                      
                                                             17         
Redeeming Shares                                                        
                                                             24         
Shareholder Account Services and Privileges                             
                                                             26         
Redemption of Shares                                                    
                                                             28         
Execution of Portfolio Transactions                                     
                                                             28         
General Information                                                     
                                                             29         
Investment Results                                                      
                                                             30         
Description of Commercial Paper and Bond Ratings                        
                                                             35         
Financial Statements                                         Attached   
</TABLE>
 
              DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
 
THE DESCRIPTIONS BELOW ARE INTENDED TO SUPPLEMENT THE MATERIAL IN THE
PROSPECTUS UNDER "INVESTMENT POLICIES AND RISKS."
 
CURRENCY TRANSACTIONS - The fund may enter into forward currency contracts
("forward contracts") in connection with its investments in securities of
non-U.S. issuers.  A forward contract is an obligation to purchase or sell a
currency against another currency at a future date and price as agreed upon by
the parties.  The fund may either accept or make delivery of the currency at
the maturity of the forward contract or, prior to maturity, enter into a
closing transaction involving the purchase or sale of an offsetting contract. 
The fund engages in forward contracts in anticipation of, or to protect itself
against, fluctuations in exchange rates. The fund might sell a particular
currency forward, for example, when it wanted to hold securities denominated in
that currency but anticipated, and wished to be protected against, a decline in
the currency against the U.S. dollar.  Similarly it might purchase a currency
forward to "lock in" the U.S. dollar price of securities denominated in that
currency which it anticipated purchasing.  Although forward contracts typically
will involve the purchase and sale of a non-U.S. currency against the U.S.
dollar, the fund also may purchase or sell one non-U.S. currency forward
against another non-U.S. currency.
 
PORTFOLIO TRADING - The fund intends to engage in portfolio trading when
Capital Research and Management Company (the "Investment Adviser") believes
that the sale of a security owned by the fund and the purchase of another
security of better value can enhance principal and/or increase income.  A
security may be sold to avoid any prospective decline in market value in light
of what is evaluated as an expected rise in prevailing yields, or a security
may be purchased in anticipation of a market rise (a decline in prevailing
yields).  A security also may be sold and a comparable security purchased
coincidentally in order to take advantage of what is believed to be a disparity
in the normal yield and price relationship between the two securities, or in
connection with a "roll" transaction as described below.
 
LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to lend portfolio
securities to selected securities dealers or to other institutional investors
whose financial condition is monitored by the Investment Adviser.  The borrower
must maintain with the fund's custodian collateral consisting of cash, cash
equivalents or U.S. Government securities equal to at least 100% of the value
of the borrowed securities, plus any accrued interest.  The Investment Adviser
will monitor the adequacy of the collateral on a daily basis.  The fund may at
any time call a loan of its portfolio securities and obtain the return of the
loaned securities.  The fund will receive any interest paid on the loaned
securities and a fee or a portion of the interest earned on the collateral. 
The fund will limit its loans of portfolio securities to an aggregate of
one-third of the value of its total assets, measured at the time any such loan
is made.
 
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities for which payment and delivery for the securities take place at a
future date.  When the fund purchases such securities it assumes the risk of
any decline in value of the securities beginning on the date of the agreement
or purchase.  When the fund sells such securities, it does not participate in
further gains or losses with respect to the securities.  If the other party to
such a transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could experience a loss.
 
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases.
 
The fund will segregate liquid assets which will be marked to market daily in
an amount sufficient to meet its payment obligations in these transactions. 
Although these transactions will not be entered into for leveraging purposes,
to the extent the fund's aggregate commitments under these transactions exceed
its segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk).  Should market values of the fund's portfolio securities decline while
the fund is in a leveraged position, greater depreciation of its net assets
would likely occur than were it not in such a position.  The fund will not
borrow money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations thereunder.
 
The fund also may enter into "roll" transactions, which consist of the sale of
securities together with a commitment (for which the fund typically receives a
fee) to purchase similar, but not identical, securities at a later date.  The
fund intends to to treat roll transactions as two separate transactions: one
involving the purchase of a security and a separate transaction involving the
sale of a security.  Since the fund does not intend to enter into roll
transactions for financing purposes, it may treat these transactions as not
falling within the definition of "borrowing" set forth in Section 2(a)(23) of
the Investment Company Act of 1940.
 
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price.  The seller must
maintain with the fund's custodian collateral equal to at least 100% of the
repurchase price including accrued interest as monitored daily by Capital
Research and Management Company.  If the seller under the repurchase agreement
defaults, the fund may incur a loss if the value of the collareral securing the
repurchase agreement has declined and may occur disposition costs in connection
with liquidating the collateral.  If bankruptcy proceedings are commenced with
respect to the seller, liquidation of the collateral by the fund may be delayed
or limited.
 
REVERSE REPURCHASE AGREEMENTS - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to enter into
reverse repurchase agreements.  A reverse repurchase agreement is the sale of a
security by a fund and its agreement to repurchase the security at a specified
time and price.  The fund will maintain in a segregated account with its
custodian cash, cash equivalents or U.S. Government securities in an amount
sufficient to cover its obligations under reverse repurchase agreements with
broker-dealers (but no collateral is required on reverse repurchase agreements
with banks).  Under the 1940 Act, reverse repurchase agreements may be
considered borrowings by the fund; accordingly, the fund will limit its
investments in reverse repurchase agreements, together with any other
borrowings, to no more than one-third of its total assets.  The use of reverse
repurchase agreements by the fund creates leverage which increases the fund's
investment risk.  If the income and gains on securities purchased with the
proceeds of reverse repurchase agreements exceed the costs of the agreements,
the fund's earnings or net asset value will increase faster than otherwise
would be the case; conversely if the income and gains fail to exceed the costs,
earnings or net asset value would decline faster than otherwise would be the
case. 
 
MATURITY - There are no restrictions on the maturity composition of the
portfolio.  Under normal market conditions, longer term securities yield more
than shorter term securities, but are subject to greater price fluctuations.
 
VARIABLE AND FLOATING RATE OBLIGATIONS - The fund may invest in securities with
interest rates that are not fixed but fluctuate based upon changes in market
rates or designated indexes.  Variable rate obligations have interest rates
that are adjusted at designated intervals, and interest rates on floating rate
obligations are adjusted whenever there are exchanges in the indexes or market
rates on which their interest rates are based.  In some cases the fund has the
ability to demand payment from the dealer or issuer at par plus accrued
interest on short notice (seven days or less).  The effective maturity of a
floating or variable rate obligation is deemed to be the longer of (i) the
notice period required before the fund is entitled to receive payment of the
obligation upon demand or (ii) the period remaining until the obligation's next
interest rate adjustment.  If not sold or redeemed by the fund through the
demand feature, these obligations would mature on a specified date which may
range up to 30 years or more from the date of issuance.
 
               CERTAIN RISK FACTORS RELATING TO HIGH-YIELD BONDS
 
The fund is currently authorized to invest up to 5% of its assets in bonds
rated below Baa by Moody's Investors Service, Inc. or BBB by Standard and
Poor's Corporation (or unrated but determined to be equivalent by the
Investment Adviser).  Certain risk factors relating to investing in below
investment grade securities ("high-yield, high-risk bonds") are discussed
below.
 
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
can be sensitive to adverse economic changes and corporate developments. 
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing.  If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it.  In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
 
PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or
call provisions.  If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors.  Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as it will with all bonds.
 
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds.  Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
 
                            INVESTMENT RESTRICTIONS
 
The fund has adopted the following fundamental policies and investment
restrictions which may not be changed without a majority vote of its
outstanding shares.  Such majority is defined within the 1940 Act as the vote
of the lesser of (i) 67% or more of the outstanding voting securities present
at a meeting, if the holders of more than 50% of the outstanding voting
securities are present in person or by proxy, or (ii) more than 50% of the
outstanding voting securities.  All percentage limitations expressed in the
following investment restrictions are measured immediately after and giving
effect to the relevant transaction.  These restrictions provide that the fund
may not:
 
1. Purchase any security (other than securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) if immediately after and
as a result of such investment, more than 5% of the fund's total assets would
be invested in securities of the issuer; except that, as to 25% of the fund's
total assets, up to 10% of its total assets may be invested in securities
issued or guaranteed as to payment of interest and principal by a foreign
government or its agencies or instrumentalities or by a multinational agency;
 
2. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry;
 
3. Invest in companies for the purpose of exercising control or management;
 
4. Knowingly purchase securities of other management investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
 
5. Buy or sell real estate or commodities or commodity contracts; however, the
fund may invest in debt securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein,
including real estate investment trusts, and may purchase or sell currencies
(including forward currency contracts);
 
6. Acquire securities subject to restrictions on disposition or securities for
which there is no readily available market, or enter into repurchase agreements
or purchase time deposits maturing in more than seven days, if, immediately
after and as a result, the value of such securities would exceed, in the
aggregate, 10% of the fund's total assets;
 
7. Engage in the business of underwriting securities of other issuers, except
to the extent that the disposal of an investment position may technically cause
it to be considered an underwriter as that term is defined under the Securities
Act of 1933;
 
8. Make loans, except that the fund may purchase debt securities, enter into
repurchase agreements and make loans of portfolio securities;
 
9. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;
 
10. Purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
 
11. Borrow money, except from banks for temporary or emergency purposes not in
excess of 5% of the value of the fund's total assets (in the event that the
asset coverage for such borrowings falls below 300%, the fund will reduce,
within three days, the amount of its borrowings in order to provide for 300%
asset coverage), and except that the fund may enter into reverse repurchase
agreements and engage in "roll" transactions, provided that reverse repurchase
agreements, "roll" transactions and any other transactions constituting
borrowing by the fund may not exceed one-third of the fund's total assets;
 
12. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in connection with
any permissible borrowing;
 
13. Purchase or retain the securities of any issuer, if those individual
officers and Directors of the fund, its investment adviser, or distributor,
each owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
 
14. Invest in interests in oil, gas, or other mineral exploration or
development programs;
 
15. Invest more than 5% of its total assets in securities of companies having,
together with their predecessors, a record of less than three years of
continuous operation;
 
16. Write, purchase or sell put options, call options or combinations thereof;
 
A further investment policy of the fund, which may be changed by action of the
Board of Directors without shareholder approval, is that the fund will not
invest in securities of an issuer if the investment would cause the fund to own
more than 10% of any class of securities of any one issuer.
 
