CAPITAL INCOME BUILDER, INC.


                                     Part B


                       Statement of Additional Information

                                 January 1, 2005

                        (as supplemented August 17, 2005)




This  document is not a prospectus  but should be read in  conjunction  with the
current  prospectus or retirement plan prospectus of Capital Income Builder (the
"fund" or "CIB") dated  January 1, 2005.  You may obtain a prospectus  from your
financial adviser or by writing to the fund at the following address:


                          Capital Income Builder, Inc.
                              Attention: Secretary
                              333 South Hope Street
                          Los Angeles, California 90071
                                  213/486-9200

Shareholders who purchase shares at net asset value through eligible  retirement
plans should note that not all of the services or features  described  below may
be available to them. They should contact their employers for details.



                             TABLE OF CONTENTS



<TABLE>
<CAPTION>
Item                                                                  Page no.
----                                                                  --------
<S>                                                                   <C>
Certain investment limitations and guidelines . . . . . . . . . . .        2
Description of certain securities and investment techniques . . . .        2
Fundamental policies and investment restrictions. . . . . . . . . .        9
Management of the fund  . . . . . . . . . . . . . . . . . . . . . .       11
Execution of portfolio transactions . . . . . . . . . . . . . . . .       30
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . .       31
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . .       32
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . .       34
Purchase and exchange of shares . . . . . . . . . . . . . . . . . .       39
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . .       41
Sales charge reductions and waivers . . . . . . . . . . . . . . . .       43
Rollovers from retirement plans to IRAS . . . . . . . . . . . . . .       47
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . .       47
Shareholder account services and privileges . . . . . . . . . . . .       47
General information . . . . . . . . . . . . . . . . . . . . . . . .       50
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       55
Financial statements
</TABLE>




                        Capital Income Builder -- Page 1
<PAGE>



               CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES


The following limitations and guidelines are considered AT THE TIME OF PURCHASE,
under  normal  circumstances,  and are based on a  percentage  of the fund's net
assets unless  otherwise  noted.  This summary is not intended to reflect all of
the fund's investment limitations.


INCOME PRODUCING SECURITIES

..    The  fund  will  invest  at least  90% of its  assets  in  income-producing
     securities.

EQUITY SECURITIES

..    The fund will invest at least 50% of its assets in equity securities.

DEBT SECURITIES

..    The  fund  may  invest  up to 5%  of  its  assets  in  nonconvertible  debt
     securities rated Ba or below by Moody's Investors  Service  ("Moody's") and
     BB or below by  Standard  &  Poor's  Corporation  ("S&P")  or  unrated  but
     determined to be of equivalent quality.


NON-U.S. SECURITIES

..    The fund may  invest  up to 45% of its  assets  in  securities  of  issuers
     domiciled outside the United States.

                        *     *     *     *     *     *

The fund may experience  difficulty  liquidating  certain  portfolio  securities
during significant market declines or periods of heavy redemptions.


          DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

The descriptions below are intended to supplement the material in the prospectus
under "Investment objectives, strategies and risks."


EQUITY  SECURITIES  -- Equity  securities  represent an ownership  position in a
company.  Equity securities held by the fund typically consist of common stocks.
The prices of equity securities  fluctuate based on, among other things,  events
specific to their issuers and market, economic and other conditions.


There may be little  trading  in the  secondary  market  for  particular  equity
securities, which may affect adversely the fund's ability to value accurately or
dispose of such equity securities.  Adverse publicity and investor  perceptions,
whether or not based on  fundamental  analysis,  may  decrease  the value and/or
liquidity of equity securities.


INVESTING IN SMALLER  CAPITALIZATION STOCKS -- The fund may invest in the stocks
of  smaller   capitalization   companies   (typically   companies   with  market
capitalizations  of  less  than  $2.0  billion  at the  time of  purchase).  The
investment  adviser believes that the issuers of smaller  capitalization  stocks
often provide attractive investment opportunities. However, investing in smaller
capitalization  stocks can involve  greater risk than is customarily  associated
with investing in



                        Capital Income Builder -- Page 2
<PAGE>



stocks of larger,  more established  companies.  For example,  smaller companies
often have  limited  product  lines,  markets  or  financial  resources,  may be
dependent  for  management  on  one  or a few  key  persons,  and  can  be  more
susceptible  to  losses.  Also,  their  securities  may be  thinly  traded  (and
therefore  have to be sold at a discount  from  current  prices or sold in small
lots over an  extended  period of time),  may be  followed  by fewer  investment
research  analysts,  and may be subject to wider price  swings,  thus creating a
greater chance of loss than securities of larger capitalization companies.


DEBT  SECURITIES  -- Debt  securities  are  used by  issuers  to  borrow  money.
Generally,  issuers  pay  investors  interest  and 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 and increase in
value until maturity.  The market prices of debt securities  fluctuate depending
on such factors as interest  rates,  credit  quality and  maturity.  In general,
market prices of debt  securities  decline when interest rates rise and increase
when interest rates fall.


Lower rated debt securities,  rated Ba or below by Moody's and/or BB or below by
S&P or unrated but determined to be of equivalent quality,  are described by the
rating  agencies as  speculative  and involve  greater  risk of default or price
changes due to changes in the issuer's  creditworthiness  than higher rated debt
securities,  or they may  already  be in  default.  The  market  prices of these
securities  may fluctuate  more than higher  quality  securities and may decline
significantly  in  periods  of  general  economic  difficulty.  It may  be  more
difficult  to  dispose  of,  and to  determine  the value of,  lower  rated debt
securities.



Certain additional risk factors relating to debt securities are discussed below:


     SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be
     sensitive to economic changes,  political and corporate  developments,  and
     interest  rate  changes.  In  addition,  during  an  economic  downturn  or
     substantial  period of  rising  interest  rates,  issuers  that are  highly
     leveraged may experience  increased  financial  stress that would adversely
     affect  their  ability to service  their  principal  and  interest  payment
     obligations,  to meet  projected  business  goals and to obtain  additional
     financing.  Periods of economic change and uncertainty also can be expected
     to result in increased  volatility  of market  prices and yields of certain
     debt securities.

     PAYMENT  EXPECTATIONS  -- Debt  securities  may contain  redemption or call
     provisions.  If an issuer  exercises  these  provisions in a lower interest
     rate  market,  the fund  would have to replace  the  security  with a lower
     yielding  security,  resulting in  decreased  income to  investors.  If the
     issuer of a debt security  defaults on its  obligations  to pay interest or
     principal or is the subject of bankruptcy  proceedings,  the fund may incur
     losses or expenses in seeking recovery of amounts owed to it.

     LIQUIDITY  AND  VALUATION -- There may be little  trading in the  secondary
     market for  particular  debt  securities,  which may affect  adversely  the
     fund's  ability to value  accurately  or  dispose of such debt  securities.
     Adverse  publicity  and  investor  perceptions,  whether  or not  based  on
     fundamental  analysis,  may  decrease  the value  and/or  liquidity of debt
     securities.



                        Capital Income Builder -- Page 3
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The  investment  adviser  attempts to reduce the risks  described  above through
diversification  of the fund's  portfolio and by credit analysis of each issuer,
as well as by monitoring  broad  economic  trends and corporate and  legislative
developments,  but there can be no assurance that it will be successful in doing
so.


SECURITIES  WITH  EQUITY  AND DEBT  CHARACTERISTICS  -- The fund may  invest  in
securities  that have a combination  of equity and debt  characteristics.  These
securities  may at times behave more like equity than debt and vice versa.  Some
types of convertible bonds or preferred stocks automatically convert into common
stocks. The prices and yields of nonconvertible  preferred stocks generally move
with changes in interest rates and the issuer's credit  quality,  similar to the
factors affecting debt securities.


Convertible  bonds,  convertible  preferred  stocks  and  other  securities  may
sometimes be  converted,  or may  automatically  convert,  into common stocks or
other  securities  at a stated  conversion  ratio.  These  securities,  prior to
conversion,  may pay a fixed rate of interest or a dividend. Because convertible
securities  have both debt and equity  characteristics,  their  value  varies in
response to many factors,  including the value of the underlying assets, general
market and economic  conditions,  and convertible market valuations,  as well as
changes in interest rates, credit spreads and the credit quality of the issuer.


INVESTING  IN VARIOUS  COUNTRIES  --  Investing  outside  the United  States may
involve  additional risks caused by, among other things,  currency  controls and
fluctuating currency values; different accounting, auditing, financial reporting
and legal  standards and practices in some countries;  changing local,  regional
and global economic, political and social conditions;  expropriation; changes in
tax policy;  greater market volatility;  differing securities market structures;
higher  transaction  costs;  and various  administrative  difficulties,  such as
delays in clearing and settling  portfolio  transactions or in receiving payment
of  dividends.  However,  in the opinion of the  investment  adviser,  investing
outside the United States also can reduce certain portfolio risks due to greater
diversification opportunities.


The risks described  above may be heightened in connection  with  investments in
developing countries.  Although there is no universally accepted definition, the
investment adviser generally considers a developing country as a country that is
in the earlier stages of its industrialization cycle with a low per capita gross
domestic product and a low market capitalization relative to those in the United
States and the European Union. Historically, the markets of developing countries
have been more  volatile than the markets of developed  countries.  The fund may
invest in  securities  of  issuers  in  developing  countries  only to a limited
extent.



Additional  costs  could be incurred in  connection  with the fund's  investment
activities  outside  the  United  States.  Brokerage  commissions  may be higher
outside the United States, and the fund will bear certain expenses in connection
with its currency  transactions.  Furthermore,  increased custodian costs may be
associated with maintaining assets in certain jurisdictions.


CURRENCY TRANSACTIONS -- The fund may purchase and sell currencies to facilitate
securities  transactions  and enter into forward  currency  contracts to protect
against changes in currency  exchange rates. A forward  currency  contract is an
obligation to purchase or sell a specific  currency at a future date,  which may
be any fixed  number of days from the date of the  contract  agreed  upon by the
parties, at a price set at the time of the contract.  Forward currency contracts
entered  into by the fund will  involve  the  purchase  or sale of one  currency
against the U.S. dollar. While entering into forward currency transactions could
minimize the risk of loss due to a decline



                        Capital Income Builder -- Page 4
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in the value of the hedged currency, it could also limit any potential gain that
may result  from an  increase  in the value of the  currency.  The fund will not
generally  attempt to protect  against all potential  changes in exchange rates.
The fund will  segregate  liquid  assets that will be marked to market  daily to
meet its forward  contract  commitments to the extent required by the Securities
and Exchange Commission.



Certain  provisions of the Internal  Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions also may affect the
character  and timing of income,  gain or loss  recognized  by the fund for U.S.
federal income tax purposes.


U.S. GOVERNMENT OBLIGATIONS -- U.S. government obligations are securities backed
by the full faith and credit of the U.S. government. U.S. government obligations
include the following types of securities:


     U.S.  TREASURY  SECURITIES  --  U.S.  Treasury  securities  include  direct
     obligations of the U.S. Treasury,  such as Treasury bills, notes and bonds.
     For  these   securities,   the  payment  of   principal   and  interest  is
     unconditionally guaranteed by the U.S. government, and thus they are of the
     highest possible credit quality.  Such securities are subject to variations
     in market  value due to  fluctuations  in interest  rates,  but, if held to
     maturity, will be paid in full.

     FEDERAL  AGENCY  SECURITIES  BACKED  BY  "FULL  FAITH  AND  CREDIT"  -- The
     securities  of certain U.S.  government  agencies and  government-sponsored
     entities are  guaranteed as to the timely payment of principal and interest
     by the full  faith and credit of the U.S.  government.  Such  agencies  and
     entities include the Government National Mortgage Association (Ginnie Mae),
     the Veterans Administration (VA), the Federal Housing Administration (FHA),
     the  Export-Import  Bank  (Exim  Bank),  the  Overseas  Private  Investment
     Corporation  (OPIC),  the Commodity Credit  Corporation (CCC) and the Small
     Business Administration (SBA).

FEDERAL AGENCY  OBLIGATIONS -- Additional  federal agency securities are neither
direct obligations of, nor guaranteed by, the U.S. government. These obligations
include   securities   issued  by   certain   U.S.   government   agencies   and
government-sponsored  entities.  However,  they  generally  involve some form of
federal sponsorship: some operate under a government charter, some are backed by
specific types of collateral; some are supported by the issuer's right to borrow
from the Treasury;  and others are  supported  only by the credit of the issuing
government agency or entity.  These agencies and entities  include,  but are not
limited to:  Federal  Home Loan Bank,  Federal  Home Loan  Mortgage  Corporation
(Freddie Mac),  Federal National Mortgage  Association  (Fannie Mae),  Tennessee
Valley Authority and Federal Farm Credit Bank System.


PASS-THROUGH  SECURITIES  -- The fund may  invest in  various  debt  obligations
backed by pools of  mortgages  or other  assets  including,  but not limited to,
loans on single family  residences,  home equity loans,  mortgages on commercial
buildings,  credit card  receivables and leases on airplanes or other equipment.
Principal and interest payments made on the underlying asset pools backing these
obligations are typically passed through to investors.  Pass-through  securities
may have either fixed or adjustable coupons. These securities include:


     "MORTGAGE-BACKED  SECURITIES"  -- These  securities  may be  issued by U.S.
     government agencies and government-sponsored  entities, such as Ginnie Mae,
     Fannie  Mae and  Freddie  Mac,  and by  private  entities.  The  payment of
     interest  and  principal  on  mortgage-backed  obligations  issued  by U.S.
     government agencies may be guaranteed by the full



                        Capital Income Builder -- Page 5
<PAGE>



     faith and credit of the U.S. government (in the case of Ginnie Mae), or may
     be  guaranteed  by the issuer (in the case of Fannie Mae and Freddie  Mac).
     However,  these  guarantees do not apply to the market prices and yields of
     these securities, which vary with changes in interest rates.

     Mortgage-backed  securities  issued  by  private  entities  are  structured
     similarly  to those  issued by U.S.  government  agencies.  However,  these
     securities  and  the  underlying   mortgages  are  not  guaranteed  by  any
     government agencies.  These securities generally are structured with one or
     more  types of credit  enhancement.  Mortgage-backed  securities  generally
     permit  borrowers to prepay their  underlying  mortgages.  Prepayments  can
     alter the effective maturity of these instruments.

     COLLATERALIZED  MORTGAGE  OBLIGATIONS  (CMOS) -- CMOs are also  backed by a
     pool of  mortgages  or mortgage  loans,  which are divided into two or more
     separate bond issues. CMOs issued by U.S. government agencies are backed by
     agency mortgages.  Payments of principal and interest are passed through to
     each bond at varying schedules  resulting in bonds with different  coupons,
     effective  maturities and sensitivities to interest rates. Some CMOs may be
     structured in a way that when interest rates change, the impact of changing
     prepayment rates on these securities' effective maturities is magnified.

     COMMERCIAL  MORTGAGE-BACKED  SECURITIES -- These  securities  are backed by
     mortgages on commercial property, such as hotels, office buildings,  retail
     stores, hospitals and other commercial buildings. These securities may have
     a lower  prepayment  uncertainty  than  other  mortgage-related  securities
     because commercial mortgage loans generally prohibit or impose penalties on
     prepayments  of  principal.   In  addition,   commercial   mortgage-related
     securities  often are  structured  with some form of credit  enhancement to
     protect against potential losses on the underlying  mortgage loans. Many of
     the risks of investing in commercial mortgage-backed securities reflect the
     risks of investing  in the real estate  securing  the  underlying  mortgage
     loans, including the effects of local and other economic conditions on real
     estate  markets,  the  ability  of tenants  to make loan  payments  and the
     ability of a property to attract and retain tenants.

     ASSET-BACKED SECURITIES -- These securities are backed by other assets such
     as credit card, automobile or consumer loan receivables, retail installment
     loans,  or  participations  in pools of leases.  Credit  support  for these
     securities may be based on the underlying  assets and/or  provided  through
     credit  enhancements by a third party.  The values of these  securities are
     sensitive to changes in the credit  quality of the  underlying  collateral,
     the credit  strength of the credit  enhancement,  changes in interest rates
     and at times the  financial  condition  of the  issuer.  Some  asset-backed
     securities  also may receive  prepayments  that can change the  securities'
     effective maturities.


REAL ESTATE  INVESTMENT  TRUSTS -- The fund may invest in  securities  issued by
real estate investment trusts (REITs),  which primarily invest in real estate or
real  estate-related  loans.  Equity  REITs own real  estate  properties,  while
mortgage REITs hold  construction,  development and/or long-term mortgage loans.
The values of REITs may be  affected  by changes in the value of the  underlying
property of the trusts,  the  creditworthiness  of the issuer,  property  taxes,
interest  rates and tax and regulatory  requirements,  such as those relating to
the environment. Both types of REITs are dependent upon management skill and are
subject to cash flow  dependency,  the real  estate  market in  general  and the
possibility of failing to qualify for any applicable  pass-through tax treatment
or failing to maintain any applicable  exemptive  status afforded under relevant
laws.



                        Capital Income Builder -- Page 6
<PAGE>



VARIABLE AND FLOATING RATE  OBLIGATIONS -- The interest rates payable on certain
securities in which the fund may invest may not be fixed but may fluctuate based
upon changes in market  rates or credit  ratings.  Variable  and  floating  rate
obligations bear coupon rates that are adjusted at designated  intervals,  based
on the then  current  market  rates of  interest  or  credit  ratings.  The rate
adjustment  features  tend to limit the extent to which the market  value of the
obligations will fluctuate.




CASH AND CASH  EQUIVALENTS -- These include (a)  commercial  paper (for example,
short-term  notes with maturities  typically up to 12 months in length issued by
corporations,   governmental  bodies  or  bank/corporation   sponsored  conduits
(asset-backed  commercial  paper)) (b) short-term bank obligations (for example,
certificates of deposit,  bankers' acceptances (time drafts on a commercial bank
where the bank accepts an  irrevocable  obligation  to pay at maturity)) or bank
notes, (c) savings  association and savings bank obligations (for example,  bank
notes  and   certificates   of  deposit  issued  by  savings  banks  or  savings
associations),   (d)  securities  of  the  U.S.  government,   its  agencies  or
instrumentalities  that mature, or may be redeemed, in one year or less, and (e)
corporate bonds and notes that mature,  or that may be redeemed,  in one year or
less.




LOANS OF  PORTFOLIO  SECURITIES  -- The  fund is  authorized  to lend  portfolio
securities to selected securities dealers or other institutional investors whose
financial  condition is monitored by the investment  adviser.  The borrower must
maintain  with  the  fund's  custodian  collateral   consisting  of  cash,  cash
equivalents or U.S. government securities equal to at least 100% of the value of
the borrowed securities,  plus any accrued interest. The investment adviser will
monitor the adequacy of the  collateral  on a daily  basis.  The fund may at any
time call a loan of its portfolio securities and obtain the return of the loaned
securities. The fund will receive any interest paid on the loaned securities and
a fee or a portion of the interest earned on the collateral. The fund will limit
its loans of portfolio securities to an aggregate of 33-1/3% of the value of its
total assets, measured at the time any such loan is made.


FORWARD  COMMITMENTS -- The fund may enter into  commitments to purchase or sell
securities at a future date.  When the fund agrees to purchase such  securities,
it assumes the risk of any decline in value of the security from the date of the
agreement. When the fund agrees to sell such securities, it does not participate
in further gains or losses with respect to the securities  beginning on the date
of the agreement.  If the other party to such a transaction  fails to deliver or
pay for  the  securities,  the  fund  could  miss a  favorable  price  or  yield
opportunity, or could experience a loss.


The fund will not use these  transactions for the purpose of leveraging and will
segregate  liquid  assets  that  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 in connection with 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 if it were 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.



                        Capital Income Builder -- Page 7
<PAGE>


The  fund  may  also  enter  into  reverse  repurchase   agreements  and  "roll"
transactions.  A reverse repurchase agreement involves the sale of a security by
a fund and its  agreement to  repurchase  the  security at a specified  time and
price.  A  "roll"  transaction  involves  the sale of  mortgage-backed  or other
securities  together with a commitment to purchase  similar,  but not identical,
securities  at a later  date.  The fund  assumes  the risk of  price  and  yield
fluctuations  during the time of the commitment.  The fund will segregate liquid
assets that will be marked to market daily in an amount  sufficient  to meet its
payment obligations under "roll" transactions and reverse repurchase  agreements
with broker-dealers (no collateral is required for reverse repurchase agreements
with banks).


REPURCHASE  AGREEMENTS -- The fund may enter into  repurchase  agreements  under
which the fund buys a security and obtains a  simultaneous  commitment  from the
seller to  repurchase  the  security at a specified  time and price.  Repurchase
agreements permit the fund to maintain liquidity and earn income over periods of
time as short as overnight.  The seller must maintain with the fund's  custodian
collateral  equal to at least 100% of the repurchase  price,  including  accrued
interest, as monitored daily by the investment adviser. The fund will only enter
into  repurchase  agreements  involving  securities in which it could  otherwise
invest and with selected banks and securities dealers whose financial  condition
is  monitored by the  investment  adviser.  If the seller  under the  repurchase
agreement  defaults,  the fund may incur a loss if the  value of the  collateral
securing the repurchase  agreement has declined and may incur  disposition costs
in connection with  liquidating the  collateral.  If bankruptcy  proceedings are
commenced with respect to the seller,  realization of the collateral by the fund
may be delayed or limited.


RESTRICTED OR ILLIQUID SECURITIES -- The fund may purchase securities subject to
restrictions  on resale.  Difficulty in selling such  securities may result in a
loss or be  costly to a fund.  Restricted  securities  generally  can be sold in
privately  negotiated  transactions,  pursuant to an exemption from registration
under the  Securities  Act of 1933 (the 1933  Act),  or in a  registered  public
offering.  Where registration is required,  the holder of a registered  security
may be  obligated  to  pay  all  or  part  of  the  registration  expense  and a
considerable  period may elapse between the time it decides to seek registration
and  the  time  it may be  permitted  to  sell a  security  under  an  effective
registration statement.


Securities  (including  restricted  securities)  not  actively  traded  will  be
considered  illiquid unless they have been specifically  determined to be liquid
under procedures  adopted by the fund's Board of Directors,  taking into account
factors such as the frequency and volume of trading,  the  commitment of dealers
to make markets and the  availability of qualified  investors,  all of which can
change  from  time to time.  The  fund may  incur  certain  additional  costs in
disposing of illiquid securities.


                        *     *     *     *     *     *

PORTFOLIO  TURNOVER --  Portfolio  changes  will be made  without  regard to the
length of time  particular  investments may have been held.  Short-term  trading
profits  are not the  fund's  objective,  and  changes  in its  investments  are
generally   accomplished   gradually,   though   short-term   transactions   may
occasionally be made. High portfolio turnover involves  correspondingly  greater
transaction  costs in the form of dealer spreads or brokerage  commissions,  and
may result in the  realization  of net capital  gains,  which are  taxable  when
distributed to shareholders.



                        Capital Income Builder -- Page 8
<PAGE>


Fixed-income  securities are generally traded on a net basis and usually neither
brokerage  commissions  nor transfer taxes are involved.  Transaction  costs are
usually reflected in the spread between the bid and asked price.


A fund's portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. The fund's  portfolio  turnover rates for
the fiscal years ended October 31, 2004 and 2003 were 24% and 27%, respectively.
See "Financial  highlights"  in the  prospectus for the fund's annual  portfolio
turnover rate for each of the last five fiscal years.


                FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES -- The fund has adopted the following  fundamental policies
and  investment  restrictions,  which may not be  changed  without  approval  by
holders of a majority of its outstanding shares. Such majority is defined in the
Investment  Company Act of 1940, as amended (the "1940 Act"), as the vote of the
lesser of (a) 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 (b) more than 50% of the  outstanding
voting  securities.  All  percentage  limitations  are  considered  at the  time
securities are purchased and are based on the fund's net assets unless otherwise
indicated.  None of the following  investment  restrictions  involving a maximum
percentage  of assets  will be  considered  violated  unless the  excess  occurs
immediately after, and is caused by, an acquisition by the fund.



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;


                        Capital Income Builder -- Page 9
<PAGE>


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;

With respect to investment  restriction number 6, investments in 144A securities
and 4(2)  commercial  paper are excluded for the purposes of calculating the 10%
limitation.


With  respect  to  investment  restriction  number  2, in  determining  industry
classifications  for issuers domiciled outside the United States,  the fund will
use reasonable  classifications  that are not so broad that the primary economic
characteristic of the companies in a single class is materially  different.  The
fund will determine such classifications of issuers domiciled outside the United
States based on the issuer's principal or major business activities.


Notwithstanding  investment  restriction  number  4,  the  fund  may  invest  in
securities of other investment  companies if deemed advisable by its officers in
connection with the  administration  of a deferred  compensation plan adopted by
Directors  pursuant to an exemptive order granted by the Securities and Exchange
Commission.


                       Capital Income Builder -- Page 10
<PAGE>


NONFUNDAMENTAL  POLICIES  --  The  following  policies  may be  changed  without
shareholder approval.


1. The fund may not issue  senior  securities,  except as  permitted by the 1940
Act.

2. The fund will not invest in securities of an issuer if the  investment  would
cause  the fund to own  more  than 10% of any  class  of  securities  of any one
issuer.


                       Capital Income Builder -- Page 11
<PAGE>



                             MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND OFFICERS



<TABLE>
<CAPTION>
                                     YEAR FIRST                                     NUMBER OF PORTFOLIOS
                        POSITION      ELECTED                                          WITHIN THE FUND      OTHER DIRECTORSHIPS/3/
                        WITH THE     A DIRECTOR    PRINCIPAL OCCUPATION(S) DURING    COMPLEX/2/ OVERSEEN             HELD
     NAME AND AGE         FUND     OF THE FUND/1/          PAST FIVE YEARS               BY DIRECTOR             BY DIRECTOR
-----------------------------------------------------------------------------------------------------------------------------------
 "NON-INTERESTED" DIRECTORS
-----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>        <C>             <C>                              <C>                    <C>
 H. Frederick Christie   Director       1987        Private investor; former                 19             Ducommun Incorporated;
 Age: 71                                            President and CEO, The                                  IHOP Corporation;
                                                    Mission Group (non-utility                              Southwest Water
                                                    holding company, subsidiary                             Company
                                                    of Southern California Edison
                                                    Company)
-----------------------------------------------------------------------------------------------------------------------------------
 Merit E. Janow          Director       2001        Professor, Columbia                       2             None
 Age: 46                                            University, School of
                                                    International and Public
                                                    Affairs
-----------------------------------------------------------------------------------------------------------------------------------
 Mary Myers Kauppila     Chairman of    1992        Private investor; Chairman of             5             None
 Age: 50                 the Board                  the Board and CEO, Ladera
                         (independent               Management Company (venture
                         and Non-                   capital and agriculture);
                         Executive)                 former owner and President,
                         and Director               Energy Investment, Inc.
-----------------------------------------------------------------------------------------------------------------------------------
 Gail L. Neale           Director       1987        President, The Lovejoy                    5             None
 Age: 69                                            Consulting Group, Inc. (a pro
                                                    bono consulting group
                                                    advising nonprofit
                                                    organizations)
-----------------------------------------------------------------------------------------------------------------------------------
 Robert J. O'Neill       Director       1992        Deputy Chairman of the                    3             None
 Age: 68                                            Council and Chairman of the
                                                    International Advisory Panel,
                                                    Graduate School of
                                                    Government, University of
                                                    Sydney, Australia; Member of
                                                    the Board of Directors, The
                                                    Lowy Institute for
                                                    International Policy Studies,
                                                    Sydney, Australia; Chairman
                                                    of the Council, Australian
                                                    Strategic Policy Institute;
                                                    former Chichele Professor of
                                                    the History of War and
                                                    Fellow, All Souls College,
                                                    University of Oxford; former
                                                    Chairman of the Council,
                                                    International Institute for
                                                    Strategic Studies
-----------------------------------------------------------------------------------------------------------------------------------
 Donald E. Petersen      Director       1992        Retired; former Chairman of               2             None
 Age: 78                                            the Board and CEO, Ford Motor
                                                    Company
-----------------------------------------------------------------------------------------------------------------------------------
 Stefanie Powers         Director   1989 - 1996     Actor, Producer; Co-founder               2             None
 Age: 62                                1997        and President, The William
                                                    Holden Wildlife Foundation;
                                                    conservation consultant to
                                                     Land Rover and Jaguar North
                                                    America; author of The Jaguar
                                                    Conservation Trust
-----------------------------------------------------------------------------------------------------------------------------------
 Steadman Upham          Director       2001        President and Professor of                2             None
 Age: 55                                            Anthropology, The University
                                                    of Tulsa; former President
                                                    and Professor of Archaeology,
                                                    Claremont Graduate University
-----------------------------------------------------------------------------------------------------------------------------------
 Charles Wolf, Jr.       Director       1987        Senior Economic Adviser and               2             None
 Age: 80                                            Corporate Fellow in
                                                    International Economics, The
                                                    RAND Corporation; former
                                                    Dean, The RAND Graduate
                                                    School
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>




                       Capital Income Builder -- Page 12

<PAGE>


[This page is intentionally left blank for this filing.]


                       Capital Income Builder -- Page 13

<PAGE>



<TABLE>
<CAPTION>
                                                    PRINCIPAL OCCUPATION(S) DURING
                                      YEAR FIRST          PAST FIVE YEARS AND
                                       ELECTED              POSITIONS HELD           NUMBER OF PORTFOLIOS
                       POSITION       A DIRECTOR       WITH AFFILIATED ENTITIES        WITHIN THE FUND      OTHER DIRECTORSHIPS/3/
                       WITH THE     AND/OR OFFICER   OR THE PRINCIPAL UNDERWRITER    COMPLEX/2/ OVERSEEN             HELD
   NAME AND AGE          FUND       OF THE FUND/1/            OF THE FUND                BY DIRECTOR        BY DIRECTOR OR OFFICER
-----------------------------------------------------------------------------------------------------------------------------------
 "INTERESTED" DIRECTORS/4,5/
-----------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>            <C>             <C>                              <C>                   <C>
 James B. Lovelace    Vice               1992        Senior Vice President and                 2            None
 Age: 48              Chairman                       Director, Capital Research
                      and                            and Management Company
                      Director
-----------------------------------------------------------------------------------------------------------------------------------
 Paul G. Haaga,       Director           1987        Executive Vice President and             17            None
 Jr.                                                 Director, Capital Research
 Age: 56                                             and Management Company;
                                                     Director, The Capital Group
                                                     Companies, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>





                       Capital Income Builder -- Page 14

<PAGE>




<TABLE>
<CAPTION>
                                                                     PRINCIPAL OCCUPATION(S) DURING
                           POSITION         YEAR FIRST ELECTED       PAST FIVE YEARS AND POSITIONS HELD
                           WITH THE             AN OFFICER           WITH AFFILIATED ENTITIES
   NAME AND AGE              FUND             OF THE FUND/1/         OR THE PRINCIPAL UNDERWRITER OF THE FUND
-----------------------------------------------------------------------------------------------------------------------------------
 OTHER OFFICERS/5/
-----------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                 <C>                    <C>
 Catherine M. Ward        President                1987              Senior Vice President and Director, Capital Research and
 Age: 57                                                             Management Company; Director, American Funds Service Company*;
                                                                     Secretary and Director, Capital Group Research, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
 Joyce E. Gordon         Executive Vice            1996              Vice President and Director, Capital Research and Management
 Age: 48                  President                                  Company; Senior Vice President, Capital Research Company*
-----------------------------------------------------------------------------------------------------------------------------------
 Mark R. Macdonald       Senior Vice               2001              Senior Vice President and Director, Capital Research and
 Age: 45                  President                                  Management Company
-----------------------------------------------------------------------------------------------------------------------------------
 Steven T. Watson       Vice President             1997              Senior Vice President and Director, Capital Research Company*
 Age: 49
-----------------------------------------------------------------------------------------------------------------------------------
 Vincent P. Corti         Secretary                1987              Vice President - Fund Business Management Group, Capital
 Age: 48                                                             Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
 Sheryl F. Johnson       Treasurer                 2003              Vice President - Fund Business Management Group, Capital
 Age: 36                                                             Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
 Rodney S. Kiemele     Assistant Secretary         2005              Assistant Vice President - Fund Business Management Group,
 Age: 37                                                             Capital Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
 Jeffrey P. Regal      Assistant Treasurer         2001              Vice President - Fund Business Management Group, Capital
 Age: 33                                                             Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>



*    Company affiliated with Capital Research and Management Company.
(1)  Directors and officers of the fund serve until their  resignation,  removal
     or retirement.
(2)  Capital  Research  and  Management  Company  manages  the  American  Funds,
     consisting  of 29 funds.  Capital  Research  and  Management  Company  also
     manages American Funds Insurance  Series,(R) which serves as the underlying
     investment   vehicle  for  certain  variable   insurance   contracts,   and
     Endowments,   whose   shareholders   are   limited  to  certain   nonprofit
     organizations.
(3)  This includes all  directorships  (other than those of the American  Funds)
     that are held by each  Director  as a  director  of a public  company  or a
     registered investment company.
(4)  "Interested  persons,"  within the meaning of the 1940 Act, on the basis of
     their affiliation with the fund's investment adviser,  Capital Research and
     Management  Company, or affiliated entities (including the fund's principal
     underwriter).
(5)  All of the officers listed are officers and/or Directors/Trustees of one or
     more of the other funds for which Capital  Research and Management  Company
     serves as investment adviser.

THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET,
55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY.



                       Capital Income Builder -- Page 15

<PAGE>




FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2003



<TABLE>
<CAPTION>
                                                     AGGREGATE DOLLAR RANGE/1/
                                                             OF SHARES
                                                        OWNED IN ALL FUNDS
                                                       IN THE AMERICAN FUNDS
                          DOLLAR RANGE/1/ OF FUND         FAMILY OVERSEEN
          NAME                  SHARES OWNED                BY DIRECTOR
-------------------------------------------------------------------------------
<S>                       <C>                       <C>
 "NON-INTERESTED" DIRECTORS
-------------------------------------------------------------------------------
 H. Frederick Christie         Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Merit E. Janow              $10,001 - $50,000           $10,001 - $50,000
-------------------------------------------------------------------------------
 Mary Myers Kauppila           Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Gail L. Neale                 Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Robert J. O'Neill                  None                       None
-------------------------------------------------------------------------------
 Donald E. Petersen            Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Stefanie Powers               Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Steadman Upham              $10,001 - $50,000          $50,001 - $100,000
-------------------------------------------------------------------------------
 Charles Wolf, Jr.             Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 "INTERESTED" DIRECTORS/2/
-------------------------------------------------------------------------------
 Paul G. Haaga, Jr.            Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 James B. Lovelace             Over $100,000               Over $100,000
-------------------------------------------------------------------------------
</TABLE>

(1)  Ownership  disclosure  is made  using  the  following  ranges:  None;  $1 -
     $10,000;  $10,001 - $50,000;  $50,001 - $100,000;  and Over  $100,000.  The
     amounts listed for "interested"  Directors include shares owned through The
     Capital Group Companies, Inc. retirement plan and 401(k) plan.
(2)  "Interested  persons,"  within the meaning of the 1940 Act, on the basis of
     their affiliation with the fund's investment adviser,  Capital Research and
     Management  Company, or affiliated entities (including the fund's principal
     underwriter).


DIRECTOR  COMPENSATION  -- No compensation is paid by the fund to any officer or
Director who is a director, officer or employee of the investment adviser or its
affiliates.  The  fund  pays  to  Directors  who  are not  affiliated  with  the
investment  adviser:  (a) fees of $2,000  for each  Board of  Directors  meeting
attended, (b) $1,000 for each meeting attended as a member of a committee of the
Board of Directors  and (c) annual fees of either  $15,000 (if the Director also
receives  compensation  as a member of the Board of another  fund advised by the
investment  adviser  and the other Board  typically  meets  separately  from the
fund's Board of Directors), or $50,000 (for all other unaffiliated Directors), a
pro rata portion of which is paid by the fund and another fund whose Board meets
jointly with the fund's Board of Directors.


The payment by the fund to certain  unaffiliated  Directors of a larger per fund
annual fee reflects the significant  time and labor  commitment  required of any
mutual fund Board member overseeing even one fund.



                       Capital Income Builder -- Page 16
<PAGE>



The  Nominating  Committee  of the Board of  Directors,  a  Committee  comprised
exclusively of Directors not affiliated  with the  investment  adviser,  reviews
Director compensation  periodically,  and typically recommends adjustments every
other year. In making its recommendations,  the Nominating Committee considers a
number of factors,  including  operational,  regulatory  and other  developments
affecting the scope and complexity of the Board's oversight obligations, as well
as comparative industry data.



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.




DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED OCTOBER 31, 2004


<TABLE>
<CAPTION>
                                                        TOTAL COMPENSATION (INCLUDING
                         AGGREGATE COMPENSATION     VOLUNTARILY DEFERRED COMPENSATION/1/)
                         (INCLUDING VOLUNTARILY           FROM ALL FUNDS MANAGED BY
                        DEFERRED COMPENSATION/1/)      CAPITAL RESEARCH AND MANAGEMENT
         NAME                 FROM THE FUND             COMPANY OR ITS AFFILIATES/2/
------------------------------------------------------------------------------------------
<S>                     <C>                        <C>
 H. Frederick Christie/3/        $23,263                          $275,430
------------------------------------------------------------------------------------------
 Merit E. Janow                   27,064                            57,654
------------------------------------------------------------------------------------------
 Mary Myers Kauppila/3/           25,500                           148,500
------------------------------------------------------------------------------------------
 Gail L. Neale                    24,550                           110,500
------------------------------------------------------------------------------------------
 Robert J. O'Neill                28,564                            70,654
------------------------------------------------------------------------------------------
 Donald E. Petersen/3/            29,564                            61,154
------------------------------------------------------------------------------------------
 Stefanie Powers                  25,564                            53,154
------------------------------------------------------------------------------------------
 Frank Stanton                    19,064                            40,154
------------------------------------------------------------------------------------------
 Steadman Upham/3/                30,314                            64,154
------------------------------------------------------------------------------------------
 Charles Wolf, Jr.                28,814                            61,154
------------------------------------------------------------------------------------------
</TABLE>

(1)  Amounts may be deferred by eligible Directors under a nonqualified 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 American
     Funds as  designated  by the  Directors.  Compensation  for the fiscal year
     ended October 31, 2004,  includes  earnings on amounts deferred in previous
     fiscal years.
(2)  Capital  Research  and  Management  Company  manages  the  American  Funds,
     consisting  of 29 funds.  Capital  Research  and  Management  Company  also
     manages American Funds Insurance  Series,(R) which serves as the underlying
     investment   vehicle  for  certain  variable   insurance   contracts,   and
     Endowments,   whose   shareholders   are   limited  to  certain   nonprofit
     organizations.
(3)  Since the  deferred  compensation  plan's  adoption,  the  total  amount of
     deferred  compensation  accrued by the fund (plus earnings thereon) through
     the  2004  fiscal  year  for  participating  Directors  is as  follows:  H.
     Frederick Christie ($167,003),  Mary Myers Kauppila  ($354,906),  Donald E.
     Petersen  ($85,760)  and Steadman  Upham  ($81,949).  Amounts  deferred and
     accumulated  earnings  thereon  are not  funded and are  general  unsecured
     liabilities of the fund until paid to the Directors.

As of  December  1,  2004,  the  officers  and  Directors  of the fund and their
families,  as a group,  owned  beneficially  or of  record  less  than 1% of the
outstanding shares of the fund.



                       Capital Income Builder -- Page 17
<PAGE>



FUND  ORGANIZATION  AND  THE  BOARD  OF  DIRECTORS  -- The  fund,  an  open-end,
diversified   management   investment  company,  was  organized  as  a  Maryland
corporation  on June 8, 1987.  Although  the Board of  Directors  has  delegated
day-to-day  oversight  to  the  investment  adviser,  all  fund  operations  are
supervised by the fund's Board,  which meets  periodically  and performs  duties
required by applicable state and federal laws.


Under  Maryland  law, the  business and affairs of a fund are managed  under the
direction of the Board of Directors, and all powers of the fund are exercised by
or under the  authority of the Board except as reserved to the  shareholders  by
law or the fund's  charter or by-laws.  Maryland law requires  each  Director to
perform  his/her duties as a Director,  including  his/her duties as a member of
any Board  committee on which he/she serves,  in good faith,  in a manner he/she
reasonably  believes to be in the best  interest of the fund,  and with the care
that an ordinarily  prudent  person in a like  position  would use under similar
circumstances.



Members  of the Board who are not  employed  by the  investment  adviser  or its
affiliates are paid certain fees for services  rendered to the fund as described
above. They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund.


The fund has several  different  classes of shares,  including Class A, B, C, F,
529-A,  529-B,  529-C,  529-E, 529-F, R-1, R-2, R-3, R-4 and R-5 shares. The 529
share  classes are  available  only  through  CollegeAmerica/(R)/  to  investors
establishing  qualified higher education savings  accounts.  The R share classes
are generally available only to  employer-sponsored  retirement plans. Class R-5
shares are also available to clients of the Personal Investment Management group
of Capital  Guardian  Trust Company who do not have an  intermediary  associated
with their accounts and without regard to the $1 million purchase minimum.


Shares of each class  represent  an interest in the same  investment  portfolio.
Each  class  has  pro  rata  rights  as to  voting,  redemption,  dividends  and
liquidation,  except that each class bears different  distribution  expenses and
may bear different transfer agent fees and other expenses properly  attributable
to the  particular  class as approved by the Board of Directors and set forth in
the fund's  rule 18f-3 Plan.  Each class'  shareholders  have  exclusive  voting
rights  with  respect  to the  respective  class'  rule 12b-1  plans  adopted in
connection  with the  distribution  of shares and on other  matters in which the
interests of one class are different from interests in another class.  Shares of
all  classes of the fund vote  together  on matters  that  affect all classes in
substantially  the same  manner.  Each class  votes as a class on  matters  that
affect  that  class  alone.  Note that  CollegeAmerica  account  owners  are not
shareholders  of  the  fund  and,  accordingly,  do not  have  the  rights  of a
shareholder,  such as the right to vote proxies relating to fund shares.  As the
legal owner of the fund's shares,  the Virginia  College  Savings  Plan/SM/ will
vote any proxies relating to fund shares.



The fund does not hold annual  meetings of  shareholders.  However,  significant
matters that 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  fund's  Articles  of   Incorporation   and  by-laws  as  well  as  separate
indemnification agreements that the fund has entered into with Directors who are
not "interested persons" of the fund, provide in effect that, subject to certain
conditions, the fund will indemnify its officers and Directors



                       Capital Income Builder -- Page 18
<PAGE>



against  liabilities  or  expenses  actually  and  reasonably  incurred  by them
relating to their service to the fund. However, Directors are not protected from
liability by reason of their willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their office.


REMOVAL OF DIRECTORS BY  SHAREHOLDERS  -- At any meeting of  shareholders,  duly
called and at which a quorum is present,  shareholders  may, by the  affirmative
vote of the holders of a majority of the votes  entitled to be cast,  remove any
Director  from  office  and may  elect a  successor  or  successors  to fill any
resulting  vacancies for the unexpired terms of removed Directors.  The fund has
agreed,  at the request of the staff of the Securities and Exchange  Commission,
to apply the  provisions  of section  16(c) of the 1940 Act with  respect to the
removal of Directors,  as though the fund were a common-law trust.  Accordingly,
the Directors of the fund will promptly call a meeting of  shareholders  for the
purpose of voting upon the removal of any Directors when requested in writing to
do so by the record holders of at least 10% of the outstanding shares.


COMMITTEES  OF THE  BOARD  OF  DIRECTORS  -- The  fund  has an  Audit  Committee
comprised of H. Frederick Christie, Merit E. Janow, Mary Myers Kauppila,  Robert
J. O'Neill, Steadman Upham and Charles Wolf, Jr., none of whom is an "interested
person" of the fund within the meaning of the 1940 Act. The  Committee  provides
oversight  regarding the fund's accounting and financial  reporting policies and
practices,  its  internal  controls  and the  internal  controls  of the  fund's
principal service providers.  The Committee acts as a liaison between the fund's
independent  registered  public accounting firm and the full Board of Directors.
Two Audit Committee meetings were held during the 2004 fiscal year.


The fund has a  Nominating  Committee  comprised  of Gail L.  Neale,  Donald  E.
Petersen,  Stefanie  Powers and Steadman  Upham,  none of whom is an "interested
person"  of  the  fund  within  the  meaning  of the  1940  Act.  The  Committee
periodically reviews such issues as the Board's  composition,  responsibilities,
committees,   compensation  and  other  relevant  issues,   and  recommends  any
appropriate  changes  to  the  full  Board  of  Directors.  The  Committee  also
evaluates,  selects and nominates  independent  Director  candidates to the full
Board of Directors.  While the  Committee  normally is able to identify from its
own and  other  resources  an ample  number  of  qualified  candidates,  it will
consider shareholder suggestions of persons to be considered as nominees to fill
future  vacancies on the Board.  Such suggestions must be sent in writing to the
Nominating Committee of the fund, addressed to the fund's Secretary, and must be
accompanied by complete  biographical and  occupational  data on the prospective
nominee,   along  with  a  written  consent  of  the  prospective   nominee  for
consideration  of his or her name by the  Committee.  Two  Nominating  Committee
meetings were held during the 2004 fiscal year.