With respect to investment restriction number 2, in determining industry
classifications for issuers domiciled outside the U.S., the fund will use
reasonable classifications that are not so broad that the primary economic
characteristic of the companies in a single class are materially different. 
The fund will determine such classifications of issues domiciled outside the
U.S. based on the issuer's principal or major business activities.
 
Notwithstanding investment restriction number 4, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
 
 
FUND DIRECTORS AND OFFICERS
DIRECTORS AND DIRECTOR COMPENSATION 
(with their principal occupations during the past five years)#
 
<TABLE>
<CAPTION>
NAME, ADDRESS AND        POSITION         PRINCIPAL                   AGGREGATE          TOTAL                 TOTAL          
AGE                      WITH             OCCUPATION(S) DURING        COMPENSATION       COMPENSATION          NUMBER         
                         REGISTRANT       PAST 5 YEARS                (INCLUDING         FROM ALL FUNDS        OF FUND        
                                          (POSITIONS WITHIN           VOLUNTARILY        MANAGED BY            BOARDS         
                                          THE ORGANIZATIONS           DEFERRED           CAPITAL               ON             
                                          LISTED MAY HAVE             COMPENSATION       RESEARCH AND          WHICH          
                                          CHANGED DURING THIS         /1/) FROM THE      MANAGEMENT            DIRECTOR       
                                          PERIOD)                     COMPANY            COMPANY/2/            SERVES         
                                                                      DURING FISCAL                                           
                                                                      YEAR ENDED                                              
                                                                      10/31/96                                                
 
<S>                      <C>              <C>                         <C>                <C>                   <C>            
+H. Frederick            Director         Private investor;           $13,450/4/         $145,850              18             
Christie                                  former President and                                                                
P.O. Box 144                              Chief Executive                                                                     
Palos Verdes                              Officer, The Mission                                                                
Estates, CA                               Group (non-utility                                                                  
90274                                     holding company,                                                                    
Age:   63                                 subsidiary of                                                                       
                                          Southern California                                                                 
                                          Edison Company);                                                                    
                                          former President,                                                                   
                                          Southern California                                                                 
                                          Edison Company                                                                      
 
++Paul G. Haaga,         President        Capital Research and        None/3/            None/3/               14             
Jr.                      and              Management Company,                                                                 
333 South Hope           Director         Senior Vice                                                                         
Street                                    President and                                                                       
Los Angeles, CA                           Director                                                                            
90071                                                                                                                         
Age:   48                                                                                                                     
 
Mary Myers               Director         Founder and                 $14,250/4/         $74,350               4              
Kauppila                                  President, Energy                                                                   
One Winthrop                              Investment, Inc.                                                                    
Square                                                                                                                        
Boston, MA 02110                                                                                                              
Age:  42                                                                                                                      
 
++Jon B.                 Chairman         Capital Research and        None/3/            None/3/               4              
Lovelace                 of the           Management Company,                                                                 
333 South Hope           Board            Vice Chairman of the                                                                
Street                                    Board and Chairman                                                                  
Los Angeles, CA                           of the Executive                                                                    
90071                                     Committee                                                                           
Age:   69                                                                                                                     
 
Gail L. Neale            Director         Executive Vice              $13,450/4/         $51,750               4              
Salzburg Seminar                          President of the                                                                    
P.O. Box 616                              Salzburg Seminar;                                                                   
The Marbleworks                           former Director of                                                                  
Middlebury, VT                            Development and the                                                                 
052753                                    Capital Campaign,                                                                   
Age:   61                                 Hampshire College;                                                                  
                                          former Special                                                                      
                                          Advisor, The                                                                        
                                          Commonwealth Fund                                                                   
                                          and Mount Holyoke                                                                   
                                          College                                                                             
 
Robert J. O'Neill        Director         Professor and               $14,250            $33,550               3              
St. Mary's Close                          Fellow, All Souls                                                                   
27 Church Green                           College, University                                                                 
Whitney, OXON                             of Oxford                                                                           
United Kingdom                                                                                                                
Age:   60                                                                                                                     
 
Donald E.                Director         Retired; former             $12,700/4/         $58,600                4             
Petersen                                  chairman of the                                                                     
255 East Brown                            Board and Chief                                                                     
Birmingham, MI                            Executive Officer,                                                                  
48009                                     Ford Motor Company                                                                  
Age:   70                                                                                                                     
 
Frank Stanton            Director         President Emeritus,         $14,750            $27,850               2              
25 W 52nd Street                          CBS, Inc.; Chairman                                                                 
New York, NY                              Emeritus, The                                                                       
10019                                     American Red Cross                                                                  
Age:   88                                                                                                                     
 
Charles Wolf, Jr.        Director         Dean, The RAND              $13,450            $26,050               4              
1700 Main Street                          Graduate School;                                                                    
Santa Monica, CA                          Director,                                                                           
90401                                     International                                                                       
Age:   72                                 Economic Studies,                                                                   
                                          The RAND Corporation                                                                
 
</TABLE>
 
#  Positions within the organizations may have changed during this period.
 
+  May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer. 
 
++  Directors who are considered "interested persons as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), on the basis of
their affiliation with the fund's Investment Adviser, Capital Research and
Management Company.
 
/1/  Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993.  Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
 
/2/  Capital Research and Management Company manages The American Funds Group
consisting of 28 funds:  AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP  World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund Inc.  Capital Research and Management
Company also manages American Variable Insurance Series and Anchor Pathway Fund
which serve as the underlying investment vehicles for certain variable
insurance contracts.
 
/3/  Paul G. Haaga, Jr. and Jon B. Lovelace are affiliated with the Investment
Adviser and, accordingly, receive no compensation from the fund.
 
/4/  Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: H. Frederick Christie ($27,152), Mary Myers Kauppila ($52,339), Gail
L. Neale ($41,632) and Donald E. Petersen ($38,604).  Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the company until paid to the Director.
 
                                    OFFICERS
 
 JON B. LOVELACE, Chairman of the Board (see above).
 
 PAUL G. HAAGA, JR., President (see above).
 
* LARRY P. CLEMMENSEN, Senior Vice President 
 Senior Vice President and Director, Capital Research and Management Company. 
President, The Capital Group Companies, Inc.
 
* JAMES B. LOVELACE, Vice President.  
  Executive Vice President, Capital Research and Management Company.
 
 JANET A. MCKINLEY, Vice President.  630 Fifth Avenue, New York, NY  10111.
  Senior Vice President, Capital Research Company.
 
*  CATHERINE M. WARD, Vice President.
 Senior Vice President and Director, Capital Research and Management Company.
 
* VINCENT P. CORTI, Secretary.
 Vice President - Fund Business Management Group, Capital Research and
Management Company.
 
** R. MARCIA GOULD, Treasurer.
  Vice President - Fund Business Management Group, Capital Research and
Management Company.
__________________________________
 
* Address is 333 South Hope Street, Los Angeles, CA  90071.
 
** Address is 135 South State College Boulevard, Brea, CA  92821.
 
All of the Directors and Officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Managment Company serves as Investment Adviser.  No compensation is paid by the
fund to any Director or Officer who is a director, officer or employee of the
Investment Adviser or affiliated companies.  The compensation paid by the fund
to unaffiliated Directors is $9,000 per annum, plus $750 for each Board of
Directors meeting attended, plus $400 for each meeting attended as a member of
a committee of the Board of Directors.  No pension or retirement benefits are
accrued as part of fund expenses.  The Directors may elect, on a voluntary
basis, to defer all or a portion of their fees through a deferred compensation
plan in effect for the fund.  The fund also reimburses certain expenses of the
Directors who are not affiliated with the Investment Adviser.  As of December
1, 1996, the Directors and Officers and their families as a group, owned
beneficially or of record less than 1% of the outstanding shares of the fund.
 
                                   MANAGEMENT
 
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience.  The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. 
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world.  The Investment Adviser believes that it is able to attract and
retain quality personnel.  The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
 
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information on more
than 2,400 companies around the world.
 
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types.  These investors include privately owned businesses and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
 
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser, dated
March 1, 1995, will continue in effect until October 31, 1996 unless sooner
terminated, and may be renewed from year to year thereafter, provided that any
such renewal has been specifically approved at least annually by (i) the Board
of Directors, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
Directors who are not parties to the Advisory Agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval.  The Agreement provides that
the Investment Adviser has no liability to the fund for its acts or omissions
in the performance of its obligations to the fund not involving willful
misconduct, bad faith, gross negligence or reckless disregard of its
obligations under the Agreement.  The Agreement also provides that either party
has the right to terminate, without penalty, upon 60 days' written notice to
the other party and that the Agreement automatically terminates in the event of
its assignment (as defined in the 1940 Act).
 
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of
qualified persons to perform the executive and related administrative functions
of the fund, provides necessary office space, all necessary office equipment
and telephone facilities and utilities, and general purpose forms, supplies,
stationery and postage used at the office of the fund relating to the services
furnished by the Investment Adviser.  The fund will pay all expenses not
expressly assumed by the Investment Adviser, including, but not limited to,
compensation and expenses of Directors who are not affiliated persons of the
Investment Adviser; fees and expenses of the transfer agent, dividend
disbursing agent, legal counsel and independent public accountants and
custodian, including charges of such custodian for the preparation and
maintenance of the books of account and records of the fund and the daily
determination of the fund's net asset value per share, costs of designing,
printing, and mailing reports, prospectuses, proxy statements and notices to
shareholders; fees and expenses of sale (including federal and state
registration and qualification), issuance (including costs of any share
certificates) and redemption of shares; expenses pursuant to the fund's Plan of
Distribution (described below); association dues; interest; and taxes.  The
management fee is based on an annual rate of 0.24% of the first $1 billion of
average net assets; 0.20% of such assets in excess of $1 billion but not
exceeding $2 billion; 0.18% of such assets in excess of $2 billion but not
exceeding $3 billion; 0.165% of such assets in excess of $3 billion but not
exceeding $5 billion; 0.155% of such assets in excess of $5 billion but not
exceeding $8 billion; and 0.15% of such assets in excess of $8 billion; plus
3.0% of the fund's gross investment income.  Assuming net assets of  $4.5
billion and gross investment income levels of 4%, 5%, 6%, 7% and 8%, management
fees would be 0.31%, 0.34%, 0.37%, 0.40% and 0.43%, respectively.
 