The fund has a Contracts Committee comprised of H. Frederick Christie,  Merit E.
Janow,  Mary  Myers  Kauppila,  Gail L.  Neale,  Robert  J.  O'Neill,  Donald E.
Petersen, Stefanie Powers, Steadman Upham and Charles Wolf, Jr., none of whom is
an  "interested  person"  of the fund  within the  meaning of the 1940 Act.  The
Committee's  function is to request,  review and consider the information deemed
necessary to evaluate the terms of certain  agreements  between the fund and its
investment  adviser  or  the  investment  adviser's  affiliates,   such  as  the
Investment  Advisory and Service Agreement,  Principal  Underwriting  Agreement,
Administrative  Services  Agreement and Plans of  Distribution  under rule 12b-1
adopted under the 1940 Act, that the fund may enter into, renew or continue, and
to make its recommendations to the full Board of Directors on these matters. One
Contracts Committee meeting was held during the 2004 fiscal year.



                       Capital Income Builder -- Page 19
<PAGE>



The fund has a Proxy  Committee  comprised of H.  Frederick  Christie,  Merit E.
Janow,  Mary  Myers  Kauppila,  Gail L.  Neale,  Robert  J.  O'Neill,  Donald E.
Petersen,  Stephanie Powers,  Steadman Upham and Charles Wolf, Jr., none of whom
is an  "interested  person" of the fund within the meaning of the 1940 Act.  The
Committee's  functions  include  reviewing  procedures  and  policies for voting
proxies of companies held in the fund's portfolio,  monitoring certain contested
proxy voting issues,  and discussing related current issues. Two Proxy Committee
meetings were held during the 2004 fiscal year.


PROXY VOTING  PROCEDURES AND  GUIDELINES -- The fund and its investment  adviser
have adopted Proxy Voting Guidelines (the  "Guidelines")  with respect to voting
proxies of securities held by the American Funds,  Endowments and American Funds
Insurance Series.  Certain American Funds,  including the fund, have established
separate proxy  committees that vote proxies or delegate to a voting officer the
authority  to vote on behalf of those  funds.  Proxies  for all other  funds are
voted by a committee of the investment adviser under authority  delegated by the
funds'  Boards.  Therefore,  if more than one fund invests in the same  company,
they may vote differently on the same proposal.



All U.S. proxies are voted.  Non-U.S.  proxies also are voted, provided there is
sufficient  time  and  information  available.  After a proxy is  received,  the
investment  adviser  prepares  a  summary  of  the  proposals  in the  proxy.  A
discussion  of any  potential  conflicts  of  interest  is also  included in the
summary.  After reviewing the summary,  one or more research  analysts  familiar
with  the  company  and  industry  make a  voting  recommendation  on the  proxy
proposals.  A second  recommendation  is made by a proxy  coordinator  (a senior
investment  professional) based on the individual's  knowledge of the Guidelines
and  familiarity  with  proxy-related  issues.  The  proxy  summary  and  voting
recommendations  are then sent to the appropriate proxy voting committee for the
final voting decision.


The analyst and proxy coordinator making voting  recommendations are responsible
for noting any potential  material  conflicts of interest.  One example might be
where a director of one or more  American  Funds is also a director of a company
whose proxy is being  voted.  In such  instances,  proxy  committee  members are
alerted to the potential  conflict.  The proxy  committee may then elect to vote
the  proxy or seek a  third-party  recommendation  or vote of an ad hoc group of
committee members.


The Guidelines,  which have been in effect in  substantially  their current form
for many years,  provide an important framework for analysis and decision-making
by all funds.  However, they are not exhaustive and do not address all potential
issues.  The  Guidelines  provide a certain  amount of  flexibility  so that all
relevant  facts and  circumstances  can be considered  in connection  with every
vote.  As a  result,  each  proxy  received  is  voted on a  case-by-case  basis
considering  the specific  circumstances  of each  proposal.  The voting process
reflects the funds' understanding of the company's business,  its management and
its relationship with shareholders over time.


On August 31 of each year,  each fund is required  to file Form N-PX  containing
its complete  voting record for the 12 months ended the  preceding  June 30. The
fund's  voting  record for the 12 months ended June 30, 2004 is available on the
American  Funds  website  at  americanfunds.com  and on  the  SEC's  website  at
www.sec.gov.



                       Capital Income Builder -- Page 20
<PAGE>



The following  summary sets forth the general  positions of the American  Funds,
Endowments,  American  Funds  Insurance  Series  and the  investment  adviser on
various proposals. A copy of the full Guidelines is available upon request, free
of charge, by calling American Funds Service Company at 800/421-0180 or visiting
the American Funds website.


     DIRECTOR  MATTERS -- The  election  of a company's  slate of  nominees  for
     director is generally  supported.  Votes may be withheld for some or all of
     the  nominees  if  this  is  determined  to  be in  the  best  interest  of
     shareholders.  Separation  of the  chairman and CEO  positions  may also be
     supported.   Typically,  proposals  to  declassify  the  board  (elect  all
     directors  annually) are supported  based on the belief that this increases
     the directors' sense of accountability to shareholders.

     SHAREHOLDER  RIGHTS --  Proposals  to repeal an existing  poison  pill,  to
     provide for  confidential  voting and to provide for cumulative  voting are
     usually supported.  Proposals to eliminate the right of shareholders to act
     by written consent or to take away a shareholder's  right to call a special
     meeting are not typically supported.

     COMPENSATION  AND BENEFIT PLANS -- Option plans are  complicated,  and many
     factors are considered in evaluating a plan.  Each plan is evaluated  based
     on protecting  shareholder interests and a knowledge of the company and its
     management.  Considerations  include the pricing (or  repricing) of options
     awarded under the plan and the impact of dilution on existing  shareholders
     from  past and  future  equity  awards.  Compensation  packages  should  be
     structured to attract, motivate and retain existing employees and qualified
     directors; however, they should not be excessive.

     ROUTINE  MATTERS  --  The  ratification  of  auditors,  procedural  matters
     relating to the annual  meeting and changes to company name are examples of
     items  considered  routine.  Such  items  are  generally  voted in favor of
     management's recommendations unless circumstances indicate otherwise.



                       Capital Income Builder -- Page 21
<PAGE>



PRINCIPAL FUND  SHAREHOLDERS -- The following table  identifies  those investors
who own of record or are known by the fund to own beneficially 5% or more of any
class of its shares as of the opening of  business  on December 1, 2004.  Unless
otherwise  indicated,  the ownership  percentages  below represent  ownership of
record rather than beneficial ownership.



<TABLE>
<CAPTION>
                 NAME AND ADDRESS                    OWNERSHIP PERCENTAGE
----------------------------------------------------------------------------
<S>                                                  <C>          <C>
 Edward D. Jones & Co.                               Class A        34.19%
 201 Progress Parkway                                Class B        20.58
 Maryland Heights, MO  63043-3009
----------------------------------------------------------------------------
 Citigroup Global Markets, Inc.                      Class B         9.11
 333 West 34th Street                                Class C        14.06
 New York, NY  10001-2402
----------------------------------------------------------------------------
 MLPF&S For the Sole Benefit of Its Customers        Class B         8.07
 4800 Deer Lake Drive East, Floor 2                  Class C        16.58
 Jacksonville, FL  32246-6484
----------------------------------------------------------------------------
 Curiale, Dellaverson, Hirschfeld, Kraemer & Sloan   Class R-1       6.24
 111 Sutter Street, Floor 1800
 San Francisco, CA  94104-4545
----------------------------------------------------------------------------
 Raymond James & Associates, Inc.                    Class R-1       5.16
 FBO Eno
 880 Carillon Parkway
 St. Petersburg, FL  33716-1100
----------------------------------------------------------------------------
 Hartford Life Insurance Company                     Class R-3      19.00
 P.O. Box 2999
 Hartford, CT  06104-2999
----------------------------------------------------------------------------
 Nationwide Trust Company FSB                        Class R-3      12.08
 P.O. Box 182029
 Columbus, OH  43218-2029
----------------------------------------------------------------------------
 CB&T Trustee for                                    Class R-4      13.37
 Smithgroup, Inc.
 c/o Fascorp Inv/Mutual Fund Trading
 8515 East Orchard Road #2T2
 Englewood, CO  80111-5002
----------------------------------------------------------------------------
 Trustlynx & Co. FBO                                 Class R-4       8.93
 Parker Fire Protection District
 P.O. Box 173736
 Denver, CO  80217-3736
----------------------------------------------------------------------------
 Capital Group Master Retirement Plan                Class R-5      25.36
 c/o Capital Guardian Trust Company
 333 South Hope Street, Floor 49
 Los Angeles, CA  90071
----------------------------------------------------------------------------
 The Northern Trust TTEE                             Class R-5       5.52
 UBS Financial Services Inc.
 P.O. Box 92994
 Chicago, IL  60675-2994
----------------------------------------------------------------------------
</TABLE>



                       Capital Income Builder -- Page 22
<PAGE>



INVESTMENT  ADVISER -- The investment  adviser,  Capital Research and Management
Company, founded in 1931, maintains research facilities in the United States and
abroad (Los Angeles; San Francisco;  New York;  Washington,  DC; London; Geneva;
Hong Kong;  Singapore;  and Tokyo) with a staff of  professionals,  many of whom
have significant investment experience. The investment adviser is located at 333
South  Hope  Street,  Los  Angeles,  CA 90071  and at 135  South  State  College
Boulevard,  Brea, CA 92821.  The  investment  adviser's  research  professionals
travel several  million miles a year,  making more than 5,000 research visits in
more than 50 countries around the world. The investment adviser believes that it
is able to attract and retain quality  personnel.  The  investment  adviser is a
wholly owned subsidiary of The Capital Group Companies, Inc.


The  investment  adviser is  responsible  for managing more than $500 billion of
stocks,   bonds  and  money  market  instruments  and  serves  over  20  million
shareholder  accounts of all types throughout the world. These investors include
individuals,  privately  owned  businesses  and large  corporations,  as well as
schools, colleges, foundations and other nonprofit and tax-exempt organizations.


INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and Service
Agreement (the  "Agreement")  between the fund and the  investment  adviser will
continue in effect until October 31, 2005, 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 (a) 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 (b) the vote of a majority of Directors who are not
parties to the Agreement or  interested  persons (as defined in the 1940 Act) of
any such party,  cast in person at a meeting called for the purpose of voting on
such  approval.  The  Agreement  provides  that the  investment  adviser  has no
liability  to the fund  for its  acts or  omissions  in the  performance  of its
obligations  to the fund not  involving  willful  misconduct,  bad faith,  gross
negligence or reckless  disregard of its  obligations  under the Agreement.  The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written notice to the other party, and that the Agreement
automatically  terminates in the event of its assignment (as defined in the 1940
Act).


In determining whether to renew the Agreement each year, the Contracts Committee
of the Board of  Directors  evaluates  information  provided  by the  investment
adviser in  accordance  with  Section  15(c) of the 1940 Act,  and  presents its
recommendations  to the full  Board of  Directors.  That  information  typically
relates to: the nature, extent and quality of the investment adviser's services;
the fund's investment  results on an absolute basis and as compared with various
indices  and peer  funds;  the  fund's  advisory  fee and other  expenses  on an
absolute basis and as compared with various  indices and peer funds,  as well as
other funds advised by the investment adviser;  financial information concerning
the  investment  adviser,   including  profitability  comparisons  with  certain
publicly-held  mutual fund managers;  information with respect to the sharing of
economies  of scale;  compliance  and  regulatory  matters;  fees charged by the
investment adviser's affiliates to institutional clients; and investment adviser
compliance, regulatory and personnel matters.


In  preparation  for its  most  recent  meeting,  the  Committee  reviewed  such
information in advance.  At the meeting,  the members of the Committee discussed
the  information  with the  representatives  of the  investment  adviser,  posed
questions,  requested  additional  information  concerning  various  matters and
consulted  in  executive   session  with  independent   counsel  to  the  fund's
independent directors.



                       Capital Income Builder -- Page 23
<PAGE>



Among the material  factors the  Committee  considered in approving the advisory
agreement were the fund's positive  long-term  investment results and the fund's
low  relative  expense  level.  Based on its  consideration  of these  and other
matters, the Committee and the Board concluded that the fund's advisory fees and
other expenses are fair,  both  absolutely and in comparison with those of other
comparable funds in the industry, and that shareholders have received reasonable
value in return for paying such fees and expenses.


In addition to providing  investment  advisory services,  the investment adviser
furnishes the services and pays the  compensation and travel expenses of persons
to perform  the  fund's  executive,  administrative,  clerical  and  bookkeeping
functions,  and provides suitable office space, necessary small office equipment
and utilities,  general purpose  accounting forms,  supplies and postage used at
the fund's  offices.  The fund pays all expenses  not assumed by the  investment
adviser,  including, but not limited to, custodian,  stock transfer and dividend
disbursing  fees and  expenses;  shareholder  recordkeeping  and  administrative
expenses; costs of the designing, printing and mailing of reports, prospectuses,
proxy  statements  and  notices  to its  shareholders;  taxes;  expenses  of the
issuance  and  redemption  of  fund  shares   (including   stock   certificates,
registration  and  qualification  fees and expenses);  expenses  pursuant to the
fund's plans of distribution  (described  below);  legal and auditing  expenses;
compensation,  fees  and  expenses  paid  to  Directors  unaffiliated  with  the
investment  adviser;  association  dues;  costs of stationery and forms prepared
exclusively  for the  fund;  and costs of  assembling  and  storing  shareholder
account data.


The  management  fee is based upon the daily net assets of the fund and  monthly
gross investment  income.  Gross  investment  income is determined in accordance
with generally accepted accounting principles.


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 but not
exceeding  $13  billion;  0.145% of such assets in excess of $13 billion but not
exceeding  $17  billion;  0.140% of such assets in excess of $17 billion but not
exceeding  $21  billion;  0.135% of such assets in excess of $21 billion but not
exceeding  $27  billion;  0.130% of such assets in excess of $27 billion but not
exceeding  $34 billion,  plus 0.125% of such assets in excess of $34 billion but
not exceeding $44 billion,  plus 0.120% of such assets in excess of $44 billion,
plus 3.0% of the fund's first $100 million monthly gross  investment  income and
2.5% of the monthly gross income above $100 million.  Assuming net assets of $30
billion and gross investment  income levels of 3%, 4%, 5%, 6% and 7%, management
fees would be 0.24%, 0.27%, 0.30%, 0.32% and 0.35%, respectively.



The investment  adviser has agreed that in the event the Class A expenses of the
fund (with the  exclusion  of interest,  taxes,  brokerage  costs,  distribution
expenses pursuant to a plan under Rule 12b-1 and extraordinary expenses, such as
litigation and  acquisitions)  for any fiscal year ending on a date on which the
Agreement is in effect,  exceed the expense  limitations,  if any, applicable to
the fund pursuant to state  securities  laws or any regulations  thereunder,  it
will reduce its fee by the extent of such  excess  and, if required  pursuant to
any such laws or regulations  thereunder,  will reimburse the fund in the amount
of such excess.  To the extent the investment  adviser is required to reduce its
management  fee due to Class A share expense  ratios  exceeding the above limit,
the investment  adviser will either: (i) reduce its management fee similarly for
other classes


                       Capital Income Builder -- Page 24
<PAGE>


of shares, or (ii) reimburse the fund for other expenses to the extent necessary
to result in an expense reduction only for Class A shares of the fund.


For the fiscal year ended October 31, 2004, the investment  adviser was entitled
to  receive  from the fund  advisory  fees of  $81,037,000.  As a result  of the
advisory fee waivers  described  below, for the year ended October 31, 2004, the
fee shown on the accompanying financial statements of $81,037,000 was reduced by
$1,196,000 to $79,841,000. For the fiscal years ended October 31, 2003 and 2002,
advisory  fees  paid  by the  fund  amounted  to  $48,915,000  and  $30,376,000,
respectively.




For the period from  September 1, 2004 through  March 31, 2005,  the  investment
adviser agreed to waive 5% of the management fees that it was otherwise entitled
to receive under the Agreement.  Beginning April 1, 2005, this waiver  increased
to 10% of the management fees that it is otherwise  entitled to receive and will
continue  at this  level  until  further  review.  As a result  of this  waiver,
management fees will be reduced similarly for all classes of shares of the fund.
As of October 31, 2004,  management fees were reduced by $748,000 as a result of
this waiver.




In addition,  from June 1, 2004 until October 31, 2004, the  investment  adviser
waived the fees in excess of the rates  provided in the November 1, 2004 amended
advisory and service  agreement.  As of October 31, 2004,  management  fees were
reduced by $448,000 as a result of this waiver.


ADMINISTRATIVE  SERVICES AGREEMENT -- The Administrative Services Agreement (the
"Administrative Agreement") between the fund and the investment adviser relating
to the fund's Class C, F, R and 529 shares will continue in effect until October
31,  2005,  unless  sooner  terminated,  and may be  renewed  from  year to year
thereafter,  provided  that any such renewal has been  specifically  approved at
least annually by the vote of a majority of Directors who are not parties to the
Administrative  Agreement or interested  persons (as defined in the 1940 Act) of
any such party,  cast in person at a meeting called for the purpose of voting on
such approval.  The fund may terminate the Administrative  Agreement at any time
by vote of a majority of Directors who are not  interested  persons of the fund.
The investment adviser has the right to terminate the  Administrative  Agreement
upon  60  days'  written  notice  to  the  fund.  The  Administrative  Agreement
automatically  terminates in the event of its assignment (as defined in the 1940
Act).


Under the  Administrative  Agreement,  the investment  adviser  provides certain
transfer agent and administrative  services for shareholders of the fund's Class
C and F shares, and all Class R and 529 shares. The investment adviser contracts
with  third  parties,  including  American  Funds  Service  Company,  the fund's
Transfer Agent, to provide these services. Services include, but are not limited
to, shareholder account  maintenance,  transaction  processing,  tax information
reporting and shareholder and fund communications.  In addition,  the investment
adviser  monitors,  coordinates  and oversees the activities  performed by third
parties  providing such  services.  For Class R-1, R-2, R-3, R-4 and R-5 shares,
the  investment  adviser has agreed to pay a portion of these fees. For the year
ended  October 31,  2004,  the total fees paid by the  investment  adviser  were
$263,000.


As compensation for its services, the investment adviser receives transfer agent
fees for  transfer  agent  services  provided  to the  fund's  applicable  share
classes.  Transfer  agent  fees are paid  monthly  according  to a fee  schedule
contained  in a  Shareholder  Services  Agreement  between the fund and American
Funds Service Company.  The investment  adviser also receives an  administrative
services fee for administrative services provided to the fund's applicable share
classes.  Administrative  services  fees are paid  monthly,  accrued  daily  and
calculated  at the annual rate of 0.15% of the average daily net assets for each
applicable share class, except



                       Capital Income Builder -- Page 25
<PAGE>



Class R-5 shares. For Class R-5 shares, the administrative  services fee is paid
monthly, accrued daily and calculated at the annual rate of 0.10% of the average
net assets of Class R-5 shares.


During  the 2004  fiscal  period,  administrative  services  fees,  gross of any
payments made by the investment adviser, were:



<TABLE>
<CAPTION>
                                             ADMINISTRATIVE SERVICES FEE
-------------------------------------------------------------------------------
<S>                                          <C>
                    CLASS C                                $4,344,000
-------------------------------------------------------------------------------
                    CLASS F                                 1,367,000
-------------------------------------------------------------------------------
                  CLASS 529-A                                 294,000
-------------------------------------------------------------------------------
                  CLASS 529-B                                  83,000
-------------------------------------------------------------------------------
                  CLASS 529-C                                 151,000
-------------------------------------------------------------------------------
                  CLASS 529-E                                  17,000
-------------------------------------------------------------------------------
                  CLASS 529-F                                   3,000
-------------------------------------------------------------------------------
                   CLASS R-1                                   18,000
-------------------------------------------------------------------------------
                   CLASS R-2                                  647,000
-------------------------------------------------------------------------------
                   CLASS R-3                                  227,000
-------------------------------------------------------------------------------
                   CLASS R-4                                   16,000
-------------------------------------------------------------------------------
                   CLASS R-5                                  154,000
-------------------------------------------------------------------------------
</TABLE>



PRINCIPAL  UNDERWRITER AND PLANS OF DISTRIBUTION -- American Funds Distributors,
Inc. (the "Principal  Underwriter")  is the principal  underwriter of the fund's
shares.  The  Principal  Underwriter  is located at 333 South Hope  Street,  Los
Angeles,  CA 90071;  135 South State College  Boulevard,  Brea,  CA 92821;  3500
Wiseman Boulevard,  San Antonio,  TX 78251; 8332 Woodfield  Crossing  Boulevard,
Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513.


The Principal Underwriter receives revenues from sales of the fund's shares. For
Class A and 529-A shares, the Principal  Underwriter receives commission revenue
consisting of that portion of the Class A and 529-A sales charge remaining after
the allowances by the Principal  Underwriter to investment dealers.  For Class B
and 529-B shares,  the Principal  Underwriter sells the rights to the 12b-1 fees
paid by the fund for  distribution  expenses to a third party and  receives  the
revenue remaining after compensating investment dealers for sales of Class B and
529-B  shares.  The fund also pays the Principal  Underwriter  for advancing the
immediate  service fees paid to qualified  dealers of Class B and 529-B  shares.
For Class C and 529-C shares, the Principal  Underwriter receives any contingent
deferred sales charges that apply during the first year after purchase. The fund
pays the Principal  Underwriter  for  advancing  the immediate  service fees and
commissions  paid to qualified  dealers of Class C and 529-C  shares.  For Class
529-E  shares,  the fund  pays  the  Principal  Underwriter  for  advancing  the
immediate  service fees and commissions paid to qualified  dealers.  For Class F
and 529-F  shares,  the fund pays the  Principal  Underwriter  for advancing the
immediate  service fees paid to qualified  dealers and advisers who sell Class F
and 529-F shares. For Class R-1, R-2, R-3 and R-4 shares, the fund pays the



                       Capital Income Builder -- Page 26
<PAGE>



Principal Underwriter for advancing the immediate service fees paid to qualified
dealers and advisers who sell Class R-1, R-2, R-3 and R-4 shares.



Commissions, revenue or service fees retained by the Principal Underwriter after
allowances or compensation to dealers were:



<TABLE>
<CAPTION>
                                         COMMISSIONS,        ALLOWANCE OR
                                            REVENUE          COMPENSATION
                   FISCAL YEAR/PERIOD  OR FEES RETAINED       TO DEALERS
-----------------------------------------------------------------------------
<S>                <C>                 <C>                   <C>
    CLASS A               2004            $39,449,000        $176,000,000
                          2003             34,650,000         162,187,000
                          2002             12,524,000          58,424,000
-----------------------------------------------------------------------------
    CLASS B               2004              4,241,000          28,435,000
                          2003              4,991,000          35,354,000
                          2002              2,379,000          13,521,000
-----------------------------------------------------------------------------
    CLASS C               2004                106,000          15,511,000
                          2003                     --          11,256,000
                          2002                     --           3,790,000
-----------------------------------------------------------------------------
  CLASS 529-A             2004                583,000           2,772,000
                          2003                466,000           2,298,000
                          2002                188,000             901,000
-----------------------------------------------------------------------------
  CLASS 529-B             2004                132,000             709,000
                          2003                132,000             806,000
                          2002                 41,000             317,000
-----------------------------------------------------------------------------
  CLASS 529-C             2004                     --             477,000
                          2003                     --             343,000
                          2002                     --             141,000
-----------------------------------------------------------------------------
</TABLE>



The fund has adopted plans of distribution  (the "Plans") pursuant to rule 12b-1
under the 1940 Act. The Principal  Underwriter receives amounts payable pursuant
to the Plans (see below).  As required by rule 12b-1 and the 1940 Act, the Plans
(together with the Principal  Underwriting  Agreement) have been approved by the
full Board of Directors  and  separately  by a majority of the Directors who are
not  "interested  persons"  of the  fund  and who  have no  direct  or  indirect
financial  interest in the operation of the Plans or the Principal  Underwriting
Agreement.  Potential  benefits  of  the  Plans  to  the  fund  include  quality
shareholder services;  savings to the fund in transfer agency costs; benefits to
the investment  process from growth or stability of assets; and maintenance of a
financially  healthy  management  organization.  The selection and nomination of
Directors  who are not  "interested  persons" of the fund are  committed  to the
discretion  of the  Directors  who  are  not  "interested  persons"  during  the
existence of the Plans. The Plans may not be amended to increase  materially the
amount spent for distribution  without shareholder  approval.  Plan expenses are
reviewed  quarterly  and the  Plans  must be  renewed  annually  by the Board of
Directors.



                       Capital Income Builder -- Page 27
<PAGE>



Under the Plans,  the fund may annually expend the following  amounts to finance
any activity primarily  intended to result in the sale of fund shares,  provided
the fund's  Board of  Directors  has approved the category of expenses for which
payment is being made: (a) for Class A shares,  up to 0.30% of the average daily
net assets  attributable  to Class A shares;  (b) for Class 529-A shares,  up to
0.50% of the average daily net assets  attributable  to Class 529-A shares;  (c)
for Class B and 529-B shares, 1.00% of the average daily net assets attributable
to Class B and 529-B  shares,  respectively;  (d) for Class C and 529-C  shares,
1.00% of the average daily net assets  attributable to Class C and 529-C shares,
respectively;  (e) for Class 529-E shares,  up to 0.75% of the average daily net
assets  attributable to Class 529-E shares; (f) for Class F and 529-F shares, up
to 0.50% of the  average  daily  net  assets  attributable  to Class F and 529-F
shares;  (g) for  Class  R-1  shares,  1.00% of the  average  daily  net  assets
attributable to Class R-1 shares;  (h) for Class R-2 shares,  up to 1.00% of the
average  daily net assets  attributable  to Class R-2 shares;  (i) for Class R-3
shares,  up to 0.75% of the average daily net assets  attributable  to Class R-3
shares;  and (j) for  Class R-4  shares,  up to 0.50% of its  average  daily net
assets  attributable  to Class R-4  shares.  The fund has not adopted a Plan for
Class R-5  shares;  accordingly,  no 12b-1  fees are paid  from  Class R-5 share
assets.


For Class A and 529-A  shares:  (a) up to 0.25% is  reimbursed  to the Principal
Underwriter for paying service-related  expenses,  including paying service fees
to qualified dealers,  and (b) up to the amount allowable under the fund's Class
A and 529-A 12b-1 limit is reimbursed to the  Principal  Underwriter  for paying
distribution-related  expenses,  including  for Class A and 529-A shares  dealer
commissions and wholesaler compensation paid on sales of shares of $1 million or
more purchased without a sales charge (including purchases by employer-sponsored
defined contribution-type  retirement plans investing $1 million or more or with
100 or more eligible employees, and retirement plans, endowments and foundations
with $50 million or more in assets -- "no load  purchases").  Commissions  on no
load  purchases of Class A and 529-A shares,  in excess of the Class A and 529-A
plan  limitations  not reimbursed to the Principal  Underwriter  during the most
recent fiscal  quarter are  recoverable  for five  quarters,  provided that such
commissions do not exceed the annual expense limit.  After five quarters,  these
commissions are not recoverable.


For Class B and 529-B shares: (a) 0.25% is paid to the Principal Underwriter for
paying  service-related  expenses,  including  paying  service fees to qualified
dealers,   and   (b)   0.75%   is  paid  to  the   Principal   Underwriter   for
distribution-related  expenses,  including the financing of commissions  paid to
qualified dealers.


For Class C and 529-C shares: (a) 0.25% is paid to the Principal Underwriter for
paying  service-related  expenses,  including  paying  service fees to qualified
dealers,  and  (b)  0.75%  is  paid  to the  Principal  Underwriter  for  paying
distribution-related expenses, including commissions paid to qualified dealers.


For Class 529-E shares: currently (a) 0.25% is paid to the Principal Underwriter
for paying service-related expenses,  including paying service fees to qualified
dealers,  and  (b)  0.25%  is  paid  to the  Principal  Underwriter  for  paying
distribution-related expenses, including commissions paid to qualified dealers.


For  Class  F and  529-F  shares:  currently  0.25%  is  paid  to the  Principal
Underwriter for paying service-related  expenses,  including paying service fees
to qualified dealers or advisers.



                       Capital Income Builder -- Page 28
<PAGE>



For Class R-1 shares: (a) 0.25% is paid to the Principal  Underwriter for paying
service-related  expenses,  including paying service fees to qualified  dealers,
and (b)  0.75% is paid to the  Principal  Underwriter  for  distribution-related
expenses, including commissions paid to qualified dealers.


For Class R-2 shares:  currently (a) 0.25% is paid to the Principal  Underwriter
for paying service-related expenses,  including paying service fees to qualified
dealers,  and  (b)  0.50%  is  paid  to the  Principal  Underwriter  for  paying
distribution-related expenses, including commissions paid to qualified dealers.


For Class R-3 shares:  currently (a) 0.25% is paid to the Principal  Underwriter
for paying service-related expenses,  including paying service fees to qualified
dealers,  and  (b)  0.25%  is  paid  to the  Principal  Underwriter  for  paying
distribution-related expenses, including commissions paid to qualified dealers.


For Class R-4 shares:  currently 0.25% is paid to the Principal  Underwriter for
paying  service-related  expenses,  including  paying  service fees to qualified
dealers or advisers.


During the 2004 fiscal year, 12b-1 expenses accrued and paid, and if applicable,
unpaid, were:



<TABLE>
<CAPTION>
                                                         12B-1 LIABILITY
                               12B-1 EXPENSES              OUTSTANDING
------------------------------------------------------------------------------
<S>                            <C>                       <C>
        CLASS A                 $49,914,000                 $6,418,000
------------------------------------------------------------------------------
        CLASS B                  20,024,000                  2,257,000
------------------------------------------------------------------------------
        CLASS C                  25,888,000                  3,917,000
------------------------------------------------------------------------------
        CLASS F                   2,072,000                    442,000
------------------------------------------------------------------------------
      CLASS 529-A                   271,000                     33,000
------------------------------------------------------------------------------
      CLASS 529-B                   431,000                     51,000
------------------------------------------------------------------------------
      CLASS 529-C                   842,000                    136,000
------------------------------------------------------------------------------
      CLASS 529-E                    55,000                     11,000
------------------------------------------------------------------------------
      CLASS 529-F                     5,000                      1,000
------------------------------------------------------------------------------
       CLASS R-1                     78,000                     17,000
------------------------------------------------------------------------------
       CLASS R-2                    695,000                    143,000
------------------------------------------------------------------------------
       CLASS R-3                    400,000                     82,000
------------------------------------------------------------------------------
       CLASS R-4                     22,000                      5,000
------------------------------------------------------------------------------
</TABLE>




                       Capital Income Builder -- Page 29
<PAGE>



OTHER  COMPENSATION  TO DEALERS  -- As of January  2005,  the top  dealers  that
American Funds Distributors anticipates will receive additional compensation (as
described in the prospectus) include:

     1717 Capital Management Company
     A. G. Edwards & Sons, Inc.
     AIG Advisors Group
     American General Securities Inc.
     Ameritas Investment Corp.
     AXA Advisors, LLC
     Cadaret, Grant & Co., Inc.
     Cambridge Investment Research, Inc.
     Capital Analysts, Inc.
     Commonwealth Financial Network
     Cuna Brokerage Services, Inc.
     Deutsche Bank Securities Inc.
     Edward Jones
     Ferris, Baker Watts, Inc.
     Hefren-Tillotson, Inc.
     Hornor, Townsend & Kent, Inc.
     ING Advisors Network Inc.
     InterSecurities, Inc./Transamerica Financial Advisors, Inc.
     Investacorp, Inc.
     Janney Montgomery Scott LLC
     Jefferson Pilot Securities Corporation
     JJB Hilliard, WL Lyons, Inc./PNC Bank
     Legg Mason Wood Walker, Inc.
     Lincoln Financial Advisors Corporation
     Linsco/Private Ledger Corp.
     McDonald Investments Inc./Society National Bank
     Merrill Lynch, Pierce, Fenner & Smith Inc.
     Metlife Enterprises
     MML Investors Services, Inc.
     Morgan Keegan & Company, Inc.
     NatCity Investment, Inc.
     National Planning Holdings Inc.
     NFP Securities, Inc.
     Northwestern Mutual Investment Services, LLC.
     Pacific Select Distributors Inc.
     Park Avenue Securities LLC
     Piper Jaffray & Co.
     Princor Financial Services/PPI Employee Benefits
     ProEquities, Inc.
     Raymond James Financial Services/Raymond James & Associates
     RBC Dain Rauscher Inc.
     Robert W. Baird & Co. Inc.
     Securian Financial Services/C.R.I. Securities Inc.
     Securities Service Network Inc.
     Signator Investors, Inc.
     Smith Barney



                       Capital Income Builder -- Page 30
<PAGE>



     Stifel, Nicolaus & Company, Inc.
     Terra Securities Corporation
     The O.N. Equity Sales Company
     UBS Financial Services Inc.
     US Bancorp Investments, Inc.
     Wachovia Securities
     WS Griffith Securities, Inc.

                      EXECUTION OF PORTFOLIO TRANSACTIONS

As  described in the  prospectus,  the  investment  adviser  places  orders with
broker-dealers for the fund's portfolio transactions. Portfolio transactions for
the fund may be executed  as part of  concurrent  authorizations  to purchase or
sell the same security for other funds served by the investment  adviser, or for
trusts  or other  accounts  served by  affiliated  companies  of the  investment
adviser. When such concurrent authorizations occur, the objective is to allocate
the executions in an equitable manner.


The fund is  required  to  disclose  information  regarding  investments  in the
securities of its "regular"  broker-dealers  (or parent companies of its regular
broker-dealers)  that derive more than 15% of their revenue from  broker-dealer,
underwriter or investment adviser activities. A regular broker-dealer is (a) one
of the 10  broker-dealers  that  received  from the fund the  largest  amount of
brokerage  commissions by participating,  directly or indirectly,  in the fund's
portfolio transactions during the fund's most recent fiscal year; (b) one of the
10  broker-dealers  that engaged as principal  in the largest  dollar  amount of
portfolio transactions of the fund during the fund's most recent fiscal year; or
(c) one of the 10  broker-dealers  that sold the largest amount of securities of
the fund  during the fund's most recent  fiscal  year.  At the end of the fund's
most recent fiscal year, the fund's regular broker-dealers  included J.P. Morgan
Securities,  Banc of America Securities,  LLC, A.B.N. AMRO Bank NV and Citigroup
Global  Markets  Holdings Inc. As of the fund's fiscal  year-end,  the fund held
equity securities of J.P. Morgan Chase & Co. in the amount of $182,925,000, Bank
of America Corp. in the amount of  $485,458,000  and A.B.N.  AMRO Holding in the
amount of $89,273,000.  The fund held debt securities of J.P. Morgan Chase & Co.
in the amount of $36,247,000, Bank of America Corp. in the amount of $66,774,000
and Citigroup Inc. in the amount of $10,368,000.



Brokerage  commissions  paid on  portfolio  transactions,  including  investment
dealer concessions on underwritings,  if applicable,  for the fiscal years ended
October  31,  2004,  2003 and 2002  amounted  to  $25,365,000,  $20,946,000  and
$11,922,000,  respectively.  With respect to fixed-income securities,  brokerage
commissions include explicit investment dealer concessions and may exclude other
transaction costs which may be reflected in the spread between the bid and asked
price.  The increase in brokerage  commissions was due to an increased volume of
portfolio securities purchased by the fund.


                        DISCLOSURE OF PORTFOLIO HOLDINGS

The fund's investment  adviser,  on behalf of the fund, has adopted policies and
procedures  with respect to the disclosure of  information  about fund portfolio
securities. These policies and procedures have been reviewed by the fund's Board
of  Directors  and  compliance  will be  periodically  assessed  by the Board in
connection with reporting from the fund's Chief Compliance Officer.



                       Capital Income Builder -- Page 31
<PAGE>



Under these  policies  and  procedures,  the fund's  complete  list of portfolio
holdings available for public  disclosure,  dated as of the end of each calendar
quarter, is permitted to be posted on the American Funds website no earlier than
the tenth day after such calendar quarter.  In addition,  the fund's list of top
10 portfolio holdings measured by percentage of net assets invested, dated as of
the end of each calendar  month, is permitted to be posted on the American Funds
website no earlier than the tenth day after such month. Such portfolio  holdings
information  may  then  be  disclosed  to  any  person  pursuant  to an  ongoing
arrangement to disclose portfolio holdings information to such person no earlier
than one day after the day on which the  information  is posted on the  American
Funds  website.  Affiliates of the fund  (including the fund's Board members and
officers,  and  certain  personnel  of the  fund's  investment  adviser  and its
affiliates)  and certain  service  providers  (such as the fund's  custodian and
outside counsel) who require such  information for legitimate  business and fund
oversight purposes may receive such information earlier.


Affiliated persons of the fund as described above who receive portfolio holdings
information are subject to restrictions  and limitations on the use and handling
of such  information  pursuant to a Code of Ethics,  including  requirements  to
maintain the confidentiality of such information, preclear securities trades and
report  securities  transactions  activity,  as applicable.  Third party service
providers of the fund receiving such information are subject to  confidentiality
obligations. When portfolio holdings information is disclosed other than through
the American  Funds website to persons not affiliated  with the fund (which,  as
described above,  would occur no earlier than one day after the day on which the
information is posted on the American Funds website),  such persons may be bound
by agreements  (including  confidentiality  agreements)  that restrict and limit
their use of the information to legitimate  business uses only. Neither the fund
nor its investment  adviser or any affiliate  thereof  receives  compensation or
other  consideration  in connection  with the  disclosure of  information  about
portfolio securities.


The authority to disclose a fund's portfolio holdings, and to establish policies
with respect to such  disclosure,  resides with the Investment  Committee of the
fund's investment adviser. In exercising its authority, the Investment Committee
determines   whether  disclosure  of  information  about  the  fund's  portfolio
securities is  appropriate  and in the best interest of fund  shareholders.  The
investment adviser has implemented  policies and procedures to address conflicts
of interest that may arise from the  disclosure of fund  holdings.  For example,
the Code of Ethics specifically  requires,  among other things, the safeguarding
of information about fund holdings and contains prohibitions designed to prevent
the personal use of confidential,  proprietary  investment  information in a way
that would conflict with fund transactions.  In addition, the investment adviser
believes that its current policy of not selling portfolio  holdings  information
and not disclosing such information to unaffiliated third parties (other than to
fund service  providers for  legitimate  business and fund  oversight  purposes)
until such holdings have been made public on the American Funds  website,  helps
reduce  potential  conflicts  of  interest  between  fund  shareholders  and the
investment adviser and its affiliates.

                              PRICE OF SHARES


Shares are purchased at the offering  price or sold at the net asset value price
next determined after the purchase or sell order is received and accepted by the
fund or the Transfer  Agent;  the offering or net asset value price is effective
for orders  received prior to the time of  determination  of the net asset value
and, in the case of orders  placed with dealers or their  authorized  designees,
accepted by the Principal  Underwriter,  the Transfer  Agent, a dealer or any of
their designees. In the case of orders sent directly to the fund or the Transfer
Agent, an investment


                       Capital Income Builder -- Page 32
<PAGE>


dealer MUST be indicated.  The dealer is responsible  for promptly  transmitting
purchase and sell orders to the Principal Underwriter.


Orders received by the investment  dealer or authorized  designee,  the Transfer
Agent or the fund  after the time of the  determination  of the net asset  value
will be entered at the next  calculated  offering  price.  Note that  investment
dealers  or  other   intermediaries   may  have  their  own  rules  about  share
transactions and may have earlier cut-off times than those of the fund. For more
information  about how to  purchase  through  your  intermediary,  contact  your
intermediary directly.


Prices that appear in the newspaper do not always  indicate  prices at which you
will be purchasing and redeeming shares of the fund, since such prices generally
reflect the previous day's closing price,  while  purchases and  redemptions are
made at the next calculated  price.  The price you pay for shares,  the offering
price, is based on the net asset value per share, which is calculated once daily
as of  approximately  4:00 p.m.  New York  time,  which is the  normal  close of
trading on the New York Stock  Exchange,  each day the Exchange is open. If, for
example, the Exchange closes at 1:00 p.m., the fund's share price would still be
determined  as of 4:00  p.m.  New York  time.  The New York  Stock  Exchange  is
currently  closed on weekends  and on the  following  holidays:  New Year's Day;
Martin  Luther  King,  Jr. Day;  Presidents'  Day;  Good Friday;  Memorial  Day;
Independence Day; Labor Day;  Thanksgiving;  and Christmas Day. Each share class
of the fund has a separately calculated net asset value (and share price).



All portfolio  securities of funds  managed by Capital  Research and  Management
Company (other than money market funds) are valued, and the net asset values per
share for each share class are determined, as follows:


1. Equity securities,  including depositary receipts, are valued at the official
closing  price of, or the last reported sale price on, the exchange or market on
which such  securities  are  traded,  as of the close of business on the day the
securities  are being valued or,  lacking any sales,  at the last  available bid
price.  Prices for each security are taken from the principal exchange or market
in which the  security  trades.  Fixed-income  securities  are  valued at prices
obtained from an independent  pricing  service,  when such prices are available;
however,  in circumstances  where the investment adviser deems it appropriate to
do so, such  securities  will be valued at the mean quoted bid and asked  prices
(or bid prices,  if asked prices are not  available) or at prices for securities
of comparable maturity, quality and type.

Securities with both fixed-income and equity characteristics (e.g.,  convertible
bonds,  preferred  stocks,  units  comprised  of more than one type of security,
etc.), or equity securities traded principally among fixed-income  dealers,  are
valued  in  the  manner  described  above  for  either  equity  or  fixed-income
securities,  depending  on  which  method  is  deemed  most  appropriate  by the
investment adviser.


Securities  with original  maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired  within 60
days of  maturity,  or if  already  held on the 60th  day,  based  on the  value
determined on the 61st day. Forward currency contracts are valued at the mean of
representative quoted bid and asked prices.


Assets or liabilities  initially  expressed in terms of non-U.S.  currencies are
translated prior to the next  determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.



                       Capital Income Builder -- Page 33
<PAGE>



Securities and assets for which market  quotations are not readily  available or
are  considered  unreliable are valued at fair value as determined in good faith
under policies  approved by the fund's Board.  Subject to Board  oversight,  the
fund's Board has delegated the obligation to make fair valuation  determinations
to a Valuation Committee established by the fund's investment adviser. The Board
receives  regular reports  describing  fair-valued  securities and the valuation
methods used.


The Valuation  Committee has adopted guidelines and procedures  (consistent with
SEC rules and guidance) to ensure that certain basic  principles and factors are
considered when making all fair value  determinations.  As a general  principle,
securities lacking readily available market quotations,  or that have quotations
that are  considered  unreliable,  are  valued  in good  faith by the  Valuation
Committee based upon what the fund might reasonably expect to receive upon their
current  sale.  The  Valuation  Committee  considers  all  indications  of value
available  to it in  determining  the fair value to be assigned to a  particular
security,  including,  without  limitation,  the type and cost of the  security,
contractual or legal restrictions on resale of the security,  relevant financial
or business  developments  of the  issuer,  actively  traded  similar or related
securities,  conversion or exchange  rights on the security,  related  corporate
actions, significant events occurring after the close of trading in the security
and changes in overall market conditions.


2.  Each  class  of  shares  represents  interests  in  the  same  portfolio  of
investments  and is  otherwise  identical  in all  respects to each other class,
except for differences  relating to distribution,  service and other charges and
expenses, certain voting rights, differences relating to eligible investors, the
designation  of  each  class  of  shares,   conversion   features  and  exchange
privileges.  Expenses attributable to the fund, but not to a particular class of
shares,  are borne by each  class on the  basis of the  relative  aggregate  net
assets of the classes.  Expenses directly  attributable to a class of shares are
borne by that  class of shares.  Liabilities,  including  accruals  of taxes and
other expense items attributable to particular share classes,  are deducted from
total assets attributable to the respective share classes.

3. Net assets so  obtained  for each share  class are then  divided by the total
number of shares outstanding of that share class, and the result, rounded to the
nearer cent, is the net asset value per share for that share class.


Any purchase order may be rejected by the Principal  Underwriter or by the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly or
indirectly to any person or entity, where, after the sale, such person or entity
would own beneficially  directly or indirectly more than 4.5% of the outstanding
shares of the fund without the consent of a majority of the fund's Board.


                            TAXES AND DISTRIBUTIONS

FUND  TAXATION -- The fund has  elected to be treated as a regulated  investment
company  under  Subchapter  M of the  Internal  Revenue  Code  (the  "Code").  A
regulated  investment  company  qualifying  under  Subchapter  M of the  Code is
required  to  distribute  to its  shareholders  at least  90% of its  investment
company taxable income (including the excess of net short-term capital gain over
net long-term capital losses) and generally is not subject to federal income tax
to the  extent  that it  distributes  annually  100% of its  investment  company
taxable income and net realized  capital gains in the manner  required under the
Code.  The fund intends to  distribute  annually all of its  investment  company
taxable  income and net realized  capital gains and therefore does not expect to
pay  federal  income  tax,  although  in  certain  circumstances,  the  fund may
determine  that it is in the interest of  shareholders  to distribute  less than
that amount.