Only one state (California) continues to impose expense limitations on funds
registered for sale therein.  The California provision currently limits annual
expenses to the sum of 2-1/2% of the first $30 million of average net assets,
2% of the next $70 million and 1-1/2% of the remaining average net assets. 
Rule 12b-1 distribution plan expenses would be excluded from this limit. 
Expenditures, including costs incurred in connection with the purchase or sale
of portfolio securities, which are capitalized in accordance with generally
accepted accounting principles applicable to investment companies, are
accounted for as capital items and not as expenses.  The fund might be eligible
to exclude certain additional expenses, such as expenses of maintaining foreign
custody of certain of its portfolio securities, or to obtain a waiver of such
limit in its entirety.
 
During the fiscal years ended October 31, 1996, 1995 and 1994, the Investment
Adviser's total fees amounted to $18,213,000, $14,623,000, and $12,937,000,
respectively.
 
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares.  The principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513.  The fund has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act.  The
Principal Underwriter receives amounts payable pursuant to the Plan (described
below) and commissions consisting of that portion of the sales charge remaining
after the discounts which it allows to investment dealers.  Commissions
retained by the Principal Underwriter on sales of fund shares during the fiscal
year ended October 31, 1996 amounted to $4,007,000 after allowance of
$20,341,000 to dealers.  During the fiscal years ended October 31, 1995 and
1994 the Principal Underwriter retained $3,768,000 and $6,152,000 respectively.
 
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors and separately by a
majority of the Directors who are not "interested persons" of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund.  The
Directors and Officers who are "interested persons" of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies.  Potential benefits of the Plan to the fund are improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization.  The selection and nomination of Directors who
are not "interested persons" of the fund are committed to the discretion of the
Directors who are not "interested persons" during the existence of the Plan. 
The Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
 
Under the Plan the fund may expend up to 0.30% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the fund's Board of Directors has approved the
category of expenses for which payment is being made.  These include service
fees for qualified dealers and dealer commissions and wholesaler compensation
on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees).  Only expenses incurred
during the preceding 12 months and accrued while the Plan is in effect may be
paid by the fund.  During the fiscal year ended October 31, 1996, the fund paid
$10,741,000 under the Plan.
 
The Glass-Stegall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions.  However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities.  If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought.  In such event, changes in the operation of
the fund might occur and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank.  It is not expected that shareholders would suffer
adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
 
                   DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
 
The fund intends to meet all the requirements and has elected the tax status of
a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the Code).  Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its investment
company taxable income it will be taxed only on that portion, if any, of the
investment company taxable income which it retains.
 
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of stock or securities held for less than three
months; and (c) diversify its holdings so that at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, U.S. Government securities and other securities which must
be limited, in respect of any one issuer, to an amount not greater than 5% of
the fund's assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies), or in two or more issuers
which the fund controls and which are engaged in the same or similar trades or
businesses or related trades or businesses.
 
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year.  The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods.  The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends, to the extent practicable, to meet these
distribution requirements to minimize or avoid the excise tax liability.
 
Distributions of investment company taxable income, including short-term
capital gains, generally are taxable to the shareholder as ordinary income,
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the fund.  The fund also intends to continue distributing
to shareholders all of the excess of net long-term capital gain over net
short-term capital loss on sales of securities.  A capital gain distribution,
whether paid in cash or reinvested in shares, is taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has
held the shares or whether such gain was realized by the fund before the
shareholder acquired such shares and was reflected in the price paid for the
shares.
 
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.  Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
 
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a "non-U.S. shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate).  Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens or domestic corporations will apply. 
Distributions of capital gains not effectively connected with a U.S. trade or
business are not subject to the withholding, but if the non-U.S. shareholder
was an individual who was physically present in the U.S. during the tax year
for more than 182 days and such shareholder is nonetheless treated as a
nonresident alien, the distributions would be subject to a 30% tax.
 
Under the Code, a fund's taxable income for each year will be computed without
regard to any net foreign currency loss attributable to transactions after
October 31, and any such net foreign currency loss will be treated as arising
on the first day of the following taxable year.
 
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gain is 28%; and the maximum corporate tax applicable to ordinary
income and net capital gain is 35%.  (However, to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have income in
excess of $100,000 for a taxable year will be required to pay an additional
amount of tax up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of tax up to $100,000).  Naturally, the amount of tax payable by an
individual will be affected by a combination of tax law rules covering, e.g.,
deductions, credits, deferrals, exemptions, sources of income and other
matters.  Under the Code, an individual is entitled to establish an IRA each
year (prior to the tax return filing deadline for that year) whereby earnings
on investments are tax-deferred. In addition, in some cases, the IRA
contribution itself may be deductible.
 
The foregoing is limited to a summary discussion of federal taxation and should
not be viewed as a comprehensive discussion of all provisions of the Code
relevant to investors.  Dividends and capital gain distributions may also be
subject to state or local taxes.  Shareholders should consult their own tax
advisers for additional details as to their particular tax status.
 
 
                               PURCHASE OF SHARES
 
<TABLE>
<CAPTION>
<S>              <C>                               <C>                                
METHOD           INITIAL INVESTMENT                ADDITIONAL INVESTMENTS             
 
                 See "Investment Minimums          $50 minimum (except where a lower   
                 and Fund Numbers" for initial     minimum is noted under "Investment   
                 investment minimums.              Minimums and Fund Numbers").       
 
By contacting    Visit any investment dealer       Mail directly to your investment dealer's   
your investment   who is registered in the state   address printed on your account    
dealer           where the purchase is made        statement.                         
                 and who has a sales                                            
                 agreement with American                                        
                 Funds Distributors.                                            
 
By mail          Make your check payable to        Fill out the account additions form at   
                 the fund and mail to the          the bottom of a recent account     
                 address indicated on the          statement, make your check payable to   
                 account application.  Please      the fund, write your account number on   
                 indicate an investment dealer     your check, and mail the check and   
                 on the account application.       form in the envelope provided with your   
                                                   account statement.                 
 
By telephone     Please contact your               Complete the "Investments by Phone"   
                 investment dealer to open         section on the account application or   
                 account, then follow the          American FundsLink Authorization   
                 procedures for additional         Form.                              
                 investments.                      Once you establish the privilege, you,   
                                                   your financial advisor or any person   
                                                   with your account information can call   
                                                   American FundsLine(R) and make     
                                                   investments by telephone (subject to   
                                                   conditions noted in "Telephone     
                                                   Purchases, Redemptions and         
                                                   Exchanges" below).                 
 
By wire          Call 800/421-0180 to obtain       Your bank should wire your additional   
                 your account number(s), if        investments in the same manner as   
                 necessary.  Please indicate       described under "Initial Investment."   
                 an                                                             
                 investment dealer on the                                       
                 account.  Instruct your bank                                      
                 to                                                             
                 wire funds to:                                                 
                 Wells Fargo Bank                                               
                 155 Fifth Street                                               
                 Sixth Floor                                                    
                 San Francisco, CA 94106                                        
                 (ABA #121000248)                                               
                 For credit to the account of:                                      
                 American Funds Service                                         
                 Company                                                        
                 a/c #4600-076178                                               
                 (fund name)                                                    
                 (your fund acct. no.)                                          
 
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE                                                  
               
ORDER.                                                                          
 
</TABLE>
 
 
Investment Minimums and Fund Numbers - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(R) (see description
below):
 
<TABLE>
<CAPTION>
<S>                                          <C>                     <C>         
FUND                                         MINIMUM                 FUND        
                                             INITIAL                 NUMBER      
                                             INVESTMENT                          
STOCK AND STOCK/BOND FUNDS                                                       
AMCAP Fund(R)                                                        02          
                                             $1,000                              
American Balanced Fund(R)                                            11          
                                             500                                 
American Mutual Fund(R)                                              03          
                                             250                                 
Capital Income Builder(R)                                            12          
                                             1,000                               
Capital World Growth and Income Fund(SM)                             33          
                                             1,000                               
EuroPacific Growth Fund(R)                                           16          
                                             250                                 
Fundamental Investors(SM)                                            10          
                                             250                                 
The Growth Fund of America(R)                                        05          
                                             1,000                               
The Income Fund of America(R)                                        06          
                                             1,000                               
The Investment Company of America(R)                                 04          
                                             250                                 
The New Economy Fund(R)                                              14          
                                             1,000                               
New Perspective Fund(R)                                              07          
                                             250                                 
SMALLCAP World Fund(R)                                               35          
                                             1,000                               
Washington Mutual Investors Fund(SM)                                 01          
                                             250                                 
BOND FUNDS                                                                       
American High-Income Municipal Bond Fund(R)                            40          
                                             1,000                               
American High-Income Trust(SM)                                       21          
                                             1,000                               
The Bond Fund of America(SM)                                         08          
                                             1,000                               
Capital World Bond Fund(R)                                           31          
                                             1,000                               
Intermediate Bond Fund of America(SM)                                23          
                                             1,000                               
Limited Term Tax-Exempt Bond Fund of                                 43          
America(SM)                                  1,000                               
The Tax-Exempt Bond Fund of America(R)                               19          
                                             1,000                               
The Tax-Exempt Fund of California(R)*                                20          
                                             1,000                               
The Tax-Exempt Fund of Maryland(R)*                                  24          
                                             1,000                               
The Tax-Exempt Fund of Virginia(R)*                                  25          
                                             1,000                               
U.S. Government Securities Fund(SM)                                  22          
                                             1,000                               
MONEY MARKET FUNDS                                                               
The Cash Management Trust of America(R)                              09          
                                             2,500                               
The Tax-Exempt Money Fund of America(SM)                             39          
                                             2,500                               
The U.S. Treasury Money Fund of America(SM)                            49          
                                             2,500                               
___________                                                                      
*Available only in certain states.                                               
</TABLE>
 
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs).  Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group.  TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS.  The minimum is $50 for
additional investments (except as noted above).
 
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below. 
The money market funds of The American Funds Group are offered at net asset
value.  (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
 
<TABLE>
<CAPTION>
<S>                              <C>              <C>              <C>              
AMOUNT OF PURCHASE               SALES CHARGE AS                   DEALER           
AT THE OFFERING PRICE            PERCENTAGE OF THE:                CONCESSION       
                                                                   AS PERCENTAGE    
                                                                   OF THE           
                                                                   OFFERING         
                                                                   PRICE            
                                 NET AMOUNT       OFFERING                          
                                 INVESTED         PRICE                             
STOCK AND STOCK/BOND FUNDS                                                          
Less than $50,000                                                                   
                                 6.10%            5.75%            5.00%            
$50,000 but less than $100,000                                                       
                                 4.71             4.50             3.75             
BOND FUNDS                                                                          
Less than $25,000                                                                   
                                 4.99             4.75             4.00             
$25,000 but less than $50,000                                                       
                                 4.71             4.50             3.75             
$50,000 but less than $100,000                                                       
                                 4.17             4.00             3.25             
STOCK, STOCK/BOND, AND BOND                                                         
FUNDS                                                                               
$100,000 but less than $250,000                                                       
                                 3.63             3.50             2.75             
$250,000 but less than $500,000                                                       
                                 2.56             2.50             2.00             
$500,000 but less than $1,000,000                                                       
                                 2.04             2.00             1.60             
$1,000,000 or more                                                       
                                 none             none             (see below)
 
</TABLE>
 
 
 
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million,    0.80% on amounts over $2 million to $3 million, 0.50% on 
amounts over $3 million to $50 million, 0.25% on amounts over $50 million to
$100 million, and 0.15% on amounts over $100 million.  The level of dealer   
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
 
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
 
Any employer-sponsored 403(b) plan or defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees or any other purchaser investing at least $1 million
in shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares at
net asset value; however, a contingent deferred sales charge of 1% is imposed
on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
 
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services.  These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
 
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
 
STATEMENT OF INTENTION -  The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the
"Statement") terms.  The Statement is not a binding obligation to purchase the
indicated amount.  When a shareholder elects to utilize a Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
Transfer Agent.  All dividends and any capital gain distributions on shares
held in escrow will be credited to the shareholder's account in shares (or paid
in cash, if requested).  If the intended investment is not completed within the
specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the sales
charge which would have been paid if the total of such purchases had been made
at a single time.  If the difference is not paid within 45 days after written
request by the Principal Underwriter or the securities dealer, the appropriate
number of shares held in escrow will be redeemed to pay such difference.  If
the proceeds from this redemption are inadequate, the purchaser will be liable
to the Principal Underwriter for the balance still outstanding.  The Statement
may be revised upward at any time during the 13-month period, and such a
revision will be treated as a new Statement, except that the 13-month period
during which the purchase must be made will remain unchanged and there will be
no retroactive reduction of the sales charges paid on prior purchases. 
Existing holdings eligible for rights of accumulation (see the prospectus and
account application) may be credited toward satisfying the Statement.  During
the Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
 
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows:  The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5.  The
current value of existing American funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above.  The sum is the Statement amount and
applicable breakpoint level.  On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined.  There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
 
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
 
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
 
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company (the "Transfer Agent"); this offering price is effective for
orders received prior to the time of determination of the net asset value and,
in the case of orders placed with dealers, accepted by the Principal
Underwriter prior to its close of business.  In case of orders sent directly to
the fund or American Funds Service Company, an investment dealer MUST be
indicated. The dealer is responsible for promptly transmitting purchase orders
to the Principal Underwriter.  Orders received by the investment dealer, the
Transfer Agent, or the fund after the time of the determination of the net
asset value will be entered at the next calculated offering price.  Any prices
which appear in the newspaper are not always indicative of prices at which you
will be purchasing and redeeming shares of the fund, since share prices
generally reflect the previous day's closing price whereas purchases and
redemptions are made at the next calculated price.
 
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York Time) each day the New York Stock Exchange is
open.  The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day.  The net asset
value per share is determined as follows:
 
1. Equity securities, including ADR's and EDR's, which are traded on stock
exchanges, are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price.  In
cases where equity securities are traded on more than one exchange, the
securities are valued on the exchange determined by the officers of the fund to
be the primary market.  Equity securities traded in the over-the-counter market
are valued at the last reported sale price prior to the time of valuation or,
lacking any sales, at the last reported bid price.  
 
2. Fixed-income obligations with remaining maturities in excess of 60 days are
valued at the mean of representative quoted bid or asked prices for such
securities or, if such prices are not available, at prices for securities of
comparable maturity, quality and type; however, in circumstances where the
Investment Adviser deems it appropriate to do so, prices obtained for the day
of valuation from a bond pricing service will be used.  Short-term securities
with 60 days or less remaining to maturity are amortized to maturity based on
their cost to the fund if acquired within 60 days of maturity or, if already
held by the fund on the 60th day, based on the value determined on the 61st
day.
  
3. Where market quotations or prices obtained from a pricing service are not
readily available, securities are valued at fair value pursuant to methods
approved by the Board of Directors.  Where the primary market for a security
has closed prior to the close of the New York Stock Exchange, events that might
affect the values of portfolio securities occurring between the time its price
has been determined and the close of the New York Stock Exchange need not be
reflected in the fund's valuation unless the Board of Directors has determined
that the particular event would materially affect net asset value, in which
case an adjustment will be made.   The fair value of all other assets is added
to the value of securities and options to arrive at total assets.
 
4. The value of each security denominated in a currency other than U.S. dollars
will be translated into U.S. dollars at the prevailing market rate as
determined by the fund's officers.
 
5. There are deducted from the total assets, thus determined, the liabilities,
including proper accruals of taxes and other expense items.
 
6. The net assets so obtained are then divided by the total number of shares of
capital stock outstanding (excluding treasury shares), and the result, rounded
to the nearer cent, is the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or by the fund. 
The fund will not knowingly sell shares (other than for the reinvestment of
dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially directly, indirectly, or through a unit investment trust more than
4.5% of the outstanding shares of the fund without the consent of a majority of
the Board of Directors.
 
 
                                REDEEMING SHARES
 
<TABLE>
<CAPTION>
<S>                             <C>                                                
By writing to American          Send a letter of instruction specifying the name of the fund,   
Funds Service Company (at       the number of shares or dollar amount to be sold, your   
the appropriate address         name and account number.  You should also enclose any   
indicated under "Principal      share certificates you wish to redeem.  For redemptions   
Underwriter and Transfer        over $50,000 and for certain redemptions of $50,000 or less   
Agent" in the prospectus)       (see below), your signature must be guaranteed by a bank,   
                                savings association, credit union, or member firm of a   
                                domestic stock exchange or the National Association of   
                                Securities Dealers, Inc. that is an eligible guarantor   
                                institution.  You should verify with the institution that it is an   
                                eligible guarantor prior to signing.  Additional documentation   
                                may be required for redemption of shares held in corporate,   
                                partnership or fiduciary accounts.  Notarization by a Notary   
                                Public is not an acceptable signature guarantee.   
 
By contacting your              If you redeem shares through your investment dealer, you   
investment dealer               may be charged for this service.  SHARES HELD FOR YOU IN   
                                YOUR INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED   
                                THROUGH THE DEALER.                                
 
You may have a                  You may use this option, provided the account is registered   
redemption check sent to        in the name of an individual(s), a UGMA/UTMA custodian,   
you by using American           or a non-retirement plan trust.  These redemptions may not   
FundsLine(R) or by              exceed $10,000 per day, per fund account and the check   
telephoning, faxing, or         must be made payable to the shareholder(s) of record and   
telegraphing American           be sent to the address of record provided the address has   
Funds Service Company           been used with the account for at least 10 days.  See   
(subject to the conditions      "Principal Underwriter and Transfer Agent" in the prospectus   
noted in this section and in    and "Exchange Privilege" below for the appropriate   
"Telephone Purchases,           telephone or fax number.                           
Redemptions and                                                              
Exchanges" below)                                                            
 
In the case of the money        Upon request (use the account application for the money   
market funds, you may           market funds) you may establish telephone redemption   
have redemptions wired to       privileges (which will enable you to have a redemption sent   
your bank by telephoning        to your bank account) and/or check writing privileges.  If you   
American Funds Service          request check writing privileges, you will be provided with   
Company ($1,000 or more)        checks that you may use to draw against your account.    
or by writing a check ($250     These checks may be made payable to anyone you     
or more)                        designate and must be signed by the authorized number of   
                                registered shareholders exactly as indicated on your   
                                checking account signature card.                   
 
</TABLE>
 
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
 
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares.  Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge.  The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
 
                  SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
 
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts.  With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select.  Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly.  Participation in the plan will begin within 30 days after
receipt of the account application.  If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed. 
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
 
AUTOMATIC REINVESTMENT  - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application.  You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
 
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder.  These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
 
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
 
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) (see "American FundsLine(R)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Principal Underwriter and Transfer Agent" 
in the prospectus for the appropriate fax numbers) or telegraphing American
Funds Service Company. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
 
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
 
AUTOMATIC WITHDRAWALS -  Withdrawal payments are not to be considered as
dividends, yield or income.  Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals.  Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account.  The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
 
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
 
AMERICAN FUNDSLINE(R) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(R). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone.  Redemptions and exchanges through American
FundsLine(R) are subject to the conditions noted above and in "Redeeming
Shares--Telephone Redemptions and Exchanges" below. You will need your fund
number (see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
 
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(R)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
 
                              REDEMPTION OF SHARES
 
The fund's Articles of Incorporation permit the fund to direct the Transfer
Agent to redeem the shares of any shareholder if the shares owned by such
shareholder through redemptions have a value of less than $1,000 (determined,
for this purpose only as the greater of the shareholder's cost or the current
net asset value of the shares, including any shares acquired through the
reinvestment of income dividends and capital gain distributions).  Prior notice
of at least 60 days will be given to a shareholder before the involuntary
redemption provision is made effective with respect to the shareholder's
account.  The shareholder will have not less than 30 days from the date of such
notice within which to bring the account up to the minimum determined as set
forth above.  While payment of redemptions normally will be in cash, the fund's
Articles of Incorporation permit payment of the redemption price wholly or
partly in securities or other property included in the assets belonging to the
fund when in the opinion of the fund's Board of Directors, which shall be
conclusive, conditions exist which make payment wholly in cash unwise or
undesirable.
 