                       Capital Income Builder -- Page 34
<PAGE>



To be treated as a regulated  investment company under Subchapter M of the Code,
the fund must also (a) derive at least 90% of its gross  income from  dividends,
interest,  payments with respect to securities  loans and gains from the sale or
other  disposition  of  securities  or  foreign  currencies,   or  other  income
(including,  but  not  limited  to,  gains  from  options,  futures  or  forward
contracts)  derived with respect to the business of investing in such securities
or currencies, and (b) diversify its holdings so that, at the end of each fiscal
quarter,  (i)  at  least  50% of the  market  value  of  the  fund's  assets  is
represented  by  cash,  U.S.  government  securities  and  securities  of  other
regulated  investment  companies,  and other  securities  (for  purposes of this
calculation,  generally  limited in respect of any one issuer,  to an amount not
greater  than  5% of the  market  value  of the  fund's  assets  and  10% of the
outstanding  voting securities of such issuer) and (ii) not more than 25% of the
value of its assets is invested in the securities of (other than U.S. government
securities or the securities of other  regulated  investment  companies) any one
issuer or two or more issuers which the fund  controls and which are  determined
to be engaged in the same or similar 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 (a) 98% of ordinary  income  (generally net investment  income)
for the calendar year, (b) 98% of capital gain (both  long-term and  short-term)
for the  one-year  period  ending on October 31 (as though the  one-year  period
ending on October 31 were the regulated  investment  company's taxable year) and
(c) 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 (a) amounts actually distributed
by the fund from its current year's  ordinary income and capital gain net income
and (b) any  amount  on which  the fund  pays  income  tax  during  the  periods
described  above.  Although the fund intends to  distribute  its net  investment
income and net capital gains so as to avoid excise tax  liability,  the fund may
determine  that it is in the  interest of  shareholders  to  distribute a lesser
amount.


The  following  information  may not apply to you if you hold  fund  shares in a
tax-deferred  account,  such as a retirement plan or education  savings account.
Please see your tax adviser for more information.


DIVIDENDS  AND  CAPITAL  GAIN   DISTRIBUTIONS  --  Dividends  and  capital  gain
distributions  on fund  shares will be  reinvested  in shares of the fund of the
same class,  unless  shareholders  indicate in writing that they wish to receive
them in cash or in shares of the same class of other American Funds, as provided
in the prospectus. Dividends and capital gain distributions by 529 share classes
will be automatically reinvested.


Distributions  of investment  company  taxable  income and net realized  capital
gains to individual  shareholders  will be taxable whether received in shares or
in cash,  unless  such  shareholders  are  exempt  from  taxation.  Shareholders
electing to receive  distributions in the form of additional  shares will have a
cost basis for federal  income tax  purposes in each share so received  equal to
the net  asset  value of that  share on the  reinvestment  date.  Dividends  and
capital gain distributions by the fund to a tax-deferred retirement plan account
are not taxable currently.


     DIVIDENDS  -- The fund  intends  to follow  the  practice  of  distributing
     substantially all of its investment company taxable income,  which includes
     any excess of net realized  short-term  gains over net  realized  long-term
     capital losses. Investment company taxable



                       Capital Income Builder -- Page 35
<PAGE>



     income generally includes dividends, interest, net short-term capital gains
     in excess of net long-term  capital losses,  and certain  foreign  currency
     gains, if any, less expenses and certain foreign  currency  losses.  To the
     extent  the  fund  invests  in  stock  of  domestic  and  certain   foreign
     corporations, it may receive "qualified dividends". The fund will designate
     the amount of "qualified  dividends" to its  shareholders  in a notice sent
     within 60 days of the close of its fiscal year and will  report  "qualified
     dividends" to shareholders on Form 1099-DIV.

     Under the Code,  gains or losses  attributable  to fluctuations in exchange
     rates  that  occur  between  the  time  the  fund  accrues  receivables  or
     liabilities  denominated  in a  foreign  currency  and the  time  the  fund
     actually collects such receivables, or pays such liabilities, generally are
     treated as ordinary income or ordinary loss.  Similarly,  on disposition of
     debt  securities  denominated  in a foreign  currency and on disposition of
     certain futures contracts,  forward contracts and options,  gains or losses
     attributable to fluctuations in the value of foreign  currency  between the
     date of acquisition of the security or contract and the date of disposition
     are also treated as ordinary gain or loss. These gains or losses,  referred
     to under the Code as Section 988 gains or losses,  may increase or decrease
     the  amount  of  the  fund's  investment   company  taxable  income  to  be
     distributed to its shareholders as ordinary income.



     If the  fund  invests  in  stock  of  certain  passive  foreign  investment
     companies,  the fund may be subject to U.S.  federal  income  taxation on a
     portion of any  "excess  distribution"  with  respect  to, or gain from the
     disposition of, such stock.  The tax would be determined by allocating such
     distribution  or gain ratably to each day of the fund's  holding period for
     the stock. The distribution or gain so allocated to any taxable year of the
     fund,   other  than  the  taxable  year  of  the  excess   distribution  or
     disposition, would be taxed to the fund at the highest ordinary income rate
     in effect  for such  year,  and the tax would be  further  increased  by an
     interest  charge to reflect  the value of the tax  deferral  deemed to have
     resulted from the ownership of the foreign  company's  stock. Any amount of
     distribution  or gain allocated to the taxable year of the  distribution or
     disposition  would be included  in the fund's  investment  company  taxable
     income  and,  accordingly,  would not be  taxable to the fund to the extent
     distributed by the fund as a dividend to its shareholders.


     To avoid such tax and  interest,  the fund  intends to elect to treat these
     securities  as sold on the last day of its fiscal  year and  recognize  any
     gains for tax purposes at that time.  Under this  election,  deductions for
     losses are allowable only to the extent of any prior recognized  gains, and
     both gains and losses will be treated as ordinary  income or loss. The fund
     will be required to distribute any resulting income, even though it has not
     sold  the  security  and  received  cash to pay  such  distributions.  Upon
     disposition of these securities, any gain recognized is treated as ordinary
     income  and loss is  treated  as  ordinary  loss to the extent of any prior
     recognized gain.


     Dividends from domestic  corporations are expected to comprise some portion
     of the fund's gross income.  To the extent that such  dividends  constitute
     any of the fund's gross income,  a portion of the income  distributions  of
     the fund may be  eligible  for the  deduction  for  dividends  received  by
     corporations.  Corporate  shareholders  will be  informed of the portion of
     dividends that so qualifies. The dividends-received deduction is reduced to
     the extent that either the fund shares,  or the underlying  shares of stock
     held by the fund, with respect to which dividends are received, are treated
     as  debt-financed  under  federal  income tax law, and is eliminated if the
     shares are deemed to have been held by the



                       Capital Income Builder -- Page 36
<PAGE>



     shareholder  or the fund,  as the case may be, for less than 46 days during
     the 90-day period  beginning on the date that is 45 days before the date on
     which the shares become  ex-dividend.  Capital gain  distributions  are not
     eligible for the dividends-received deduction.


     A  portion  of the  difference  between  the  issue  price  of zero  coupon
     securities and their face value  (original issue discount) is considered to
     be income to the fund each year, even though the fund will not receive cash
     interest  payments  from these  securities.  This original  issue  discount
     (imputed  income) will comprise a part of the  investment  company  taxable
     income of the fund that must be  distributed  to  shareholders  in order to
     maintain the  qualification of the fund as a regulated  investment  company
     and to avoid federal income taxation at the level of the fund.



     In  addition,  some of the bonds may be purchased by the fund at a discount
     that  exceeds the  original  issue  discount on such  bonds,  if any.  This
     additional  discount  represents  market  discount  for federal  income tax
     purposes.  The gain realized on the disposition of any bond having a market
     discount  may be treated as taxable  ordinary  income to the extent it does
     not exceed the accrued market  discount on such bond or a fund may elect to
     include  the  market  discount  in  income  in tax  years  to  which  it is
     attributable.  Generally,  accrued  market  discount  may be figured  under
     either the ratable accrual method or constant  interest method. If the fund
     has paid a premium over the face amount of a bond,  the fund has the option
     of either  amortizing  the premium  until bond  maturity  and  reducing the
     fund's basis in the bond by the amortized  amount,  or not  amortizing  and
     treating the premium as part of the bond's  basis.  In the case of any debt
     security  having a fixed  maturity  date of not more than one year from its
     date of issue,  the gain realized on disposition  generally will be treated
     as a short-term capital gain. In general,  any gain realized on disposition
     of a security  held less than one year is treated as a  short-term  capital
     gain.


     Dividend and interest  income received by the fund from sources outside the
     United States may be subject to withholding and other taxes imposed by such
     foreign  jurisdictions.  Tax conventions  between certain countries and the
     United States,  however,  may reduce or eliminate these foreign taxes. Most
     foreign  countries  do not impose  taxes on capital  gains with  respect to
     investments by foreign investors.


     CAPITAL GAIN  DISTRIBUTIONS -- The fund also intends to follow the practice
     of distributing the entire excess of net realized  long-term  capital gains
     over net realized short-term capital losses. Net capital gains for a fiscal
     year are computed by taking into account any capital loss  carry-forward of
     the fund.

     If any net  long-term  capital  gains in excess of net  short-term  capital
     losses are retained by the fund for reinvestment,  requiring federal income
     taxes to be paid  thereon by the fund,  the fund  intends to elect to treat
     such capital gains as having been distributed to shareholders. As a result,
     each shareholder will report such capital gains as long-term  capital gains
     taxable to  individual  shareholders  at a maximum 15% capital  gains rate,
     will be able to claim a pro rata share of federal  income taxes paid by the
     fund  on such  gains  as a  credit  against  personal  federal  income  tax
     liability,  and will be entitled to increase the adjusted tax basis on fund
     shares by the difference between a pro rata share of the retained gains and
     such shareholder's related tax credit.



                       Capital Income Builder -- Page 37
<PAGE>



SHAREHOLDER TAXATION -- In January of each year, individual shareholders holding
fund shares in taxable  accounts will receive a statement of the federal  income
tax status of all distributions. Shareholders of the fund also may be subject to
state and local taxes on distributions received from the fund.


     DIVIDENDS -- Fund dividends are taxable to shareholders as ordinary income.
     Under the 2003 Tax Act, all or a portion of a fund's dividend  distribution
     may be a "qualified  dividend." Only fund dividends  derived from qualified
     corporation dividends paid to the fund after December 31, 2002, and held by
     the  fund  for the  appropriate  holding  period,  will be  distributed  to
     shareholders as qualified  dividends.  Interest income from bonds and money
     market  instruments and nonqualified  foreign dividends will be distributed
     to  shareholders as  nonqualified  fund dividends.  The fund will report on
     Form 1099-DIV the amount of each shareholder's dividend that may be treated
     as a qualified  dividend.  If a  shareholder  meets the  requisite  holding
     period  requirement,  qualified dividends are taxable at a maximum tax rate
     of 15%.

     CAPITAL GAINS -- Distributions of the excess of net long-term capital gains
     over net  short-term  capital  losses that the fund properly  designates as
     "capital gain  dividends"  generally  will be taxable as long-term  capital
     gain.  Regardless  of the  length of time the  shares of the fund have been
     held by a shareholder,  a capital gain  distribution by the fund is subject
     to a maximum tax rate of 15%.  Any loss  realized  upon the  redemption  of
     shares held at the time of redemption  for six months or less from the date
     of their purchase will be treated as a long-term capital loss to the extent
     of any amounts treated as distributions  of long-term  capital gains during
     such six-month period.


Distributions  by the fund result in a  reduction  in the net asset value of the
fund's shares.  Investors  should consider the tax implications of buying shares
just  prior to a  distribution.  The  price of  shares  purchased  at that  time
includes the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will subsequently receive a partial return of their investment
capital upon payment of the distribution, which will be taxable to them.


Redemptions of shares,  including  exchanges for shares of other American Funds,
may result in federal,  state and local tax  consequences  (gain or loss) to the
shareholder.  However,  conversion  from one class to another  class in the same
fund should not be a taxable event.


If a shareholder exchanges or otherwise disposes of shares of the fund within 90
days of having  acquired  such  shares,  and if, as a result of having  acquired
those  shares,  the  shareholder  subsequently  pays a reduced  sales charge for
shares of the fund, or of a different fund, the sales charge previously incurred
in  acquiring  the fund's  shares will not be taken into  account (to the extent
such previous  sales  charges do not exceed the reduction in sales  charges) for
the purposes of determining the amount of gain or loss on the exchange, but will
be treated as having been incurred in the acquisition of such other funds. Also,
any loss  realized  on a  redemption  or  exchange of shares of the fund will be
disallowed to the extent  substantially  identical shares are reacquired  within
the 61-day  period  beginning 30 days before and ending 30 days after the shares
are disposed of.


The fund will be required to report to the IRS all  distributions  of investment
company  taxable  income and capital  gains as well as gross  proceeds  from the
redemption  or exchange  of fund  shares,  except in the case of certain  exempt
shareholders.  Under the backup  withholding  provisions  of Section 3406 of the
Code, distributions of investment company taxable income and


                       Capital Income Builder -- Page 38
<PAGE>


capital  gains and  proceeds  from the  redemption  or  exchange  of a regulated
investment company may be subject to backup withholding of federal income tax in
the case of  non-exempt  U.S.  shareholders  who fail to furnish the  investment
company  with  their   taxpayer   identification   numbers  and  with   required
certifications  regarding  their  status  under  the  federal  income  tax  law.
Withholding  may also be required if the fund is notified by the IRS or a broker
that  the  taxpayer  identification  number  furnished  by  the  shareholder  is
incorrect or that the  shareholder  has previously  failed to report interest or
dividend  income.  If  the  withholding  provisions  are  applicable,  any  such
distributions  and  proceeds,  whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.


The foregoing  discussion of U.S.  federal  income tax law relates solely to the
application of that law to U.S. persons (i.e.,  U.S.  citizens and residents and
U.S. corporations,  partnerships,  trusts and estates).  Each shareholder who is
not a U.S.  person  should  consider  the U.S. and foreign tax  consequences  of
ownership  of  shares  of  the  fund,  including  the  possibility  that  such a
shareholder  may be  subject  to a U.S.  withholding  tax at a rate of 30% (or a
lower rate under an applicable income tax treaty) on dividend income received by
the shareholder.



Shareholders should consult their tax advisers about the application of federal,
state and local tax law in light of their particular situation.


                       Capital Income Builder -- Page 39
<PAGE>



UNLESS  OTHERWISE  NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C
OR F SHARES ALSO REFER TO THE CORRESPONDING  CLASS 529-A,  529-B, 529-C OR 529-F
SHARES.  CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA  PROGRAM
DESCRIPTION  FOR INFORMATION ON POLICIES AND SERVICES  SPECIFICALLY  RELATING TO
COLLEGEAMERICA  ACCOUNTS.   SHAREHOLDERS  HOLDING  SHARES  THROUGH  AN  ELIGIBLE
RETIREMENT PLAN SHOULD CONTACT THEIR PLAN'S  ADMINISTRATOR  OR RECORDKEEPER  FOR
INFORMATION REGARDING PURCHASES, SALES AND EXCHANGES.

                        PURCHASE AND EXCHANGE OF SHARES

PURCHASES BY  INDIVIDUALS -- As described in the  prospectus,  you may generally
open an account and purchase  fund shares by  contacting a financial  adviser or
investment dealer authorized to sell the fund's shares. You may make investments
by any of the following means:


     CONTACTING  YOUR  INVESTMENT  ADVISER  --  Deliver  or mail a check to your
     financial adviser.

     BY MAIL -- for initial  investments,  you may mail a check, made payable to
     the fund,  directly to the address  indicated  on the account  application.
     Please indicate an investment  dealer on the account  application.  You may
     make additional  investments by filling out the "Account Additions" form at
     the bottom of a recent account statement and mailing the form, along with a
     check  made  payable to the fund,  using the  envelope  provided  with your
     account statement.

     BY TELEPHONE -- using the American  FundsLine.  Please see the "Shareholder
     account  services  and  privileges"  section  of  this  document  for  more
     information regarding this service.

     BY INTERNET -- using americanfunds.com. Please see the "Shareholder account
     services and  privileges"  section of this  document  for more  information
     regarding this service.

     BY WIRE -- If you are making a wire  transfer,  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.)

     You may obtain your account number by calling 800/421-1080. Please indicate
     an investment dealer on the account.

All investments are subject to the purchase  minimums and maximums  described in
the  prospectus.  The fund and the  Principal  Underwriter  reserve the right to
reject any purchase order.



                       Capital Income Builder -- Page 40
<PAGE>



Class 529 shares may be  purchased  by  investors  only  through  CollegeAmerica
accounts. Class 529-E shares may be purchased only by investors participating in
CollegeAmerica  through an eligible  employer  plan.  In addition,  the American
Funds state tax-exempt funds are qualified for sale only in certain states,  and
tax-exempt funds in general should not serve as retirement plan investments.


PURCHASES BY RETIREMENT PLANS -- Eligible retirement plans may generally open an
account and purchase Class A and R shares by contacting  any  investment  dealer
(who may impose transaction charges in addition to those described in the fund's
prospectus  and  statement of  additional  information)  authorized  to sell the
fund's shares. Additional shares may be purchased through a plan's administrator
or recordkeeper.


Class R shares  are  generally  only  available  to  401(k)  plans,  457  plans,
employer-sponsored  403(b)  plans,  profit-sharing  and money  purchase  pension
plans,  defined benefit plans, and  nonqualified  deferred  compensation  plans.
Class R shares are also generally only available to retirement  plans where plan
level or omnibus accounts (i.e., no participant  accounts) are held on the books
of a fund.  In  addition,  Class R-5  shares are  generally  only  available  to
retirement plans with at least $1 million or more in plan assets. Class R shares
are generally not available to retail  nonretirement  accounts,  Traditional and
Roth IRAs,  Coverdell Education Savings Accounts,  SEPs,  SARSEPs,  SIMPLE IRAs,
individual 403(b) plans and CollegeAmerica accounts.


Class A shares are  generally  not  available  for  retirement  plans  using the
PlanPremier or Recordkeeper  Direct/SM/  recordkeeping  programs.  Class B and C
shares are not available to certain employer-sponsored retirement plans, such as
401(k)  plans,  457 plans,  employer-sponsored  403(b) plans and money  purchase
pension and profit-sharing plans.


EXCHANGES -- You may only exchange  shares into other  American Funds within the
same share class. However,  exchanges from Class A shares of The Cash Management
Trust of America may be made to Class B or C shares of other  American Funds for
dollar cost averaging  purposes.  Exchange  purchases are subject to the minimum
investment  requirements  of the fund  purchased  and no sales charge  generally
applies. However, exchanges of shares from American Funds money market funds are
subject to  applicable  sales  charges on the fund being  purchased,  unless the
money market fund shares were acquired by an exchange from a fund having a sales
charge,  or by reinvestment or  cross-reinvestment  of dividends or capital gain
distributions.  Exchanges of Class F shares  generally  may only be made through
fee-based  programs of investment  firms that have special  agreements  with the
fund's distributor and certain registered investment advisers.


You may exchange  shares of other classes by contacting the Transfer  Agent,  by
contacting  your  investment  dealer or  financial  adviser,  by using  American
FundsLine or americanfunds.com,  or by telephoning  800/421-0180  toll-free,  or
faxing (see "American Funds Service Company service areas" in the prospectus for
the  appropriate  fax numbers) the Transfer  Agent.  For more  information,  see
"Shareholder account services and privileges" below. THESE TRANSACTIONS HAVE THE
SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.


Shares held in  employer-sponsored  retirement plans may be exchanged into other
American Funds by contacting your plan  administrator or recordkeeper.  Exchange
redemptions and purchases are processed  simultaneously at the share prices next
determined after the exchange order is received (see "Price of shares" above).



                       Capital Income Builder -- Page 41
<PAGE>




FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain
redemptions may trigger a purchase block lasting 30 calendar days under the
fund's "purchase blocking policy." Under this policy, systematic redemptions
will not trigger a purchase block and systematic purchases will not be
prevented. For purposes of this policy, systematic redemptions include, for
example, regular periodic automatic redemptions and statement of intention
escrow share redemptions. Systematic purchases include, for example, regular
periodic automatic purchases and automatic reinvestments of dividends and
capital gain distributions.



OTHER  POTENTIALLY  ABUSIVE  ACTIVITY -- In addition  to  implementing  purchase
blocks,  American Funds Service Company will monitor for other types of activity
that  could  potentially  be  harmful  to  the  American  Funds  - for  example,
short-term  trading activity in multiple funds. When identified,  American Funds
Service Company will request that the shareholder  discontinue the activity.  If
the  activity  continues,   American  Funds  Service  Company  will  freeze  the
shareholder  account to prevent  all  activity  other than  redemptions  of fund
shares.


                                 SALES CHARGES

CLASS  A  PURCHASES  NOT  SUBJECT  TO  SALES  CHARGES  -- As  described  in  the
prospectus,  certain  purchases  of Class A shares  are not  subject  to a sales
charge.  Additional information regarding certain of such purchases is described
below.



     EMPLOYER-SPONSORED RETIREMENT PLANS

     As noted in the  prospectus,  employer-sponsored  retirement  plans are not
     eligible to purchase Class A shares without a sales charge,  or establish a
     statement of intention to do so,  unless they  currently  invest in Class A
     shares  without a sales  charge.  Individual  403(b)  plans may be  treated
     similarly  to  employer-sponsored  plans for sales charge  purposes  (i.e.,
     individual participant accounts are eligible to be aggregated together) if:
     (a) the American Funds are principal  investment options;  (b) the employer
     facilitates  the  enrollment  process by, for example,  allowing for onsite
     group enrollment  meetings held during working hours; and (c) there is only
     one dealer firm assigned to the plans.



     OTHER PURCHASES

     Pursuant to a  determination  of  eligibility  by a vice  president or more
     senior  officer  of  the  Capital  Research  and  Management  Company  Fund
     Administration  Unit,  or by his or her  designee,  Class A  shares  of the
     American  Funds stock,  stock/bond  and bond funds may be sold at net asset
     value to:



                       Capital Income Builder -- Page 42
<PAGE>


     (1)  current or retired  directors,  trustees,  officers and advisory board
          members of, and certain  lawyers  who provide  services  to, the funds
          managed by Capital Research and Management Company, current or retired
          employees of  Washington  Management  Corporation,  current or retired
          employees  and partners of The Capital Group  Companies,  Inc. and its
          affiliated  companies,  certain  family  members and  employees of the
          above persons, and trusts or plans primarily for such persons;

     (2)  current registered representatives and assistants directly employed by
          such representatives,  retired registered representatives with respect
          to accounts  established  while active,  or full-time  employees  (and
          their  spouses,  parents  and  children)  of  dealers  who have  sales
          agreements with the Principal  Underwriter (or who clear  transactions
          through such dealers) and plans for such persons or the dealers;


     (3)  current registered  investment  advisers registered with the Principal
          Underwriter  and  assistants  directly  employed  by  such  registered
          investment  advisers,  retired  registered  investment  advisers  with
          respect to accounts  established while active, or full-time  employees
          of  registered  investment  advisers  registered  with  the  Principal
          Underwriter (and their spouses,  parents and children),  and plans for
          such persons;

     (4)  companies  exchanging  securities  with the  fund  through  a  merger,
          acquisition or exchange offer;

     (5)  insurance company separate accounts;

     (6)  accounts managed by subsidiaries of The Capital Group Companies, Inc.;

     (7)  The Capital  Group  Companies,  Inc.,  its  affiliated  companies  and
          Washington Management Corporation;

     (8)  an individual or entity with a substantial business  relationship with
          The Capital Group Companies,  Inc. or its affiliates, or an individual
          or entity related or relating to such individual or entity;

     (9)  wholesalers and full-time  employees directly  supporting  wholesalers
          involved in the distribution of insurance  company  separate  accounts
          whose  underlying  investments  are  managed by any  affiliate  of The
          Capital Group Companies, Inc.; and

     (10) full-time  employees  of banks  that have  sales  agreements  with the
          Principal Underwriter, who are solely dedicated to directly supporting
          the sale of mutual funds.

     Shares are  offered at net asset value to these  persons and  organizations
     due to anticipated  economies in sales effort and expense.  Once an account
     is established under this net asset value privilege, additional investments
     can be made at net asset value for the life of the account.


     EDWARD JONES FREE SWITCH PROGRAM

     Eligible clients of broker-dealer  Edward Jones may purchase Class A shares
     at net asset value under the terms of the Edward Jones Free Switch program.
     The  program  applies to  purchases  initiated  within  the  90-day  period
     beginning  August 19, 2005,  and ending  November  16,  2005,  at 3:00 p.m.
     Central time. The fund's Board has determined  that it would be in the best
     interests of the fund and its  shareholders  and desirable to have the fund
     participate in the program.


DEALER  COMMISSIONS  AND  COMPENSATION  -- Commissions (up to 1.00%) are paid to
dealers who initiate and are responsible for certain Class A share purchases not
subject to sales charges.  These purchases consist of purchases of $1 million or
more, purchases by employer-sponsored defined contribution-type retirement plans
investing $1 million or more or with 100


                       Capital Income Builder -- Page 43
<PAGE>


or more  eligible  employees  and  purchases  made at net asset value by certain
retirement plans, endowments and foundations with assets of $50 million or more.
Commissions on such  investments  (other than IRA rollover assets that roll over
at no sales  charge  under the fund's IRA  rollover  policy as  described in the
prospectus and statement of additional  information)  are paid to dealers at the
following  rates:  1.00% on amounts  to $4  million,  0.50% on  amounts  over $4
million to $10 million and 0.25% on amounts  over $10 million.  Commissions  are
based on cumulative investments and are not annually reset.



A dealer  concession  of up to 1% may be paid by the fund under its Class A plan
of distribution to reimburse the Principal Underwriter in connection with dealer
and wholesaler  compensation paid by it with respect to investments made with no
initial sales charge.


                      SALES CHARGE REDUCTIONS AND WAIVERS

REDUCING YOUR CLASS A SALES CHARGE -- As described in the prospectus,  there are
various  ways to  reduce  your  sales  charge  when  purchasing  Class A shares.
Additional information about Class A sales charge reductions is provided below.


     STATEMENT  OF INTENTION -- By  establishing  a statement of intention  (the
     "Statement"),  you enter into a nonbinding commitment to purchase shares of
     American Funds  non-money  market funds over a 13-month  period and receive
     the same sales charge as if all shares had been purchased at once.

     When a  shareholder  elects to use a  Statement,  shares equal to 5% of the
     dollar  amount  specified  in the  Statement  will be held in escrow in the
     shareholder's account out of the initial purchase (or subsequent purchases,
     if  necessary)  by the Transfer  Agent.  All dividends and any capital gain
     distributions   on  shares   held  in  escrow   will  be  credited  to  the
     shareholder's  account in shares (or paid in cash,  if  requested).  If the
     intended  investment is not completed within the specified 13-month period,
     the  purchaser  will  remit to the  Principal  Underwriter  the  difference
     between the sales  charge  actually  paid and the sales  charge which would
     have  been paid if the  total of such  purchases  had been made at a single
     time.  The dealer  assigned  to the  account at the end of the period  will
     receive an appropriate commission adjustment. If the difference is not paid
     by the close of the Statement period, the appropriate number of shares held
     in escrow will be redeemed to pay such  difference.  If the  proceeds  from
     this  redemption  are  inadequate,  the  purchaser  will be  liable  to the
     Principal Underwriter for the balance still outstanding.


     The Statement may be revised upward at any time during the 13-month period,
     and such a revision  will be treated as a new  Statement,  except  that the
     13-month  period  during  which  the  purchase  must  be made  will  remain
     unchanged.  Accordingly,  upon  your  request,  the  sales  charge  paid on
     investments  made 90 days prior to the Statement  revision will be adjusted
     to reflect the revised Statement.

     Existing  holdings  eligible for rights of accumulation  (see below) may be
     credited toward satisfying the Statement.

     The Statement will be considered  completed if the shareholder  dies within
     the 13-month Statement period.  Commissions to dealers will not be adjusted
     or paid on the  difference  between  the  Statement  amount  and the amount
     actually invested before the shareholder's death.



                       Capital Income Builder -- Page 44
<PAGE>



     When the trustees of certain  retirement  plans purchase  shares by payroll
     deduction,  the sales charge for the  investments  made during the 13-month
     period will be handled as follows:  the total  monthly  investment  will be
     multiplied by 13 and then  multiplied by 1.5. The current value of existing
     American Funds investments (other than shares representing direct purchases
     of  money  market  funds)  and  any   rollovers  or  transfers   reasonably
     anticipated  to be invested in non-money  market  American Funds during the
     13-month period are added to the figure  determined  above.  The sum is the
     Statement amount and applicable  breakpoint  level. On the first investment
     and all other  investments  made pursuant to the Statement,  a sales charge
     will be assessed  according to the sales charge breakpoint thus determined.
     There will be no  retroactive  adjustments  in sales charges on investments
     made during the 13-month period.

     Shareholders  purchasing shares at a reduced sales charge under a Statement
     indicate their  acceptance of these terms and those in the prospectus  with
     their first purchase.

     AGGREGATION -- Qualifying investments for aggregation include those made by
     you and your  "immediate  family"  as  defined  in the  prospectus,  if all
     parties are purchasing shares for their own accounts and/or:

     .    individual-type  employee benefit plan(s), such as an IRA, 403(b) plan
          (see exception below) or single-participant Keogh-type plan;


     .    business  accounts solely  controlled by you or your immediate  family
          (for example, you own the entire business);

     .    trust accounts  established by you or your immediate  family (however,
          if the  person(s)  who  established  the trust is deceased,  the trust
          account  may be  aggregated  with  accounts  of the  person who is the
          primary beneficiary of the trust);


     .    endowments or  foundations  established  and controlled by you or your
          immediate family; or

     .    CollegeAmerica accounts, which will be aggregated at the account owner
          level (Class 529-E  accounts may only be  aggregated  with an eligible
          employer plan).

     Individual  purchases by a trustee(s) or other  fiduciary(ies)  may also be
     aggregated if the investments are:

     .    for a single  trust estate or fiduciary  account,  including  employee
          benefit plans other than the  individual-type  employee  benefit plans
          described above;

     .    made for two or more employee benefit plans of a single employer or of
          affiliated  employers  as  defined  in the 1940 Act,  again  excluding
          individual-type employee benefit plans described above;

     .    for a  diversified  common  trust  fund or  other  diversified  pooled
          account not specifically  formed for the purpose of accumulating  fund
          shares;

     .    for  nonprofit,   charitable  or  educational  organizations  (or  any
          employer-sponsored   retirement   plan  for  such  an   endowment   or
          foundation),   or  any  endowments  or  foundations   established  and
          controlled by the organization; or

     .    for  participant  accounts  of a 403(b)  plan  that is  treated  as an
          employer-sponsored  plan (see "Class A purchases  not subject to sales
          charges" above), or made for



                       Capital Income Builder -- Page 45
<PAGE>



          two or more 403(b) plans that are treated as employer-sponsored  plans
          of a single  employer or  affiliated  employers as defined in the 1940
          Act.


     Purchases made for nominee or street name accounts  (securities held in the
     name of an  investment  dealer  or  another  nominee  such as a bank  trust
     department  instead of the customer) may not be aggregated  with those made
     for other  accounts and may not be aggregated  with other nominee or street
     name accounts unless otherwise qualified as described above.

     CONCURRENT PURCHASES -- As described in the prospectus, you may reduce your
     Class A sales charge by combining purchases of all classes of shares in the
     American  Funds,  as well as individual  holdings in  Endowments,  American
     Legacy  variable  annuity  contracts and variable life insurance  policies.
     Shares of money market funds purchased through an exchange, reinvestment or
     cross-reinvestment from a fund having a sales charge also qualify. However,
     direct purchases of American Funds money market funds are excluded.

     RIGHTS OF  ACCUMULATION  -- Subject  to the  limitations  described  in the
     aggregation  policy,  you may take into  account the current  value of your
     existing  holdings in all share classes of the American  Funds,  as well as
     your holdings in Endowments,  to determine your sales charge on investments
     in accounts eligible to be aggregated. Alternatively, if your investment is
     not in an  employer-sponsored  retirement plan, upon your request,  you may
     take into account the amount you invested  less any  withdrawals  (however,
     for this purpose, the amount invested does not include capital appreciation
     or reinvested  dividends and capital gains).  When  determining  your sales
     charge,  you may also  take  into  account  the  value  of your  individual
     holdings,  as of the end of the week prior to your  investment,  in various
     American  Legacy  variable  annuity  contracts and variable life  insurance
     policies. An employer-sponsored  retirement plan may also take into account
     the  current  value  of  its  investments  in  American  Legacy  Retirement
     Investment Plans. Direct purchases of American Funds money market funds are
     excluded. If you make a gift of shares, upon your request, you may purchase
     the  shares  at  the  sales  charge   discount   allowed  under  rights  of
     accumulation of all of your American Funds and American Legacy accounts.

CDSC  WAIVERS  FOR  CLASS A, B AND C SHARES  -- As  noted in the  prospectus,  a
contingent  deferred sales charge  ("CDSC") may be waived for redemptions due to
death or  postpurchase  disability of a  shareholder  (this  generally  excludes
accounts  registered in the names of trusts and other entities).  In the case of
joint tenant  accounts,  if one joint tenant dies, a surviving joint tenant,  at
the time he or she notifies the Transfer Agent of the other joint tenant's death
and removes the  decedent's  name from the account,  may redeem  shares from the
account without  incurring a CDSC.  Redemptions made after the Transfer Agent is
notified of the death of a joint tenant will be subject to a CDSC.


In addition,  a CDSC may be waived for the following types of  transactions,  if
together  they do not exceed 12% of the value of an  "account"  (defined  below)
annually (the "12% limit"):


     .    Required minimum distributions taken from retirement accounts upon the
          shareholder's attainment of age 70-1/2 (required minimum distributions
          that  continue to be taken by the  beneficiary(ies)  after the account
          owner is deceased also qualify for a waiver).



                       Capital Income Builder -- Page 46
<PAGE>



     .    Redemptions through a systematic withdrawal plan (SWP) (see "Automatic
          withdrawals"  under  "Shareholder  account  services  and  privileges"
          below).  For each SWP payment,  assets that are not subject to a CDSC,
          such  as   appreciation   on  shares  and  shares   acquired   through
          reinvestment of dividends and/or capital gain  distributions,  will be
          redeemed  first and will count  toward  the 12% limit.  If there is an
          insufficient  amount  of  assets  not  subject  to a CDSC  to  cover a
          particular  SWP  payment,  shares  subject to the lowest  CDSC will be
          redeemed  next until the 12% limit is reached.  Any  dividends  and/or
          capital gain distributions taken in cash by a shareholder who receives
          payments  through a SWP will also count  toward the 12% limit.  In the
          case of a SWP,  the 12% limit is  calculated  at the time a systematic
          redemption  is  first  made,  and is  recalculated  at the  time  each
          additional systematic redemption is made. Shareholders who establish a
          SWP should be aware that the amount of a payment not subject to a CDSC
          may vary over time  depending  on  fluctuations  in the value of their
          accounts. This privilege may be revised or terminated at any time.


     For purposes of this paragraph, "account" means:

     .    in the case of Class A shares,  your  investment  in Class A shares of
          all  American  Funds  (investments  representing  direct  purchases of
          American Funds money market funds are excluded);

     .    in the case of Class B shares,  your  investment  in Class B shares of
          the particular fund from which you are making the redemption; and

     .    in the case of Class C shares,  your  investment  in Class C shares of
          the particular fund from which you are making the redemption.

CDSC waivers are allowed  only in the cases  listed here and in the  prospectus.
For example,  CDSC waivers will not be allowed on redemptions of Class 529-B and
529-C  shares due to  termination  of  CollegeAmerica;  a  determination  by the
Internal  Revenue  Service that  CollegeAmerica  does not qualify as a qualified
tuition program under the Code;  proposal or enactment of law that eliminates or
limits the tax-favored status of CollegeAmerica; or the Virginia College Savings
Plan  eliminating  the  fund  as an  option  for  additional  investment  within
CollegeAmerica.



                    ROLLOVERS FROM RETIREMENT PLANS TO IRAS

As noted in the  prospectus,  assets  from  retirement  plans may be invested in
Class A, B, C or F shares through an IRA rollover. Rollovers invested in Class A
shares from retirement  plans will be subject to applicable  sales charges.  The
following rollovers to Class A shares will be made at no sales charge:

..    Rollovers to IRAs from 403(b) plans with Capital Bank and Trust  Company as
     custodian; and

..    Rollovers to IRAs that are attributable to American Funds  investments,  if
     they meet the following three requirements:

     --   The retirement plan from which assets are being rolled over is part of
          an  American  Funds  proprietary  retirement  plan  program  (such  as
          PlanPremier,/(R)/    Recordkeeper    Direct/(R)/    or    Recordkeeper
          Connect/(R)/) or is a plan whose participant  subaccounts are serviced
          by American Funds Service Company.

     --   The plan's  assets  were  invested  in  American  Funds at the time of
          distribution.

     --   The  plan's  assets  are  rolled  over to an  American  Funds IRA with
          Capital Bank and Trust Company as custodian.

IRA rollover  assets that roll over at no sales  charge as described  above will
not be subject to a contingent deferred sales charge and investment dealers will
be  compensated  solely  with an  annual  service  fee  that  begins  to  accrue
immediately.  IRA rollover  assets that are not  attributable  to American Funds
investments,  as well as future  contributions  to the IRA,  will be  subject to
sales charges and the terms and conditions generally applicable to Class A share
investments   as  described  in  the  prospectus  and  statement  of  additional
information if invested in Class A shares.



                                 SELLING SHARES

The methods  for  selling  (redeeming)  shares are  described  more fully in the
prospectus. If you wish to sell your shares by contacting American Funds Service
Company   directly,   any  such  request  must  be  signed  by  the   registered
shareholders.


A signature guarantee may be required for certain redemptions. In such an event,
your  signature may be guaranteed by a domestic  stock  exchange or the National
Association of Securities  Dealers,  Inc., bank,  savings  association or credit
union that is an eligible guarantor institution. The Transfer Agent reserves the
right to require a signature guarantee on any redemptions.


Additional  documentation may be required for sales of shares held in corporate,
partnership or fiduciary  accounts.  You must include with your written  request
any shares you wish to sell that are in certificate form.



                       Capital Income Builder -- Page 47
<PAGE>



If you sell Class A, B or C shares and  request a specific  dollar  amount to be
sold, we will sell sufficient shares so that the sale proceeds,  after deducting
any applicable CDSC, equals the dollar amount requested.



Redemption  proceeds  will not be mailed  until  sufficient  time has  passed to
provide  reasonable  assurance  that checks or drafts  (including  certified  or
cashier's  checks) for shares  purchased  have cleared  (which may take up to 15
calendar days from the purchase  date).  Except for delays relating to clearance
of  checks  for  share  purchases  or in  extraordinary  circumstances  (and  as
permissible  under the 1940 Act),  sale  proceeds  will be paid on or before the
seventh day  following  receipt and  acceptance  of an order.  Interest will not
accrue or be paid on amounts that represent uncashed  distribution or redemption
checks.


You may request  that  redemption  proceeds of $1,000 or more from money  market
funds be  wired to your  bank by  writing  American  Funds  Service  Company.  A
signature guarantee is required on all requests to wire funds.


                  SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The  following   services  and  privileges   are  generally   available  to  all
shareholders.  However, certain services and privileges may not be available for
Class 529  shareholders or if your account is held with an investment  dealer or
through an employer-sponsored retirement plan.


AUTOMATIC  INVESTMENT  PLAN -- An automatic  investment plan enables you to make
monthly or quarterly  investments in the American Funds through automatic debits
from  your  bank  account.  To set up a  plan,  you  must  fill  out an  account
application  and specify the amount that you would like to invest ($50  minimum)
and the date on which you would like your  investments  to occur.  The plan will
begin  within 30 days after your  account  application  is  received.  Your bank
account will be debited on the day or a few days before your investment is made,
depending on the bank's  capabilities.  The Transfer Agent will then invest your
money into the fund you  specified on or around the date you  specified.  If the
date you specified falls on a weekend or holiday, your money will be invested on
the following business day. However,  if the following business day falls in the
next  month,  your  money  will be  invested  on the  business  day  immediately
preceding the weekend or holiday.  If your bank account cannot be debited due to
insufficient  funds, a stop-payment or the closing of the account,  the plan may
be terminated and the related investment reversed.  You may change the amount of
the  investment or  discontinue  the plan at any time by contacting the Transfer
Agent.


AUTOMATIC   REINVESTMENT  --  Dividends  and  capital  gain   distributions  are
reinvested  in  additional  shares of the same class and fund at net asset value
unless you indicate otherwise on the account application.  You also may elect to
have dividends and/or capital gain  distributions  paid in cash by informing the
fund, the Transfer Agent or your investment  dealer.  Dividends and capital gain
distributions  paid to retirement  plan  shareholders or shareholders of the 529
share classes will be automatically reinvested.



If you have elected to receive  dividends  and/or capital gain  distributions in
cash,  and the postal or other  delivery  service is unable to deliver checks to
your address of record,  or you do not respond to mailings from  American  Funds
Service Company with regard to uncashed  distribution  checks, your distribution
option  will  automatically  be  converted  to having  all  dividends  and other
distributions reinvested in additional shares.


                       Capital Income Builder -- Page 48
<PAGE>



CROSS-REINVESTMENT  OF DIVIDENDS  AND  DISTRIBUTIONS  -- For all share  classes,
except the 529 classes of shares, you may  cross-reinvest  dividends and capital
gains  (distributions)  into other American Funds in the same share class at net
asset value, subject to the following conditions:


(1)  the aggregate value of your account(s) in the fund(s) paying  distributions
     equals or exceeds $5,000 (this is waived if the value of the account in the
     fund  receiving  the  distributions  equals or exceeds that fund's  minimum
     initial investment requirement);

(2)  if the value of the account of the fund  receiving  distributions  is below
     the  minimum  initial   investment   requirement,   distributions  must  be
     automatically reinvested; and

(3)  if you discontinue the  cross-reinvestment  of distributions,  the value of
     the account of the fund  receiving  distributions  must equal or exceed the
     minimum initial investment requirement. If you do not meet this requirement
     within 90 days of  notification,  the fund has the  right to  automatically
     redeem the account.

AUTOMATIC  EXCHANGES -- For all share classes,  you may  automatically  exchange
shares of the same class in  amounts  of $50 or more  among any of the  American
Funds on any day (or  preceding  business day if the day falls on a  nonbusiness
day) of each month you designate.


AUTOMATIC WITHDRAWALS -- For all share classes,  except the R and 529 classes of
shares,  you may  automatically  withdraw shares from any of the American Funds.
You can make  automatic  withdrawals of $50 or more as often as you wish if your
account  is worth at least  $10,000,  or up to four  times a year for an account
worth at least $5,000.  You can designate the day of each period for withdrawals
and request that checks be sent to you or someone else.  Withdrawals may also be
electronically  deposited to your bank account. The Transfer Agent will withdraw
your money from the fund you specify on or around the date you  specify.  If the
date you specified falls on a weekend or holiday, the redemption will take place
on the previous business day. However, if the previous business day falls in the
preceding  month,  the redemption will take place on the following  business day
after the weekend or holiday.



Withdrawal  payments are not to be  considered  as  dividends,  yield or income.
Automatic  investments  may not be made into a  shareholder  account  from which
there are automatic  withdrawals.  Withdrawals of amounts  exceeding  reinvested
dividends  and  distributions  and  increases  in share value  would  reduce the
aggregate value of the  shareholder's  account.  The Transfer Agent arranges for
the redemption by the fund of sufficient  shares,  deposited by the  shareholder
with the Transfer Agent, to provide the withdrawal payment specified.


ACCOUNT   STATEMENTS  --  Your  account  is  opened  in  accordance   with  your
registration  instructions.  Transactions  in the  account,  such as  additional
investments,  will be  reflected  on regular  confirmation  statements  from the
Transfer  Agent.  Dividend and capital  gain  reinvestments,  purchases  through
automatic  investment plans and certain  retirement  plans, as well as automatic
exchanges and withdrawals will be confirmed at least quarterly.


AMERICAN  FUNDSLINE AND  AMERICANFUNDS.COM  -- You may check your share balance,
the price of your shares or your most recent account transaction;  redeem shares
(up to $75,000 per American Funds shareholder each day) from  nonretirement plan
accounts;  or exchange shares around the clock with American  FundsLine or using
americanfunds.com.   To  use  American  FundsLine,   call  800/325-3590  from  a
TouchTone(TM)  telephone.  Redemptions and exchanges through American  FundsLine
and americanfunds.com are subject to the conditions noted above



                       Capital Income Builder -- Page 49
<PAGE>



and in "Telephone and Internet purchases,  redemptions and exchanges" below. You
will need your fund number (see the list of the  American  Funds under  "General
information -- fund numbers"),  personal  identification  number  (generally the
last four  digits of your  Social  Security  number or other tax  identification
number associated with your account) and account number.


Generally,  all shareholders are  automatically  eligible to use these services.
However,  if you are not  currently  authorized  to do so, you may  complete  an
American FundsLink  Authorization Form. Once you establish this privilege,  you,
your financial adviser or any person with your account information may use these
services.