                      EXECUTION OF PORTFOLIO TRANSACTIONS
 
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser.  The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions.  When circumstances relating to a proposed
transaction indicate that a particular broker is in a position to obtain the
best price and execution, the order is placed with that broker.  This may or
may not be a broker who has provided investment research, statistical, or other
related services to the Investment Adviser or has sold shares of the fund or
other funds served by the Investment Adviser.  The fund does not consider that
it has an obligation to obtain the lowest available commission rate to the
exclusion of price, service and qualitative considerations.
 
The fund is required to disclose information regarding investments in the
securities of broker-dealers which have certain relationships with the fund. 
During the last fiscal year, the fund held certain debt securities of some of
its regular brokers and dealers or their parents that derive more than 15% of
gross revenues from securities-related activities which included securities of
American Express Credit Corp. ($46,101,000) and General Electric Capital Corp.
($68,506,000).
 
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other of the funds served by the Investment Adviser, or for trusts
or other accounts served by affiliated companies of the Investment Adviser. 
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund.  When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.  The fund will not pay a mark-up for
research in principal transactioins.
 
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended October 31, 1996, 1995
and 1994 amounted to $2,365,000, $1,244,000, and $2,234,000 respectively.
 
                              GENERAL INFORMATION
 
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY 
10081, as Custodian.  Non-U.S. securities may be held by the Custodian pursuant
to sub-custodial arrangements in non-U.S. banks or foreign branches of U.S.
banks.
 
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions.  American Funds Service Company was paid a fee
of $3,396,000 for the fiscal year ended October 31, 1996.
 
INDEPENDENT ACCOUNTANTS - Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA  90071, has served as the fund's independent accountants since the
fund's inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission.  The financial statements, included in this Statement of Additional
Information from the Annual Report, have been so included in reliance on the
report of Price Waterhouse LLP given on the authority of said firm as experts
in auditing and accounting.
 
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors.  The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust.  Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
 
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on October 31. 
Shareholders are provided, at least semiannually, with reports showing the
investment portfolio, financial statements and other information.  The fund's
annual financial statements are audited by the fund's independent accountants,
Price Waterhouse LLP, whose selection is determined annually by the Board of
Directors.
 
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines.  This policy includes:  a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.  You may obtain a summary of
the personal investing policy by contacting the Secretary of the fund.
 
The financial statements including the investment portfolio and report of
Independent Accountants contained in the Annual Report are included in this
Statement of Additional Information.  The following information is not included
in the Annual Report:
 
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND                        
MAXIMUM OFFERING PRICE PER SHARE -- OCTOBER 31, 1996                          
                                                                              
<S>                                                          <C>              
  Net asset value and redemption price per share             $ 39.70          
   (Net assets divided by shares outstanding)                                 
 
  Maximum offering price per share (100/94.25 of per share   $ 42.12          
   net asset value, which takes into account the                              
   fund's current maximum sales charge)                                       
 
</TABLE>
 
                               INVESTMENT RESULTS
 
The fund's 3.94% yield is based on a 30-day (or one month) period ended October
31, 1996 computed by dividing the net investment income per share earned during
the period by the maximum offering price per share on the last day of the
period, according to the following formula:
 
                         YIELD = 2[( a-b/cd + 1)/6/ -1]
 
 Where: a =dividends and interest earned during the period.
        b = expenses accrued for the period (net of reimbursements).
        c = the average daily number of shares outstanding during the period   
            that were entitled to receive dividends.
        d = the maximum offering price per share on the last day of the period.
 
The fund's average annual total return for the one- and five-year periods 
ending October 31, 1996 was 10.05% and 11.52%, respectively.  In addition, the
lifetime average annual total return was 11.51%.  The average annual total
return ("T") is computed by equating the value at the end of the period ("ERV")
with a hypothetical initial investment of $1,000 ("P") over a period of years
("n") according to the following formula as required by the Securities and
Exchange Commission:  P(1+T)/n/ = ERV.
 
To calculate total return, an initial investment is divided by the offering
price (which includes the sales charge) as of the first day of the period in
order to determine the initial number of shares purchased.  Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Directors.  The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value.  The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return.  The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the period.  Total return may be calculated for one year, five years and
for other periods of years.  The average annual total return over periods
greater than one year also may be computed by utilizing ending values as
determined above.
 
The following assumptions will be reflected in computations made in accordance
with the formula stated above:  (1) deduction of the maximum sales charge of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.  The
fund may also calculate a distribution rate on a taxable and tax equivalent
basis.  The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months.  The
distribution rate may differ from the yield.
 
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation.  Consequently,
total return calculated in this manner will be higher.  Total return for the
unmanaged indices will be calculated assuming reinvestment of dividends and
interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
 
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard and Poor's 500 Composite Stock
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
 
The fund may also refer to results compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services and
Wiesenberger Investment Companies Services.  Additionally, the fund may, from
time to time, refer to results published in various periodicals, including
BARRON'S, FORBES, FORTUNE, INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE
MAGAZINE, MONEY, U.S. NEWS AND WORLD REPORT, and THE WALL STREET JOURNAL.
 
The fund may from time to time illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
 
The fund may also from time to time compare its investment results with the
following:
 
 (1) Average of Savings Institutions deposits, which is a measure of all kinds
of savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions).  Savings deposits offer a
guaranteed rate of return on principal, but no opportunity for capital growth. 
The period shown may include periods during which the maximum rates paid on
some savings deposits were fixed by law.
 
 (2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g. food,
clothing, shelter and fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines and other goods and services that
people buy for day-to-day living).
The fund may also, from time to time, refer to statistics compiled by the U.S.
Department of Commerce.
 
EXPERIENCE OF THE INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old.  In the 10-year
periods since January 1, 1966 (121 in all), those funds have had better total
returns than the Standard and Poor's 500 Stock Composite Index in  94 of the
121 periods.
 
Note that past results are not an indication of future investment results. 
Also, the fund has different investment policies than some of the funds
mentioned above.  These results are included solely for the purpose of
informing investors about the experience and history of Capital Research and
Management Company.
 
The investment results set forth below were calculated as described in the
fund's prospectus.
 
<TABLE>
<CAPTION>
CIB VS. VARIOUS UNMANAGED INDICES                                                    
                                                                          
Lifetime                   CIB            DJIA/1/            S&P 500/2/   
                                                                          
<S>                      <C>              <C>                <C>          
1987*- 10/31/96          +174.1%          +215.5%            +194.0%      
</TABLE>
 
                                                         
 (*Since inception 7/30/87)
 
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
 
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange.  Selected
issues traded on the American Stock Exchange are also included.
 
                Illustration of a $10,000 investment in CIB with  
       dividends reinvested and capital gain distributions taken in shares
            (for the period July 30, 1987 through October 31, 1996)
 
<TABLE>
<CAPTION>
COST OF SHARES                                                            VALUE OF SHARES                                           
                              
                                                                                                                                   
Year                                             Total                               From            From                          
Ended               Annual        Dividends      Investment           From Initial   Capital Gains   Dividends      Total          
October 31          Dividends     (cumulative)   Cost                 Investment     Reinvested      Reinvested     Value          
                                                                                                                                   
<S>           <C>   <C>           <C>            <C>            <C>   <C>            <C>             <C>            <C>            
1987          #    $92           $92            $10,092              $8,842          -               $87            $8,929         
1988                494           586            10,586               9,429          -               600            10,029         
1989                556           1,142          11,142               10,437         -               1,252          11,689         
1990                633           1,775          11,775               9,737          -               1,765          11,502         
1991                708           2,483          12,483               11,946         -               2,912          14,858         
1992                792           3,275          13,275               12,821         $130            3,942          16,893         
1993                881           4,156          14,156               14,342         212             5,343          19,897         
1994                975           5,131          15,131               13,617         267             6,052          19,936         
 1995               1,079         6,210          16,210               15,112         367             7,888          23,367         
1996                1,199         7,409          17,409               16,669         757             9,983          27,409         
</TABLE>
 
# From July 30, 1987
The dollar amount of capital gain distributions during the period was $631.
 
 
                DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
 
COMMERCIAL PAPER RATINGS - MOODY'S INVESTORS SERVICE, INC. employs the
designations "Prime-1," "Prime-2" and "Prime-3" to indicate commercial paper
having the highest capacity for timely repayment.  Issuers rated Prime-1 have a
superior capacity for repayment of short-term promissory obligations.  Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.  Issues rated Prime-2 have a strong capacity for repayment
of short-term promissory obligations.  This will normally be evidenced by many
of the characteristics cited above, but to a lesser degree.  Earnings trends
and coverage ratios, while sound, will be more subject to variation. 
Capitalization characteristics, while still appropriate, may be more affected
by external conditions.  Ample alternate liquidity is maintained.
 
STANDARD & POOR'S CORPORATION'S ratings of commercial paper are graded into
four categories ranging from "A" for the highest quality obligations to "D" for
the lowest.  A -- Issues assigned its highest rating are regarded as having the
greatest capacity for timely payment.  Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety.  A-1 --
This designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong.  Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation.  A-2 -- Capacity for timely payments on issues with this
designation is strong;  however, the relative degree of safety is not as high
as for issues designated "A-1."
 
CORPORATE DEBT SECURITIES - MOODY'S INVESTORS SERVICE, INC. rates the long-term
debt securities issued by various entities from "Aaa" to "C".
 
"AAA -- Best quality.  These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge."  Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure.  While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
 
"AA -- High quality by all standards.  They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
 
"A -- Upper medium grade obligations.  These bonds possess many favorable
investment attributes.  Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
 
"BAA -- Medium grade obligations.  Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time.  Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
 
"BA -- Have speculative elements; future cannot be considered as well assured. 
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future. 
Bonds in this class are characterized by uncertainty of position."
 
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
 
"CAA -- Of poor standing.  Issues may be in default or there may be present
elements of danger with respect to principal or interest."
 
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
 
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
 
"AAA -- Highest rating.  Capacity to pay interest and repay principal is
extremely strong."
 
"AA -- High grade.  Very strong capacity to pay interest and repay principal. 
Generally, these bonds differ from AAA issues only in a small degree."
 
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
 
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal.  These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
 
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation.  BB indicates the lowest degree of speculation and C
the highest degree of speculation.  While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
 
"C1 -- Reserved for income bonds on which no interest is being paid."
 
<PAGE>
<TABLE>
<S>                                                        <C>              <C>           <C>
CAPITAL INCOME BUILDER
Investment Portfolio October 31, 1996
                                                                                           Percent of
Largest Individual Holdings                                                                Net Assets
--------------------------------------------------                                         ----------
American Home Products                                                                            3.44%
Telecom Corp. of New Zealand                                                                      2.33
Banc One                                                                                          1.80
United Utilities                                                                                  1.76
CoreStates Financial                                                                              1.61
Philip Morris                                                                                     1.55
Comerica                                                                                          1.53
Bristol-Myers Squibb                                                                              1.48
Chevron                                                                                           1.41
Ameritech                                                                                         1.35
 
 
 
Equity-Type
Securities                                                        Shares or       Market      Percent
                                                                  Principal         Value      of Net
Energy                                                               Amount    (Millions)      Assets
----------------------------------------------                -------------   -----------  ----------
Energy Sources - 3.80%
Amoco Corp.                                                         555,000       $42.041          .78
Atlantic Richfield Co.                                                135000       17.888          .33
Chevron Corp.                                                        1165000       76.599         1.41
Phillips Petroleum Co.                                                650000       26.650          .49
Royal Dutch Petroleum Co. (New York Registered
 Shares)                                                              260000       42.998          .79
----------------------------------------------                -------------   -----------  ----------
Utilities: Electric & Gas - 6.33%
Australian Gas Light Co.                                              372662        2.043          .04
Brooklyn Union Gas Co.                                              200,000         5.800          .11
Central and South West Corp.                                         2000000       53.000          .98
DTE Energy Co. (formerly Detroit Edison Co.)                          450000       13.556          .25
East Midlands Electricity PLC                                        3183300       28.235          .52
Entergy Corp.                                                         760000       21.280          .39
GPU Inc. (formerly General Public Utilities Corp.)                    850000       27.944          .52
Hongkong Electric Holdings Ltd.                                  10,231,500        32.752          .60
Houston Industries Inc.                                             200,000         4.575          .08
Long Island Lighting Co.                                             2125000       38.516          .71
National Grid Group PLC                                             10323000       30.409          .56
National Power PLC                                                   4205000       27.922          .52
PECO Energy Co.                                                       100000        2.525          .05
Southern Electric PLC                                                5145350       53.929         1.00
                                                              -------------   -----------  ----------
                                                                                  548.662        10.13
                                                                              -----------  ----------
 
Materials
----------------------------------------------                -------------   -----------  ----------
Chemicals - 0.17%
E.I. du Pont de Nemours and Co.                                       100000        9.275          .17
----------------------------------------------                -------------   -----------  ----------
 
Forest Products & Paper - 0.73%
James River Corp. of Virginia, DECS convertible
 preferred shares                                                     375000       11.062          .20
Potlatch Corp.                                                        332500       14.214          .26
Union Camp Corp.                                                      300000       14.625          .27
                                                              -------------   -----------  ----------
 
 
Metals:  Nonferrous - 0.15%
Aluminum Co. of America                                               140000        8.208          .15
----------------------------------------------                -------------   -----------  ----------
                                                                                   57.384         1.05
                                                                              -----------  ----------
 
 
Consumer Goods
----------------------------------------------                -------------   -----------  ----------
Automobiles - 1.12%
Ford Motor Co., Class A                                              1950000       60.937         1.12
----------------------------------------------                -------------   -----------  ----------
Beverages & Tobacco - 2.64%
Philip Morris Companies Inc.                                        905,000        83.826         1.55
RJR Nabisco Holdings Corp.                                          700,000        20.213          .37
UST Inc.                                                          1,350,000        38.981          .72
----------------------------------------------                -------------   -----------  ----------
Health & Personal Care - 5.74%
American Home Products Corp.                                      3,040,000       186.200         3.44
Bristol-Myers Squibb Co.                                              757500       80.106         1.48
Merck & Co., Inc.                                                     250000       18.531          .34
Pharmacia & Upjohn, Inc.                                              145000        5.220          .10
Schering-Plough Corp.                                                 130000        8.320          .15
Warner-Lambert Co.                                                    200000       12.725          .23
                                                                              -----------  ----------
                                                                                  515.059         9.50
                                                                              -----------  ----------
Services
----------------------------------------------                -------------   -----------  ----------
Broadcasting & Publishing - 0.24%
Golden Books Family Entertainment Inc., 8.75% convertible
 TOPrS/1/                                                             100000        5.587          .10
South China Morning Post (Holdings) Ltd.                             3600000        3.073          .06
Time Warner Inc., 10.25% Series K/1/                                  3,931         4.172          .08
 
----------------------------------------------                -------------   -----------  ----------
Business & Public Services - 5.23%
American Water Works Co., Inc.                                       1661200       33.847          .62
Autopistas del Mare Nostrum, SA Concesionaria del Estado             1580000       22.503          .42
Consumers Water Co.                                                   229000        4.179          .08
Dun & Bradstreet Corp.                                                275000       15.916          .29
Hutchison Delta Finance Ltd., 7.00% convertible
 debentures 2002/1/                                             $11,000,000        12.045          .22
Hyder PLC                                                            3951688       45.534          .84
Thames Water PLC                                                     6000000       54.098         1.00
United Utilities PLC                                                10294309       95.330         1.76
----------------------------------------------                -------------   -----------  ----------
 
 
 
Telecommunications - 10.41%
ALLTEL Corp.                                                        350,000        10.675          .20
Ameritech Corp.                                                   1,337,900        73.250         1.35
GTE Corp.                                                            1300000       54.763         1.01
Hong Kong Telecommunications Ltd. (American
 Depositary Receipts)                                             1,442,478        25.424          .47
Koninklijke PTT Nederland NV                                      1,259,700        45.500          .84
Pacific Telesis Group                                             1,700,000        57.800         1.07
Portugal Telecom, SA                                              2,293,000        59.648         1.10
Telecom Corp. of New Zealand Ltd.                                15,784,160        82.010
Telecom Corp. of New Zealand Ltd./1/                              8,380,000        43.540         2.33
Telecom Corp. of New Zealand Ltd. (American
 Depositary Receipts)                                                12,500         1.041
Telecom Italia SpA                                               28,962,100        54.781         1.01
Telefonica de Espana, SA                                          1,700,000        34.056          .63
U S WEST Communications Group                                       704,707        21.405          .40
----------------------------------------------                -------------   -----------  ----------
 
Transportation: Airlines - 0.04%
British Airways PLC (American Depositary Receipts)                     25800        2.328          .04
----------------------------------------------                -------------   -----------  ----------
                                                                                  862.505        15.92
                                                                              -----------  ----------
Finance
----------------------------------------------                -------------   -----------  ----------
Banking - 21.69%
AmSouth Bancorporation                                              800,000        37.100          .68
Banc One Corp.                                                    2,300,000        97.463         1.80
Bank of Nova Scotia                                               1,358,700        42.852          .79
BankAmerica Corp.                                                     304000       27.816          .51
Barclays PLC                                                         3500000       54.883         1.01
Boatmen's Bancshares, Inc.                                            400000       24.300          .45
Central Fidelity Banks, Inc.                                         2062500       52.336          .97
Chase Manhattan Corp.                                                 850000       72.888         1.34
Comerica Inc.                                                        1560000       82.875         1.53
CoreStates Financial Corp                                            1800000       87.525         1.61
First Chicago NBD Corp.                                              1210000       61.710         1.14
First Hawaiian Bank                                                   400000       12.400          .23
First Security Corp. (Utah)                                          1637500       48.102          .89
First Union Corp.                                                     967500       70.386         1.30
Huntington Bancshares Inc.                                        1,674,750        40.194          .74
KeyCorp                                                           1,035,000        48.257          .89
Keystone Financial, Inc.                                            827,550        21.516          .40
J.P Morgan & Co. Inc.                                               180,000        15.548          .29
National Australia Bank Ltd.                                         2407694       26.420          .49
National City Corp.                                                   800000       34.700          .64
Old Kent Financial Corp.                                              551250       24.875          .46
PNC Bank Corp.                                                        800000       29.000          .53
Royal Bank of Canada                                                 1715000       56.714         1.05
Wachovia Corp.                                                        660000       35.475          .65
Westpac Banking Corp.                                             6,050,000        34.513          .64
Wilmington Trust Corp.                                              950,000        35.862          .66
----------------------------------------------                -------------   -----------  ----------
 
Financial Services - 0.58%
Beneficial Corp.                                                    340,000        19.890          .37
Manhattan Card Co. Ltd.                                          23,200,000        11.477          .21
----------------------------------------------                -------------   -----------  ----------
 
Insurance - 2.21%
American General Corp.                                                160000        5.960          .11
Lincoln National Corp.                                               1230000       59.655         1.10
Ohio Casualty Corp.                                                 717,500        23.319          .43
Prudential Corp. PLC                                                 3557546       26.865          .50
SAFECO Corp.                                                        100,000         3.775          .07
----------------------------------------------                -------------   -----------  ----------
Real Estate - 5.13%
Bradley Real Estate, Inc.                                         1,045,000        17.373          .32
Camden Property Trust                                               353,200         9.625          .18
CarrAmerica Realty Corp.                                          1,720,000        43.215          .80
Pacific Retail Trust/1/                                             190,909         2.100          .04
Security Capital Atlantic, Inc.                                     334,800         7.952
Security Capital Atlantic, Inc./1/,/2/                            1,391,303        33.043          .75
Security Capital Industrial Trust                                    1210855       21.947          .41
Security Capital Pacific Trust                                       3037560       68.345         1.26
Security Capital Realty Inc./1/,/2/,/3/                                24900       27.130
Security Capital Realty Inc. 12.00%                                                                .87
 convertible debentures 2014/1/,/2/                             $18,862,000        19.648
Washington Real Estate Investment Trust                             145,500         2.310          .04
Weingarten Realty Investors                                         504,000        19.341          .36
Western Investment Real Estate Trust                                  412500        5.259          .10
                                                                              -----------  ----------
                                                                                1,603.939        29.61
                                                                              -----------  ----------
Multi-Industry & Miscellaneous
----------------------------------------------                -------------   -----------  ----------
Multi-Industry - 1.19%
B A T Industries PLC                                              5,895,597        41.067          .76
Hutchison Whampoa Ltd.                                               1960000       13.689          .25
Lend Lease Corp. Ltd.                                                 411257        6.969          .13
Thermo Instrument Systems Inc., 4.50% convertible
 debentures 2003                                                 $3,000,000         2.970          .05
----------------------------------------------                -------------   -----------  ----------
Miscellaneous - 1.31%
Equity-type securities in initial period of
 acquisition                                                                       70.600         1.31
                                                                              -----------  ----------
                                                                                  135.295         2.50
                                                                              -----------  ----------
TOTAL EQUITY-TYPE SECURITIES (cost:
 $2,730.239 million)                                                            3,722.844        68.71
                                                                              -----------  ----------
 