TELEPHONE  AND INTERNET  PURCHASES,  REDEMPTIONS  AND  EXCHANGES -- By using the
telephone   (including   American   FundsLine)   or  the   Internet   (including
americanfunds.com),  or fax purchase,  redemption and/or exchange  options,  you
agree to hold the fund,  the Transfer  Agent,  any of its  affiliates  or mutual
funds  managed  by such  affiliates,  and  each of their  respective  directors,
trustees,  officers,  employees and agents  harmless from any losses,  expenses,
costs or liability  (including attorney fees) that may be incurred in connection
with  the  exercise  of  these  privileges.   Generally,  all  shareholders  are
automatically eligible to use these services.  However, you may elect to opt out
of these  services by writing the Transfer Agent (you may also reinstate them at
any time by writing the Transfer  Agent).  If the Transfer Agent does not employ
reasonable  procedures to confirm that the instructions received from any person
with  appropriate  account  information  are genuine,  it and/or the fund may be
liable for losses due to unauthorized or fraudulent  instructions.  In the event
that shareholders are unable to reach the fund by telephone because of technical
difficulties,  market conditions or a natural disaster,  redemption and exchange
requests may be made in writing only.


CHECKWRITING  -- You may establish  check writing  privileges for American Funds
money market funds by using an account application. If you request check writing
privileges,  you will be provided  with checks that you may use to draw  against
your account.  These checks may be made payable to anyone you designate and must
be signed  by the  authorized  number  of  registered  shareholders  exactly  as
indicated  on  your  checking  account  signature  card.  Check  writing  is not
available  for any of the 529 share  classes  or B, C or F share  classes of The
Cash Management Trust of America.


REDEMPTION OF SHARES -- The fund's Articles of Incorporation permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their then
current net asset value per share if at such time the shareholder of record owns
shares  having an  aggregate  net asset value of less than the  minimum  initial
investment  amount  required  of new  shareholders  as set  forth in the  fund's
current  registration  statement under the 1940 Act, and subject to such further
terms and conditions as the Board of Directors of the fund may from time to time
adopt.


SHARE  CERTIFICATES -- Shares are credited to your account and  certificates are
not  issued  unless  you  request  them  by  contacting   the  Transfer   Agent.
Certificates are not available for the 529 or R share classes.



                       Capital Income Builder -- Page 50
<PAGE>



                              GENERAL INFORMATION

CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities  in the fund's  portfolio,
are held by JPMorgan  Chase Bank, 270 Park Avenue,  New York, NY 10017-2070,  as
Custodian. If the fund holds non-U.S.  securities,  the Custodian may hold these
securities pursuant to subcustodial  arrangements in non-U.S.  banks or non-U.S.
branches of U.S. banks.


TRANSFER AGENT -- American Funds Service  Company,  a wholly owned subsidiary of
the investment adviser, maintains the records of shareholder accounts, 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.  The principal  office of American Funds Service  Company is
located at 135 South State  College  Boulevard,  Brea, CA  92821-5823.  American
Funds  Service  Company  was paid a fee of  $17,600,000  for Class A shares  and
$1,799,000 for Class B shares for the 2004 fiscal year.


In  the  case  of  certain  shareholder  accounts,  third  parties  who  may  be
unaffiliated with the investment adviser provide transfer agency and shareholder
services in place of American Funds Service Company. These services are rendered
under  agreements  with American Funds Service Company or its affiliates and the
third parties receive  compensation  according to such agreements.  Compensation
for transfer  agency and  shareholder  services,  whether paid to American Funds
Service  Company or such third parties,  is ultimately paid from fund assets and
is reflected in the expenses of the fund as disclosed in the prospectus.


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- PricewaterhouseCoopers LLP, 350
South Grand  Avenue,  Los Angeles,  CA 90071,  serves as the fund's  independent
registered public accounting firm, providing audit services,  preparation of tax
returns  and review of certain  documents  to be filed with the  Securities  and
Exchange  Commission.  The financial  statements  included in this  statement of
additional  information from the annual report have been so included in reliance
on the  report of  PricewaterhouseCoopers  LLP,  independent  registered  public
accounting  firm,  given on the  authority of said firm as experts in accounting
and  auditing.  The  selection  of  the  fund's  independent  registered  public
accounting firm is reviewed and determined annually by the Board of Directors.


INDEPENDENT  LEGAL COUNSEL -- O'Melveny & Myers LLP, 400 South Hope Street,  Los
Angeles,  CA 90071, serves as counsel for the fund and for Directors who are not
"interested  persons"  (as  defined  by the  1940  Act)  of the  fund  in  their
capacities as such.  Certain legal matters in connection with the capital shares
offered by the  prospectus  have been  passed  upon for the fund by  O'Melveny &
Myers LLP.  Counsel  does not provide  legal  services to the fund's  investment
adviser or any of its affiliated  companies or control persons.  A determination
with respect to the independence of the fund's  "independent legal counsel" will
be  made  at  least  annually  by the  independent  Directors  of the  fund,  as
prescribed by the 1940 Act and related rules.


PROSPECTUSES,  REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- The fund's fiscal
year ends on October 31. Shareholders are provided updated prospectuses annually
and at  least  semiannually  with  reports  showing  the  investment  portfolio,
financial  statements  and  other  information.   The  fund's  annual  financial
statements are audited by the fund's  independent  registered  public accounting
firm,  PricewaterhouseCoopers  LLP. In addition,  shareholders  may also receive
proxy  statements  for the  fund.  In an effort  to  reduce  the  volume of mail
shareholders  receive from the fund when a household owns more than one account,
the Transfer Agent has



                       Capital Income Builder -- Page 51
<PAGE>



taken steps to eliminate duplicate mailings of prospectuses, shareholder reports
and proxy statements.  To receive  additional copies of a prospectus,  report or
proxy statement, shareholders should contact the Transfer Agent.


CODES OF ETHICS -- The fund and Capital Research and Management  Company and its
affiliated companies,  including the fund's Principal Underwriter,  have adopted
codes of ethics that allow for personal  investments,  including  securities  in
which  the fund may  invest  from  time to time.  These  codes  include a ban on
acquisitions of securities pursuant to an initial public offering;  restrictions
on  acquisitions of private  placement  securities;  preclearance  and reporting
requirements;    review   of   duplicate   confirmation    statements;    annual
recertification of compliance with codes of ethics; blackout periods on personal
investing for certain  investment  personnel;  ban on short-term trading profits
for  investment  personnel;  limitations  on service as a director  of  publicly
traded companies; and disclosure of personal securities transactions.




LEGAL  PROCEEDINGS  -- On February  16, 2005,  the NASD filed an  administrative
complaint against the Principal Underwriter. The complaint alleges violations of
certain NASD rules by the Principal Underwriter with respect to the selection of
broker-dealer  firms that buy and sell  securities  for mutual  fund  investment
portfolios. The complaint seeks sanctions, restitution and disgorgement.

On March 24, 2005,  the  investment  adviser and Principal  Underwriter  filed a
complaint against the Attorney General of the State of California in Los Angeles
County  Superior  Court.  The  complaint   alleges  that  the  Attorney  General
threatened  to take  enforcement  actions  against  the  investment  adviser and
Principal  Underwriter  that are without merit and preempted by federal law. The
complaint seeks injunctive and declaratory  relief.  On the same day,  following
the filing of the investment  adviser's and Principal  Underwriter's  complaint,
the Attorney  General of the State of California  filed a complaint  against the
Principal  Underwriter  and  investment  adviser.  Filed in Los  Angeles  County
Superior Court, the Attorney  General's  complaint alleges violations of certain
sections of the California  Corporations Code with respect to so-called "revenue
sharing"  disclosures in mutual fund  prospectuses  and statements of additional
information.  The complaint seeks injunctive relief, penalties,  restitution and
disgorgement.

The investment adviser and Principal  Underwriter believe that these matters are
not likely to have a material  adverse  effect on the fund or on the  ability of
the investment adviser or Principal Underwriter to perform its contract with the
fund.  The SEC is  conducting  a  related  investigation  as of the date of this
statement  of  additional  information.  The  investment  adviser and  Principal
Underwriter  are  cooperating  fully.  In  addition,  a series  of class  action
lawsuits  have  been  filed in the U.S.  District  Court,  Central  District  of
California,  raising  issues  related  to  so-called  "directed  brokerage"  and
"revenue sharing"  practices.  Further updates on these issues will be available
on  the  American  Funds  website   (americanfunds.com)  under  "American  Funds
regulatory matters."




OTHER INFORMATION -- The financial statements including the investment portfolio
and the report of the  fund's  independent  registered  public  accounting  firm
contained  in the annual  report are included in this  statement  of  additional
information. The following information is not included in the annual report:


DETERMINATION  OF NET ASSET VALUE,  REDEMPTION  PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- OCTOBER 31, 2004


<TABLE>
<CAPTION>
<S>                                                               <C>
Net asset value and redemption price per share
  (Net assets divided by shares outstanding). .                     $50.75
Maximum offering price per share
  (100/94.25 of net asset value per share,
  which takes into account the fund's current maximum
  sales charge). . . . . . . . . . . . . . . .                      $53.85
</TABLE>


FUND NUMBERS -- Here are the fund numbers for use with our  automated  telephone
line, American FundsLine/(R)/, or when making share transactions:



<TABLE>
<CAPTION>
                                                                                FUND NUMBERS
                                                                     ------------------------------------
FUND                                                                 CLASS A  CLASS B  CLASS C   CLASS F
---------------------------------------------------------------------------------------------------------
<S>                                                                  <C>      <C>      <C>      <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/  . . . . . . . . . . . . . . . . . . . . . . . . .     002      202      302       402
American Balanced Fund/(R)/  . . . . . . . . . . . . . . . . . . .     011      211      311       411
American Mutual Fund/(R)/  . . . . . . . . . . . . . . . . . . . .     003      203      303       403
Capital Income Builder/(R)/  . . . . . . . . . . . . . . . . . . .     012      212      312       412
Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . .     033      233      333       433
EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . .     016      216      316       416
Fundamental Investors/SM/  . . . . . . . . . . . . . . . . . . . .     010      210      310       410
The Growth Fund of America/(R)/  . . . . . . . . . . . . . . . . .     005      205      305       405
The Income Fund of America/(R)/  . . . . . . . . . . . . . . . . .     006      206      306       406
The Investment Company of America/(R)/ . . . . . . . . . . . . . .     004      204      304       404
The New Economy Fund/(R)/  . . . . . . . . . . . . . . . . . . . .     014      214      314       414
New Perspective Fund/(R)/  . . . . . . . . . . . . . . . . . . . .     007      207      307       407
New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . .     036      236      336       436
SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . .     035      235      335       435
Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . .     001      201      301       401
BOND FUNDS
American High-Income Municipal Bond Fund/(R)/  . . . . . . . . . .     040      240      340       440
American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . .     021      221      321       421
The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . .     008      208      308       408
Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . .     031      231      331       431
Intermediate Bond Fund of America/SM/  . . . . . . . . . . . . . .     023      223      323       423
Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . .     043      243      343       443
The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . .     019      219      319       419
The Tax-Exempt Fund of California/(R)/*  . . . . . . . . . . . . .     020      220      320       420
The Tax-Exempt Fund of Maryland/(R)/*  . . . . . . . . . . . . . .     024      224      324       424
The Tax-Exempt Fund of Virginia/(R)/*  . . . . . . . . . . . . . .     025      225      325       425
U.S. Government Securities Fund/SM/  . . . . . . . . . . . . . . .     022      222      322       422
MONEY MARKET FUNDS
The Cash Management Trust of America/(R)/  . . . . . . . . . . . .     009      209      309       409
The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . .     039      N/A      N/A       N/A
The U.S. Treasury Money Fund of America/SM/  . . . . . . . . . . .     049      N/A      N/A       N/A
___________
*Qualified for sale only in certain jurisdictions.
</TABLE>




                       Capital Income Builder -- Page 52
<PAGE>






<TABLE>
<CAPTION>
                                                 FUND NUMBERS
                                  ---------------------------------------------
                                   CLASS    CLASS    CLASS    CLASS     CLASS
FUND                               529-A    529-B    529-C    529-E     529-F
-------------------------------------------------------------------------------
<S>                               <C>      <C>      <C>      <C>      <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund  . . . . . . . . . .    1002     1202     1302     1502      1402
American Balanced Fund  . . . .    1011     1211     1311     1511      1411
American Mutual Fund  . . . . .    1003     1203     1303     1503      1403
Capital Income Builder  . . . .    1012     1212     1312     1512      1412
Capital World Growth and Income
Fund  . . . . . . . . . . . . .    1033     1233     1333     1533      1433
EuroPacific Growth Fund . . . .    1016     1216     1316     1516      1416
Fundamental Investors . . . . .    1010     1210     1310     1510      1410
The Growth Fund of America  . .    1005     1205     1305     1505      1405
The Income Fund of America  . .    1006     1206     1306     1506      1406
The Investment Company of
America . . . . . . . . . . . .    1004     1204     1304     1504      1404
The New Economy Fund  . . . . .    1014     1214     1314     1514      1414
New Perspective Fund  . . . . .    1007     1207     1307     1507      1407
New World Fund  . . . . . . . .    1036     1236     1336     1536      1436
SMALLCAP World Fund . . . . . .    1035     1235     1335     1535      1435
Washington Mutual Investors Fund
  . . . . . . . . . . . . . . .    1001     1201     1301     1501      1401
BOND FUNDS
American High-Income Trust  . .    1021     1221     1321     1521      1421
The Bond Fund of America  . . .    1008     1208     1308     1508      1408
Capital World Bond Fund . . . .    1031     1231     1331     1531      1431
Intermediate Bond Fund of
America . . . . . . . . . . . .    1023     1223     1323     1523      1423
U.S. Government Securities Fund    1022     1222     1322     1522      1422
MONEY MARKET FUND
The Cash Management Trust of
America . . . . . . . . . . . .    1009     1209     1309     1509      1409
</TABLE>





                       Capital Income Builder -- Page 53
<PAGE>






<TABLE>
<CAPTION>
                                                    FUND NUMBERS
                                       ----------------------------------------
                                       CLASS   CLASS   CLASS   CLASS    CLASS
FUND                                    R-1     R-2     R-3     R-4      R-5
-------------------------------------------------------------------------------
<S>                                    <C>     <C>     <C>     <C>     <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . . . .    2102    2202    2302    2402     2502
American Balanced Fund . . . . . . .    2111    2211    2311    2411     2511
American Mutual Fund . . . . . . . .    2103    2203    2303    2403     2503
Capital Income Builder . . . . . . .    2112    2212    2312    2412     2512
Capital World Growth and Income Fund    2133    2233    2333    2433     2533
EuroPacific Growth Fund  . . . . . .    2116    2216    2316    2416     2516
Fundamental Investors  . . . . . . .    2110    2210    2310    2410     2510
The Growth Fund of America . . . . .    2105    2205    2305    2405     2505
The Income Fund of America . . . . .    2106    2206    2306    2406     2506
The Investment Company of America  .    2104    2204    2304    2404     2504
The New Economy Fund . . . . . . . .    2114    2214    2314    2414     2514
New Perspective Fund . . . . . . . .    2107    2207    2307    2407     2507
New World Fund . . . . . . . . . . .    2136    2236    2336    2436     2536
SMALLCAP World Fund  . . . . . . . .    2135    2235    2335    2435     2535
Washington Mutual Investors Fund . .    2101    2201    2301    2401     2501
BOND FUNDS
American High-Income Municipal Bond
Fund . . . . . . . . . . . . . . . .     N/A     N/A     N/A     N/A     2540
American High-Income Trust . . . . .    2121    2221    2321    2421     2521
The Bond Fund of America . . . . . .    2108    2208    2308    2408     2508
Capital World Bond Fund  . . . . . .    2131    2231    2331    2431     2531
Intermediate Bond Fund of America  .    2123    2223    2323    2423     2523
Limited Term Tax-Exempt Bond Fund of
America. . . . . . . . . . . . . . .     N/A     N/A     N/A     N/A     2543
The Tax-Exempt Bond Fund of America      N/A     N/A     N/A     N/A     2519
The Tax-Exempt Fund of California* .     N/A     N/A     N/A     N/A     2520
The Tax-Exempt Fund of Maryland* . .     N/A     N/A     N/A     N/A     2524
The Tax-Exempt Fund of Virginia* . .     N/A     N/A     N/A     N/A     2525
U.S. Government Securities Fund  . .    2122    2222    2322    2422     2522
MONEY MARKET FUNDS
The Cash Management Trust of America    2109    2209    2309    2409     2509
The Tax-Exempt Money Fund of America     N/A     N/A     N/A     N/A     2539
The U.S. Treasury Money Fund of
America  . . . . . . . . . . . . . .    2149    2249    2349    2449     2549
___________
*Qualified for sale only in certain
jurisdictions.
</TABLE>





                       Capital Income Builder -- Page 54
<PAGE>


                                    APPENDIX

                  DESCRIPTION OF COMMERCIAL PAPER RATINGS


MOODY'S

COMMERCIAL PAPER RATINGS (HIGHEST THREE RATINGS)


P-1
Issuers (or supporting  institutions)  rated Prime-1 have a superior  ability to
repay short-term debt obligations.


P-2
Issuers (or  supporting  institutions)  rated  Prime-2 have a strong  ability to
repay short-term debt obligations.


P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations.




STANDARD & POOR'S
COMMERCIAL PAPER RATINGS (HIGHEST THREE RATINGS)


A-1
A short-term obligation rated A-1 is rated in the highest category by Standard &
Poor's.  The  obligor's  capacity  to  meet  its  financial  commitment  on  the
obligation is strong.  Within this category,  certain obligations are designated
with a plus sign (+). This  indicates  that the  obligor's  capacity to meet its
financial commitment on these obligations is extremely strong.


A-2
A short-term  obligation  rated A-2 is somewhat more  susceptible to the adverse
effects of changes in circumstances and economic  conditions than obligations in
higher rating categories.  However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.


A-3
A short-term  obligation  rated A-3  exhibits  adequate  protection  parameters.
However,  adverse economic conditions or changing  circumstances are more likely
to lead to a weakened  capacity of the obligor to meet its financial  commitment
on the obligation.


The following  descriptions  of debt security  ratings are based on  information
provided  by  Moody's   Investors   Service  (Moody's)  and  Standard  &  Poor's
Corporation (Standard & Poor's).


                       Capital Income Builder -- Page 55
<PAGE>


                        DESCRIPTION OF BOND RATINGS


MOODY'S
LONG-TERM RATING DEFINITIONS

Aaa
Obligations  rated Aaa are judged to be of the  highest  quality,  with  minimal
credit risk.

Aa
Obligations  rated Aa are judged to be of high  quality  and are subject to very
low credit risk.


A
Obligations  rated A are  considered  upper-medium  grade and are subject to low
credit risk.


Baa
Obligations  rated Baa are subject to moderate  credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics.


Ba
Obligations rated Ba are judged to have speculative  elements and are subject to
substantial credit risk.


B
Obligations  rated B are considered  speculative  and are subject to high credit
risk.


Caa
Obligations rated Caa are judged to be of poor standing and are subject to very
high credit risk.


Ca
Obligations  rated Ca are  highly  speculative  and are likely in, or very near,
default, with some prospect of recovery of principal and interest.


C
Obligations rated C are the lowest rated class of bonds and are typically in
default, with little prospect for recovery of principal or interest.


NOTE:  Moody's  appends  numerical  modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking;  and the modifier 3 indicates a ranking in the lower end of
that generic rating category.


                       Capital Income Builder -- Page 56
<PAGE>


STANDARD & POOR'S
LONG-TERM ISSUE CREDIT RATINGS

AAA
An obligation  rated AAA has the highest  rating  assigned by Standard & Poor's.
The  obligor's  capacity to meet its financial  commitment on the  obligation is
extremely strong.


AA
An obligation rated AA differs from the highest-rated  obligations only in small
degree.  The  obligor's  capacity  to  meet  its  financial  commitment  on  the
obligation is very strong.


A
An obligation  rated A is somewhat more  susceptible  to the adverse  effects of
changes  in   circumstances   and  economic   conditions  than   obligations  in
higher-rated  categories.  However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.


BBB
An  obligation  rated BBB  exhibits  adequate  protection  parameters.  However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened  capacity  of the  obligor to meet its  financial  commitment  on the
obligation.


BB, B, CCC, CC, AND C
Obligations  rated BB, B, CCC,  CC,  and C are  regarded  as having  significant
speculative characteristics.  BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics,  these  may be  outweighed  by  large  uncertainties  or  major
exposures to adverse conditions.


BB
An obligation  rated BB is less vulnerable to nonpayment than other  speculative
issues.  However,  it faces major ongoing  uncertainties  or exposure to adverse
business,  financial,  or economic  conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.


B
An obligation  rated B is more vulnerable to nonpayment than  obligations  rated
BB, but the obligor currently has the capacity to meet its financial  commitment
on the obligation.  Adverse  business,  financial,  or economic  conditions will
likely  impair the  obligor's  capacity  or  willingness  to meet its  financial
commitment on the obligation.


CCC
An obligation  rated CCC is currently  vulnerable to nonpayment and is dependent
upon favorable business,  financial,  and economic conditions for the obligor to
meet its  financial  commitment  on the  obligation.  In the  event  of  adverse
business,  financial, or economic conditions,  the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.


CC
An obligation rated CC is currently highly vulnerable to nonpayment.


                       Capital Income Builder -- Page 57
<PAGE>


C
The C rating may be used to cover a situation  where a  bankruptcy  petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.


D
An obligation rated D is in payment default.  The D rating category is used when
payments on an  obligation  are not made on the date due even if the  applicable
grace  period  has not  expired,  unless  Standard & Poor's  believes  that such
payments will be made during such grace  period.  The D rating also will be used
upon the filing of a  bankruptcy  petition or the taking of a similar  action if
payments on an obligation are jeopardized.


PLUS (+) OR MINUS (-)
The ratings  from AA to CCC may be  modified by the  addition of a plus or minus
sign to show relative standing within the major rating categories.