 
                                                                  Principal
Bonds and Notes                                                      Amount
----------------------------------------------                -------------   -----------  ----------
Corporate
----------------------------------------------                -------------   -----------  ----------
ADT Operations 9.25% 2003                                        $2,000,000         2.105          .04
Airplanes Pass Through Trust, pass-through certificates,
 Class C, 8.15% 2019 /4/                                             5000000        5.181          .10
Allegiance Corp. 7.80% 2016                                          3000000        3.040          .06
Ann Taylor, Inc. 8.75% 2000                                          4802000        4.610          .09
California Energy Co., Inc. 0%/10.25% 2004 /5/                       4300000        4.407          .08
Columbia Gas System, Inc., Series G, 7.62% 2025                      3000000        2.926
Columbia Gas System, Inc., Series C, 6.80% 2005                      2000000        1.973          .09
Container Corp. of America 9.75% 2003                                3500000        3.587          .07
Delta Air Lines, Inc., 1991 Equipment
 Certificates Trust, Series K, 10.00% 2014/1/                        2000000        2.341          .04
Falcon Drilling Company, Inc., Series B, 9.75% 2001                  2750000        2.819
Falcon Drilling Company, Inc., Series B, 8.875% 2003                 4000000        3.900          .12
Fort Howard Corp. 8.25% 2002                                         3000000        2.970          .05
Infinity Broadcasting Corp. 10.375% 2002                             4500000        4.770          .09
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
 2015/1/,4                                                           5000000        5.608          .10
Long Island Lighting Co. 8.90% 2019                                 10000000        9.736
Long Island Lighting Co. 7.30% 1999                                 23000000       22.827          .60
McDermott Inc. 9.375% 2002                                           5000000        5.223
McDermott Inc. 9.375% 2006                                           8000000        8.240          .25
Midland Cogeneration Venture LP, Secured Lease
 Obligation Bonds, Series C-91, 10.33% 2002                       6844715.24        7.238          .13
News America Holdings Inc. 9.25% 2013                                2000000        2.246
News America Holdings Inc. 9.125% 1999                               3000000        3.217          .14
News America Holdings Inc. 8.625% 2003                               2000000        2.165
Occidental Petroleum Corp. 8.50% 2004                                8000000        8.460          .16
The Price REIT, Inc. 7.50% 2006                                      4000000        3.991          .07
Riggs National Corp. 8.50% 2006                                      2600000        2.688          .05
Rykoff-Sexton, Inc. 8.875% 2003                                      4500000        4.162          .08
Security Capital Pacific Trust 7.25% 2004                            5000000        5.056          .09
Smith's Food & Drug Centers, Inc.,
 pass-through certificates, Series 1994-A2,
 8.64% 2012/2/,/4/                                                   6000000        4.965          .09
360 Communications Co. 7.125% 2003                                   2500000        2.478          .05
Time Warner Inc. 10.15% 2012                                         5000000        5.985
Time Warner Inc. 7.45% 1998                                          4000000        4.059          .18
TKR Cable I, Inc. 10.50% 2007                                        7000000        7.803          .14
Wellsford Residential Property Trust 7.75% 2005                      2500000        2.537          .05
WestPoint Stevens Inc. 8.75% 2001                                    2000000        2.020          .04
Woolworth Corp., Series A, 7.00% 2002                                2000000        1.981
Woolworth Corp., Series A, 6.98% 2001                                2750000        2.736          .09
                                                                              -----------  ----------
                                                                                  170.050         3.14
                                                                              -----------  ----------
 
                                                                  Principal
Governments and Governmental Authorities                             Amount
----------------------------------------------                -------------   -----------  ----------
New Zealand 8.00% July 1998                                   NZ$40,000,000        28.695          .51
                                                                              -----------  ----------
 
U.S. Treasury Notes
----------------------------------------------                -------------   -----------  ----------
6.00% November 1997                                             $90,000,000        90.393         1.68
5.625% January 1998                                              70,000,000        69.989         1.29
                                                                              -----------  ----------
                                                                                  160.382         2.97
                                                                              -----------  ----------
TOTAL BONDS AND NOTES (cost: $350.040 million)                                    359.127         6.62
                                                                              -----------  ----------
TOTAL INVESTMENT SECURITIES (cost: $3,080.279
 million)                                                                       4,081.971        75.33
                                                                              -----------  ----------
 
 
SHORT-TERM SECURITIES
----------------------------------------------                -------------   -----------  ----------
Corporate Short-Term Notes
----------------------------------------------                -------------   -----------  ----------
Abbott Laboratories 5.22%-5.23% due 11/22-12/27/96                  61700000       61.449         1.14
American Express Credit Corp. 5.26%-5.28% due
 11/1-12/10/96                                                      46200000       46.101          .85
Baltimore Gas & Electric Co. 5.23%-5.28% due
 11/21-12/3/96                                                      30335000       30.227          .56
Campbell Soup Co. 5.25%-5.29% due 11/8-12/12/96                     45300000       45.153          .83
Walt Disney Co. 5.25%-5.29% due 11/18/96-1/27/97                    86200000       85.272         1.57
Ford Motor Credit Co. 5.24%-5.36% due
 11/4/96-1/9/97                                                     96700000       96.104         1.77
General Electric Capital Corp. 5.24%-5.32% due
 11/7/96-1/14/97                                                    68700000       68.506         1.26
H.J. Heinz Co. 5.23%-5.41% due 11/6-12/4/96                         76300000       76.014         1.40
Hewlett-Packard Co. 5.23%-5.40% due 11/6-12/20/96                   75097000       74.860         1.38
International Lease Finance Corp. 5.33% due 12/16/96                43000000       42.710          .79
Eli Lilly and Co. 5.24%-5.28% due 12/18/96-1/22/97                  75000000       74.239         1.37
Lucent Technologies Inc. 5.23%-5.30% due
 11/12/96-1/6/97                                                    66300000       65.863         1.22
National Rural Utilities Cooperative Finance Corp. 5.31%
 due 1/13-1/17/97                                                   70000000       69.206         1.28
J.C. Penney Funding Corp. 5.23%-5.31% due
 12/3-12/16/96                                                      80925000       80.459         1.49
Procter & Gamble Co. 5.27%-5.34% due
 11/6/96-1/16/97                                                    67900000       67.356         1.24
Weyerhaeuser Co. 5.24%-5.38% due 11/5/96-1/10/97                    77000000       76.537         1.41
                                                                              -----------  ----------
                                                                                1,060.056        19.56
                                                                              -----------  ----------
 
Federal Agency Discount Notes
----------------------------------------------                -------------   -----------  ----------
Federal Home Loan Bank 5.24%-5.36% due
 11/20-12/19/96                                                     97700000       97.116         1.79
Federal Home Loan Mortgage Corp. 5.20%-5.40% due
 11/12-12/31/96                                                     53900000       53.525          .99
Federal National Mortgage Assn. 5.34%-5.44% due
 12/6-12/19/96                                                      47700000       47.442          .88
                                                                              -----------  ----------
                                                                                  198.083         3.66
                                                                              -----------  ----------
 
U.S. Treasury Short-Term Notes
----------------------------------------------                -------------   -----------  ----------
6.375% due 6/30/97                                                   8000000        8.048          .15
6.875% due 4/30/97                                                  30000000       30.220          .56
6.75% due 2/28/97                                                   65000000       65.284         1.20
                                                                              -----------  ----------
                                                                                  103.552         1.91
                                                                              -----------  ----------
 
TOTAL SHORT-TERM SECURITIES (cost: $1,361.041
 million)                                                                       1,361.691        25.13
EXCESS OF PAYABLES OVER CASH AND RECEIVABLES                                       25.949          .46
                                                                              -----------  ----------
TOTAL SHORT-TERM SECURITIES, CASH AND
 RECEIVABLES, NET OF PAYABLES                                                   1,335.742        24.67
                                                                              -----------  ----------
NET ASSETS                                                                     $5,417.713      100.00%
                                                                              ===========  ==========
 
/1/ Purchased in a private placement transaction;
 resale to the public may require registration
 or sale only to qualified institutional buyers
 
/2/ Valued under procedures established by the Board
  of Directors.
 
/3/ Non-income-producing securities.
 
/4/ Pass-through securities backed by a pool of
 mortgages or other loans on which principal
 payments are periodically made. Therefore,
 the effective maturity of these securities
 is shorter than the stated maturity.
 
/5/ Represents a zero-coupon bond which will
 convert to an interest-bearing security at a
 later date.
</TABLE>
<PAGE>
<TABLE>
<S>                                                      <C>                 <C>
Capital Income Builder
Financial Statements
 
 
Statement of Assets and Liabilities
at October 31, 1996                                                                   (dollars in
                                                                                        millions)
Assets:
Investment securities at market (cost:$3,080.279)                                      $4,081.971
Short-term securities (cost:$1,361.041)                                                 1,361.691
Cash                                                                                         .006
Receivables for-
Sales of investments                                                 $ 6.132
Sales of fund's shares                                                 8.031
Dividends and accrued interest                                        18.548               32.711
                                                                ------------         ------------
                                                                                        5,476.379
Liabilities:
Payables for-
Purchases of investments                                               8.829
Repurchases of fund's shares                                           4.822
Management services                                                    1.324
Dividends payable                                                     41.219
Accrued expenses                                                       2.472               58.666
                                                                ------------         ------------
Net Assets at October 31, 1996 - Equivalent to
$39.70 per share on 136,469,764 shares of $0.01
par value capital stock outstanding
(authorized capital stock - 200,000,000 shares)                                        $5,417.713
                                                                                     ============
 
 
Statement of Operations
for the year ended October 31, 1996
(dollars in millions)
 
 
Investment Income:
Income:
Dividends                                                           $181.465
Interest                                                             111.502             $292.967
                                                                ------------
Expenses:
Management services fee                                               18.213
Distribution expenses                                                 10.741
Transfer agent fee                                                     3.396
Reports to shareholders                                                 .654
Registration statement and prospectus                                   .300
Postage, stationery and supplies                                        .642
Directors' fees                                                         .107
Auditing and legal fees                                                 .053
Custodian fee                                                           .845
Taxes other than federal income tax                                     .063
Other expenses                                                          .075               35.089
                                                                ------------         ------------
Net investment income                                                                     257.878
                                                                                     ------------
Realized Gain and Unrealized Appreciation on
Investments:
Net realized gain                                                                          87.347
Net increase in unrealized appreciation on investments:                                   431.666
                                                                                     ------------
Net realized gain and increase in unrealized
appreciation on investments                                                               519.013
                                                                                     ------------
Net Increase in Net Assets Resulting from Operations                                     $776.891
                                                                                     ============
 
See Notes to Financial Statements
 
Statement of Changes in Net Assets
(dollars in millions)                                             Year ended           October 31
                                                                         1996                 1995
                                                                ------------         ------------
Operations:
Net investment income                                               $257.878             $197.764
Net realized gain on investments                                      87.347               64.236
Net change in unrealized appreciation on investments                 431.666              387.255
                                                                ------------         ------------
Net increase in net assets resulting from
operations                                                           776.891              649.255
                                                                ------------         ------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income                                (257.053)            (199.581)
Distributions from net realized gain on investments                  (62.913)             (11.162)
                                                                ------------         ------------
Total dividends and distributions                                   (319.966)            (210.743)
                                                                ------------         ------------
Capital Share Transactions:
Proceeds from shares sold: 20,891,053 and
23,777,252 shares, respectively                                      782.282              796.496
Proceeds from shares issued in reinvestment of net
investment income dividends and distributions of
net realized gain on investments: 6,760,213 and
5,248,005 shares, respectively                                       251.534              174.909
Cost of shares repurchased: 16,175,451 and 15,065,188
shares, respectively                                                (606.384)            (505.097)
                                                                ------------         ------------
Net increase in net assets resulting from capital
share transactions                                                   427.432              466.308
                                                                ------------         ------------
Total Increase in Net Assets                                         884.357              904.820
 
Net Assets:
Beginning of year                                                  4,533.356            3,628.536
                                                                ------------         ------------
End of year (including undistributed net investment
income: $2.228 and $1.403, respectively)                          $5,417.713           $4,533.356
                                                                ============         ============
 
 
 
See Notes to Financial Statements
</TABLE>
 
<PAGE>
CAPITAL INCOME BUILDER
 
Notes to Financial Statements
 
1. Capital Income Builder, Inc. (the "fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The fund seeks to provide a growing dividend together with a current yield
which exceeds that paid by U.S. stocks generally. The following paragraphs
summarize the significant accounting policies consistently followed by the fund
in the preparation of its financial statements:
 
  Equity-type securities traded on a national securities exchange (or reported
on the NASDAQ national market) and securities traded in the over-the-counter
market are stated at the last reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price. Bonds and notes are valued at prices
obtained from a bond-pricing service provided by a major dealer in bonds, when
such prices are available; however, in circumstances where the investment
adviser deems it appropriate to do so, such securities will be valued at the
mean of their representative quoted bid and asked prices or, if such prices are
not available, at prices for securities of comparable maturity, quality, and
type. Short-term securities with original or remaining maturities in excess of
60 days are valued at the mean of their quoted bid and asked prices.  Where
pricing service or market quotations are not readily available, securities will
be valued at fair value by the Board of Directors or a committee thereof.
Short-term securities with 60 days or less to maturity are valued at amortized
cost, which approximates market value. 
 
  As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. The fund
does not amortize premiums on securities purchased.  Amortization of market
discounts on securities is recognized upon disposition, subject to applicable
tax requirements.  Dividends to shareholders are declared daily from net
investment income. Distributions paid to shareholders are recorded on the
ex-dividend date.
 
  Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
 
  Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $845,000 includes $78,000 that was paid by these credits
rather than in cash.
 
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
 
  As of October 31, 1996, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $1,000,668,000, of which
$1,021,175,000 related to appreciated securities and $20,507,000 related to
depreciated securities. During the year ended October 31, 1996, the fund
realized, on a tax basis, a net capital gain of $86,961,000 on securities
transactions. Net gains related to non-U.S. currency transactions of $386,000
were treated as ordinary income for federal income tax purposes. The cost of
portfolio securities for book and federal income tax purposes was
$4,442,994,000 at October 31, 1996. 
  
3. The fee of $18,213,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.24% of the first $1 billion of average net assets; 0.20%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.18% of
such assets in excess of $2 billion but not exceeding $3 billion; 0.165% of
such assets in excess of $3 billion but not exceeding $5 billion; 0.155% of
such assets in excess of $5 billion but not exceeding $8 billion; and 0.15% of
such assets in excess of $8 billion; plus 3.0% of the fund's gross investment
income. For purposes of the Investment Advisory and Service Agreement, gross
investment income means gross income, computed without taking account of gains
or losses from sales of capital assets. 
 
  Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended October 31, 1996,
distribution expenses under the Plan were $10,741,000. As of October 31, 1996,
accrued and unpaid distribution expenses were $1,782,000.
 
  American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $3,396,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $4,007,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
 
  Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of October 31,
1996, aggregate amounts deferred and earnings thereon were $160,000.
 
  CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS, and AFD. No such
persons received any remuneration directly from the fund.
 
4. As of October 31, 1996, accumulated undistributed net realized gain on
investments was $77,870,000 and additional paid-in capital was $4,333,599,000.
 
  The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,201,233,000 and $1,126,743,000, respectively,
during the year ended October 31, 1996.
 
  Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended October 31, 1996, such non-U.S. taxes were $13,631,000. Net realized
currency gains on dividends, interest, withholding taxes reclaimable, and sales
of non-U.S. bonds and notes were $1,117,000 for the year ended October 31,
1996.
 
The fund reclassified $731,000 from undistributed currency gains to
undistributed net realized gains and $42,000 from undistributed net investment
income to undistributed net realized gains for the year ended October 31, 1996.
 
<TABLE>
<S>                                      <C>          <C>          <C>        <C>        <C>
Per-Share Data and Ratios                        Year
                                                ended
                                              October
                                                    31
                                                  1996        1995       1994       1993      1992
 
Net Asset Value, Beginning of Year        $    36.27 $    32.68 $     34.42    $30.77       $28.67
                                          --------- -  --------- - --------- -   -------   -------
Income From Investment Operations:
Net investment income                            1.95         1.69       1.73       1.53      1.44
Net realized and unrealized gain
(loss) on investments                             3.92        3.69      (1.62)      3.76      2.33
                                            ---------    ---------  ---------    -------   -------
Total income from investment operations          5.87         5.38        .11       5.29      3.77
                                            ---------    ---------  ---------    -------   -------
Less Distributions:
Dividends from net investment income            (1.94)       (1.69)     (1.73)     (1.53)    (1.44)
Distributions from net realized gains            (.50)        (.10)      (.12)      (.11)     (.23)
                                            ---------    ---------  ---------    -------   -------
Total distributions                             (2.44)       (1.79)     (1.85)     (1.64)    (1.67)
                                            ---------    ---------  ---------    -------   -------
Net Asset Value, End of Year              $    39.70 $      36.27 $   32.68      $34.42    $30.77
                                            =========    =========  =========    =======   =======
 
Total Return/1/                               16.76%       16.98%        .47%      17.58%    13.46%
 
 
Ratios/Supplemental Data:
Net assets, end of year (in millions)          $5,418       $4,533     $3,629     $2,826    $1,203
Ratio of expenses to average net assets           .71%         .72%       .73%       .72%      .81%
Ratio of net income to average net assets        5.19%        4.96%      5.29%      4.69%     4.71%
Average commissions paid per share/2/       2.20cents    2.10cents  3.63cents  2.90cents 2.48cents
Portfolio turnover rate                         27.56%       18.06%     36.19%     11.22%    16.57%
 
/1/  Calculated without deducting a sales
charge. The maximum sales charge is 5.75% of
the fund's offering price.
 
/2/  Brokerage commissions paid on portfolio
transfactions increase the cost of securities
purchased or reduce the proceeds of securities
sold, and are not reflected in the fund's
statement of operations. Shares traded on a
principal basis are excluded.  Generally,
non-U.S. commissions are lower than U.S.
commissions when expressed as cents per share
but higher when expressed as a percentage of
transactions because of the lower per-share
prices of many non-U.S. securities.
</TABLE>
 
<PAGE>
Report of Independent Accountants
 
To the Board of Directors and Shareholders of Capital Income Builder, Inc. 
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the  per-share data and ratios present fairly, in all
material respects, the financial position of Capital Income Builder, Inc. (the
"Fund") at October 31, 1996, the results of its operations, the changes in its
net assets and the per-share data and ratios for the years indicated in
conformity with generally accepted accounting principles. These financial
statements and per-share data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation.  We believe that our audits, which included confirmation of
securities at October 31, 1996 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
 
Price Waterhouse LLP
Los Angeles, California
November 27, 1996
 
U. S. Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
 
                                         Dividends and Distributions Per Share
 
<TABLE>
<CAPTION>
                                               Dividends               From                   From                 
Reinvest                Payment                from Net                Net Realized           Net Realized         
Date                    Date                   Investment Income       Short-Term Gains       Long-Term Gains      
<S>                     <C>                    <C>                     <C>                    <C>                  
December 18, 1995       December 19, 1995      $0.445                  -                      $0.50                
March 4, 1996           March 5, 1996          0.450                   -                      -                    
June 4, 1996            June 5, 1996           0.455                   -                      -                    
August 13, 1996         August 14, 1996        0.460                   -                      -                    
</TABLE>
 
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year.  For purposes of computing this exclusion, 34% of the
dividends paid by the fund from net investment income represents 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, 14% of the dividends
paid by the fund from net investment income was derived from interest on direct
U.S. Treasury obligations.
 
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income. 
However, many plan retirement trusts may need this information for their annual
information reporting.
 
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV WHICH WILL BE
MAILED IN JANUARY 1997 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON
THEIR 1996 TAX RETURNS.  SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.