                       Capital Income Builder -- Page 58






[logo - American Funds (r)]

CAPITAL INCOME BUILDER

INVESTMENT PORTFOLIO
October 31, 2004

<TABLE>
<S>                                                                                              <C>            <C>
                                                                                                                Market value
COMMON STOCKS -- 68.89%                                                                              Shares            (000)

FINANCIALS -- 19.89%
Bank of America Corp.                                                                            10,838,540         $485,458
HSBC Holdings PLC (United Kingdom)                                                               14,056,302          227,050
HSBC Holdings PLC (Hong Kong)                                                                    11,984,097          194,035
Washington Mutual, Inc.                                                                           9,800,000          379,358
Fannie Mae                                                                                        5,015,000          351,802
Westpac Banking Corp.                                                                            21,548,755          304,317
Societe Generale                                                                                  3,250,400          302,162
iStar Financial, Inc.(1)                                                                          6,921,000          286,668
Wells Fargo & Co.                                                                                 4,410,000          263,365
Fortis                                                                                            9,835,000          250,891
Lloyds TSB Group PLC                                                                             27,892,000          220,786
Irish Life & Permanent PLC                                                                       12,164,949          205,330
Boston Properties, Inc.                                                                           3,328,700          198,790
Archstone-Smith Trust                                                                             5,665,000          190,061
Bank of Nova Scotia                                                                               5,647,200          183,754
J.P. Morgan Chase & Co.                                                                           4,739,000          182,925
Freddie Mac                                                                                       2,400,000          159,840
ING Groep NV                                                                                      5,939,729          157,599
U.S. Bancorp                                                                                      5,300,000          151,633
Kimco Realty Corp.                                                                                2,735,000          149,194
Arthur J. Gallagher & Co.(1)                                                                      4,796,200          134,773
St. George Bank Ltd.                                                                              7,239,306          126,440
Health Care Property Investors, Inc.                                                              4,170,000          116,051
Equity Residential                                                                                3,295,500          109,905
Royal Bank of Canada                                                                              2,090,000          108,879
Weingarten Realty Investors                                                                       2,949,750          106,663
AMB Property Corp.                                                                                2,675,000          100,313
Developers Diversified Realty Corp.                                                               2,345,000           98,021
Westfield Group                                                                                   8,641,624           96,959
ABN AMRO Holding NV                                                                               3,723,483           89,273
Comerica Inc.                                                                                     1,450,000           89,190
FirstMerit Corp.                                                                                  3,405,000           88,973
DnB NOR ASA                                                                                      10,464,600           88,730
Euronext NV                                                                                       3,030,000           87,950
Hang Lung Group Ltd.                                                                             45,000,000           73,727
CapitaMall Trust Management Ltd.(1)                                                              64,742,700           65,802
United Bankshares, Inc.                                                                           1,775,000           65,089
Fubon Financial Holding Co., Ltd.                                                                67,700,000           63,782
Svenska Handelsbanken Group, Class A                                                              2,925,000           63,484
KeyCorp                                                                                           1,860,000           62,477
Hongkong Land Holdings Ltd.                                                                      24,813,000           51,115
Equity Office Properties Trust                                                                    1,800,000           50,616
XL Capital Ltd., Class A                                                                            642,800           46,603
Apartment Investment and Management Co., Class A                                                  1,175,000           43,111
Ascendas Real Estate Investment Trust(1)                                                         44,727,000           41,961
Unibail Holding                                                                                     283,296           37,312
St. Paul Travelers Companies, Inc.                                                                1,075,000           36,507
Chinatrust Financial Holding Co., Ltd.                                                           29,456,924           33,567
ProLogis                                                                                            762,346           29,716
Maguire Properties, Inc.                                                                          1,050,000           27,458
Suncorp-Metway Ltd.                                                                               2,120,000           27,148
Fortune Real Estate Investment Trust, units(1)                                                   30,745,000           23,902
Lincoln National Corp.                                                                              541,500           23,718
Mercury General Corp.                                                                               400,000           20,572
Commonwealth Bank of Australia                                                                      850,000           20,409
AmSouth Bancorporation                                                                              750,000           19,793
JCG Holdings Ltd.                                                                                22,451,000           17,165
Wing Lung Bank Ltd.                                                                               1,980,100           15,267
Hang Lung Properties Ltd.                                                                         2,218,100            3,292
                                                                                                                   7,250,731

UTILITIES -- 10.62%
E.ON AG                                                                                           6,906,000          563,222
National Grid Transco PLC                                                                        55,200,000          480,036
Southern Co.                                                                                     11,500,000          363,285
Scottish Power PLC                                                                               44,277,000          357,601
Exelon Corp.                                                                                      7,291,000          288,869
Gas Natural SDG, SA                                                                               9,250,000          252,172
FirstEnergy Corp.                                                                                 4,288,500          177,244
Public Service Enterprise Group Inc.                                                              3,336,300          142,093
Consolidated Edison, Inc.                                                                         3,250,000          141,213
NiSource Inc.                                                                                     6,539,307          140,268
Dominion Resources, Inc.                                                                          2,118,000          136,230
United Utilities PLC                                                                              8,600,000           90,662
United Utilities PLC, Class A                                                                     4,777,777           34,134
Northeast Utilities                                                                               4,645,000           89,788
Xcel Energy Inc.                                                                                  5,176,000           88,510
FPL Group, Inc.                                                                                   1,000,000           68,900
Ameren Corp.                                                                                      1,350,000           64,800
Cheung Kong Infrastructure Holdings Ltd.                                                         23,630,000           63,006
PPL Corp.                                                                                           965,000           50,180
Equitable Resources, Inc.                                                                           890,000           49,217
DTE Energy Co.                                                                                    1,000,000           42,710
American Electric Power Co., Inc.                                                                 1,200,000           39,516
Scottish and Southern Energy PLC                                                                  2,400,000           36,783
Duke Energy Corp.                                                                                 1,400,000           34,342
Pinnacle West Capital Corp.                                                                         800,000           34,096
Progress Energy, Inc.                                                                               700,000           28,910
Hong Kong and China Gas Co. Ltd.                                                                  7,800,000           15,035
                                                                                                                   3,872,822

TELECOMMUNICATION SERVICES -- 8.90%
SBC Communications Inc.                                                                          20,485,000          517,451
Verizon Communications Inc.                                                                      12,770,000          499,307
KT Corp. (ADR)                                                                                   13,162,420          242,978
KT Corp.                                                                                            780,720           25,396
TDC A/S                                                                                           6,761,534          250,841
Chunghwa Telecom Co., Ltd. (ADR)                                                                  6,915,000          130,348
Chunghwa Telecom Co., Ltd.                                                                       63,950,000          110,935
BellSouth Corp.                                                                                   8,765,000          233,763
Telecom Italia SpA, nonvoting                                                                    88,187,755          220,231
Royal KPN NV                                                                                     21,805,000          174,821
Telecom Corp. of New Zealand Ltd.                                                                39,363,919          155,743
Telefonica, SA                                                                                    8,145,000          134,770
BT Group PLC                                                                                     32,200,000          109,850
Swisscom AG                                                                                         251,391           90,744
Portugal Telecom, SGPS, SA                                                                        7,373,900           83,258
AT&T Corp.                                                                                        4,715,000           80,674
Vodafone Group PLC                                                                               20,000,000           51,241
Vodafone Group PLC (ADR)                                                                            875,000           22,566
Hellenic Telecommunications Organization SA                                                       3,650,000           56,660
France Telecom, SA                                                                                1,900,000           54,519
                                                                                                                   3,246,096

CONSUMER STAPLES -- 7.56%
Altria Group, Inc.                                                                               11,512,000          557,871
ConAgra Foods, Inc.                                                                              11,510,000          303,864
UST Inc.                                                                                          6,245,000          257,044
H.J. Heinz Co.                                                                                    5,645,000          205,196
Sara Lee Corp.                                                                                    7,700,000          179,256
Imperial Tobacco Group PLC                                                                        7,605,000          177,665
Gallaher Group PLC                                                                               13,305,292          168,001
Foster's Group Ltd.                                                                              42,031,188          158,769
KT&G Corp.                                                                                        5,562,000          154,086
Altadis, SA                                                                                       4,154,995          152,855
Reynolds American Inc.                                                                            1,740,000          119,816
Diageo PLC                                                                                        7,675,000          102,689
General Mills, Inc.                                                                               1,700,000           75,225
Unilever NV                                                                                         943,600           55,020
Lion Nathan Ltd.                                                                                  6,491,066           38,260
WD-40 Co.(1)                                                                                      1,076,650           30,431
Wolverhampton & Dudley Breweries, PLC                                                             1,321,829           22,140
                                                                                                                   2,758,188

INDUSTRIALS -- 5.19%
General Electric Co.                                                                              6,250,000          213,250
Autopistas, Concesionaria Espanola, SA                                                            8,826,687          165,576
Macquarie Airports(1)                                                                            71,353,636          151,044
Macquarie Infrastructure Group                                                                   52,788,216          146,491
Sandvik AB                                                                                        3,100,000          116,373
Emerson Electric Co.                                                                              1,470,000           94,153
Hubbell Inc., Class B                                                                             1,910,000           87,325
BRISA-Auto-Estradas de Portugal, SA                                                              10,450,000           85,653
Stagecoach Group PLC                                                                             46,814,168           76,306
Hills Motorway Group(1)                                                                          11,100,000           68,083
Kowloon Motor Bus Co. (1933) Ltd.                                                                13,993,600           66,353
Singapore Technologies Engineering Ltd.                                                          48,700,000           61,212
Uponor Oyj                                                                                        1,740,000           61,186
ComfortDelGro Corp. Ltd.                                                                         67,824,451           58,329
Geberit AG                                                                                           88,850           58,009
ServiceMaster Co.                                                                                 4,246,200           54,521
LG Engineering & Construction Co., Ltd.(1)                                                        2,550,000           51,729
Qantas Airways Ltd.                                                                              19,441,039           48,279
Leighton Holdings Ltd.                                                                            5,547,000           46,388
Spirax-Sarco Engineering PLC                                                                      3,336,391           36,858
Hyundai Development Co.                                                                           2,470,000           33,110
Fong's Industries Co. Ltd.(1)                                                                    36,590,000           31,267
SMRT Corp. Ltd.                                                                                  68,363,000           29,396
Singapore Post Private Ltd.                                                                      44,010,000           21,306
Seco Tools AB, Class B                                                                              505,000           20,350
Ultraframe PLC                                                                                    4,720,000            7,975
                                                                                                                   1,890,522

ENERGY -- 5.09%
Royal Dutch Petroleum Co. (New York registered)                                                   6,578,000          356,791
"Shell" Transport and Trading Company, PLC                                                       20,950,000          164,969
"Shell" Transport and Trading Co., PLC (ADR) (New York registered)                                2,070,000           97,828
ENI SpA                                                                                          16,125,000          367,019
TOTAL SA (ADR)                                                                                    1,752,900          182,792
TOTAL SA                                                                                            375,000           78,161
Husky Energy Inc.                                                                                 9,165,000          240,986
IHC Caland NV(1)                                                                                  2,083,797          119,612
Kinder Morgan, Inc.                                                                               1,817,400          116,986
Enbridge Inc.                                                                                     1,761,734           76,549
TonenGeneral Sekiyu KK                                                                            6,250,000           54,569
                                                                                                                   1,856,262

MATERIALS -- 3.06%
Dow Chemical Co.                                                                                  6,450,000          289,863
UPM-Kymmene Corp.                                                                                 6,600,000          130,811
Fletcher Building Ltd.(1)                                                                        26,209,303           97,946
Worthington Industries, Inc.(1)                                                                   4,411,600           87,570
Lyondell Chemical Co.                                                                             3,600,000           82,728
PaperlinX Ltd.                                                                                   22,217,500           80,102
Norske Skogindustrier ASA, Class A                                                                4,062,500           73,996
Cia. Vale do Rio Doce, ordinary nominative (ADR)                                                  3,049,000           64,517
MeadWestvaco Corp.                                                                                1,785,000           56,281
Stora Enso Oyj, Class R                                                                           2,750,000           39,349
M-real Oyj, Class B                                                                               4,996,500           30,987
Hung Hing Printing Group Ltd.                                                                    28,550,000           21,829
Aracruz Celulose SA, Class B, preferred nominative (ADR)                                            628,000           21,151
Holmen AB, Class B                                                                                  650,000           20,219
BASF AG                                                                                             283,000           17,695
                                                                                                                   1,115,044

CONSUMER DISCRETIONARY -- 2.52%
Kingfisher PLC                                                                                   23,420,000          130,007
Dixons Group PLC                                                                                 40,784,561          128,649
General Motors Corp.                                                                              3,250,000          125,288
DaimlerChrysler AG                                                                                2,070,000           85,707
Sky City Ltd.(1)                                                                                 22,969,600           70,561
Hilton Group PLC                                                                                 11,300,000           53,492
John Fairfax Holdings Ltd.                                                                       16,213,957           52,029
InterContinental Hotels Group PLC                                                                 3,828,636           46,866
Greene King PLC                                                                                   1,963,555           41,472
Mitchells & Butlers PLC                                                                           7,367,844           38,532
Ekornes ASA                                                                                       1,455,425           33,194
Harrah's Entertainment, Inc.                                                                        525,000           30,723
Schibsted ASA                                                                                     1,295,600           28,278
Kesa Electricals PLC                                                                              5,298,114           26,467
Pacifica Group Ltd.(1)                                                                            9,300,000           25,600
SCMP Group Ltd.                                                                                   6,076,000            2,440
                                                                                                                     919,305

HEALTH CARE -- 1.41%
Bristol-Myers Squibb Co.                                                                         13,000,000          304,590
Sonic Healthcare Ltd.                                                                            13,348,349          101,343
Fisher & Paykel Healthcare Corp. Ltd.(1)                                                         30,425,000           60,501
Cochlear Ltd.                                                                                     2,480,600           46,016
                                                                                                                     512,450

INFORMATION TECHNOLOGY -- 0.85%
Microsoft Corp.                                                                                   9,475,000          265,205
Rotork PLC(1)                                                                                     5,500,000           44,345
                                                                                                                     309,550

MISCELLANEOUS -- 3.80%
Other common stock securities in initial period of acquisition                                                     1,387,297


TOTAL COMMON STOCKS (cost: $20,084,176,000)                                                                       25,118,267


PREFERRED STOCKS -- 0.03%

FINANCIALS -- 0.03%
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred(1)                           400,000           10,360

TOTAL PREFERRED STOCKS (cost: $10,000,000)                                                                            10,360



                                                                                        Shares or principal
CONVERTIBLE SECURITIES -- 1.62%                                                                      amount

TELECOMMUNICATION SERVICES -- 0.42%
Deutsche Telekom International Finance BV 6.50% convertible bonds 2006                      Euro 82,250,000          121,475
ALLTEL Corp. 7.75% convertible preferred 2005                                                       350,000 units     17,745
CenturyTel, Inc. 6.875% ACES 2005                                                                   500,000 units     12,575
                                                                                                                     151,795

UTILITIES -- 0.34%
PG&E Corp. 9.50% convertible note 2010                                                          $28,000,000           72,625
American Electric Power Co., Inc. 9.25% convertible preferred 2005                                  560,000           26,645
Ameren Corp. 9.75% ACES convertible preferred 2005                                                  800,000 units     23,120
Dominion Resources, Inc. 9.50% PIES convertible preferred 2004                                       46,500 units      2,496
                                                                                                                     124,886

FINANCIALS -- 0.23%
Suez 4.50% convertible preferred 2006                                                       Euro 27,200,000           38,754
UnumProvident Corp. 8.25%, ACES convertible 2006                                                  1,000,000 units     29,710
Chubb Corp. 7.00% convertible preferred 2006                                                        600,000 units     16,950
                                                                                                                      85,414

MATERIALS -- 0.19%
Temple-Inland Inc. 7.50% Upper DECS 2005                                                            690,000 units     35,984
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred(2)                                   35,000           32,920
                                                                                                                      68,904

CONSUMER DISCRETIONARY -- 0.11%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred
     2032                                                                                           473,600           23,675
General Motors Corp., Series B, 5.25% convertible debentures 2032                                17,500,000           16,317
                                                                                                                      39,992


                                                                                                  Shares or     Market value
CONVERTIBLE SECURITIES                                                                     principal amount            (000)

CONSUMER STAPLES -- 0.08%
Albertson's, Inc. 7.25% convertible preferred 2007                                                1,200,000 units  $  29,448

HEALTH CARE -- 0.06%
Baxter International Inc. 7.00% convertible preferred 2006                                          400,000 units     20,568

INDUSTRIALS -- 0.05%
Northrop Grumman Corp. 7.25% convertible preferred 2004                                             100,000 units     10,241
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031(2)                                   100,000            7,825
                                                                                                                      18,066

MISCELLANEOUS -- 0.14%
Other convertible securities in initial period of acquisition                                                         51,300


TOTAL CONVERTIBLE SECURITIES (cost: $551,478,000)                                                                    590,373


                                                                                           Principal amount
BONDS AND NOTES -- 23.40%                                                                             (000)

U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS -- 5.04%
U.S. Treasury Obligations 5.75% 2005                                                              $  15,000           15,537
U.S. Treasury Obligations 6.50% 2005                                                                 60,000           62,015
U.S. Treasury Obligations 6.50% 2005                                                                  7,500            7,675
U.S. Treasury Obligations 6.75% 2005                                                                105,000          107,576
U.S. Treasury Obligations 7.50% 2005                                                                 98,000           99,546
U.S. Treasury Obligations 10.75% 2005                                                               259,000          276,280
U.S. Treasury Obligations 6.875% 2006                                                               100,000          106,750
U.S. Treasury Obligations 7.00% 2006                                                                 81,000           87,100
U.S. Treasury Obligations 9.375% 2006                                                               130,000          141,619
U.S. Treasury Obligations 3.25% 2007                                                                 31,520           31,929
U.S. Treasury Obligations 3.375% 2007(3)                                                             11,960           12,815
U.S. Treasury Obligations 6.125% 2007                                                                75,000           81,715
U.S. Treasury Obligations 6.25% 2007                                                                 75,000           80,988
U.S. Treasury Obligations 3.625% 2008(3)                                                             58,646           64,675
U.S. Treasury Obligations 10.375% 2009                                                               75,000           75,211
U.S. Treasury Obligations 12.75% 2010                                                               100,000          110,672
U.S. Treasury Obligations 13.875% 2011                                                               44,500           52,204
U.S. Treasury Obligations Principal Strip 0% 2018                                                    12,060            6,344
U.S. Treasury Obligations 6.375% 2027                                                                 9,000           10,884
U.S. Treasury Obligations Principal Strip 0% 2029                                                     6,500            1,855
Freddie Mac 7.00% 2005                                                                               46,000           47,473
Freddie Mac 5.25% 2006                                                                               80,000           82,641
Freddie Mac 5.125% 2008                                                                              25,000           26,664
Freddie Mac 5.75% 2009                                                                               75,000           81,862
Freddie Mac 4.50% 2014                                                                               10,000           10,068
Fannie Mae 7.125% 2005                                                                               50,000           50,702
Fannie Mae 5.50% 2006                                                                                50,000           51,884
Fannie Mae 7.125% 2007                                                                               50,000           54,796
                                                                                                                   1,839,480

MORTGAGE-BACKED OBLIGATIONS(4) -- 3.68%
Fannie Mae 11.00% 2015                                                                                  818              949
Fannie Mae 6.00% 2016                                                                                 1,361            1,431
Fannie Mae 7.00% 2016                                                                                   205              218
Fannie Mae 11.00% 2016                                                                                  464              541
Fannie Mae 6.00% 2017                                                                                19,656           20,662
Fannie Mae 6.00% 2017                                                                                 5,346            5,620
Fannie Mae 6.00% 2017                                                                                 3,177            3,340
Fannie Mae 6.00% 2017                                                                                 2,366            2,487
Fannie Mae 6.00% 2017                                                                                   974            1,024
Fannie Mae 6.00% 2017                                                                                   646              679
Fannie Mae 5.00% 2018                                                                                 3,294            3,373
Fannie Mae 11.00% 2018                                                                                1,027            1,199
Fannie Mae 5.50% 2016                                                                                48,440           50,158
Fannie Mae 11.00% 2020                                                                                  526              602
Fannie Mae 10.50% 2021                                                                                  163              190
Fannie Mae, Series 2002-W7, Class A-2, 4.80% 2022                                                        79               79
Fannie Mae 10.50% 2022                                                                                1,016            1,159
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028                                                       922            1,000
Fannie Mae 7.50% 2029                                                                                   186              200
Fannie Mae 7.00% 2030                                                                                   734              782
Fannie Mae 6.50% 2031                                                                                 1,726            1,818
Fannie Mae 6.50% 2031                                                                                 1,488            1,568
Fannie Mae 6.50% 2031                                                                                   623              656
Fannie Mae 7.00% 2031                                                                                   721              767
Fannie Mae 7.50% 2031                                                                                   762              818
Fannie Mae 7.50% 2031                                                                                   136              146
Fannie Mae 6.50% 2032                                                                                 1,024            1,079
Fannie Mae 6.50% 2032                                                                                   482              508
Fannie Mae 7.00% 2032                                                                                 1,049            1,116
Fannie Mae 3.81% 2033(5)                                                                             23,837           23,926
Fannie Mae 4.042% 2033(5)                                                                             3,821            3,863
Fannie Mae 4.20% 2033(5)                                                                              5,792            5,869
Fannie Mae 5.00% 2033                                                                                 6,888            6,880
Fannie Mae 6.50% 2033                                                                                10,814           11,388
Fannie Mae 6.00% 2034                                                                                92,110           95,507
Fannie Mae 6.50% 2034                                                                                17,234           18,148
Fannie Mae, Series 2003-W10, Class 1A-2B, 3.112% 2037                                                 9,726            9,708
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041                                                      1,101            1,178
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1,
     7.50% 2032                                                                                      11,744           12,092
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1,
     7.50% 2032                                                                                       4,891            5,041
CS First Boston Mortgage Securities Corp., Series 2003-AR20, Class II-A-2,
     4.002% 2033(5)                                                                                   4,998            5,001
CS First Boston Mortgage Securities Corp., Series 2003-23, Class V-A-1,
     6.00% 2033                                                                                      14,440           14,778
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1,
     6.50% 2033                                                                                       6,003            6,215
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1,
     7.00% 2033                                                                                      16,277           17,065
CS First Boston Mortgage Securities Corp., Series 2004-AR8, Class 2-A-1,
     4.67% 2034(5)                                                                                   14,600           14,729
CS First Boston Mortgage Securities Corp., Series 2003-AR30, Class II-A-1,
     4.733% 2034(5)                                                                                  42,333           42,729
CS First Boston Mortgage Securities Corp., Series 2004-AR1, Class II-A-1,
     4.797% 2034(5)                                                                                  20,640           20,828
CS First Boston Mortgage Securities Corp., Series 2004-AR7, Class 2-A-1,
     4.90% 2034(5)                                                                                    9,678            9,813
CS First Boston Mortgage Securities Corp., Series 2004-3, Class IV-A-1,
     6.00% 2034                                                                                       8,402            8,628
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3,
     6.238% 2034                                                                                     11,000           11,837
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3,
     6.38% 2035                                                                                      18,000           19,961
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-1
     3.466% 2039                                                                                     15,626           15,688
CS First Boston Mortgage Securities Corp., Series 1998-C1, Class C, 6.78% 2040                        6,550            7,262
Bear Stearns ARM Trust, Series 2003-6, Class I-A-2, 4.026% 2033(5)                                   12,070           12,088
Bear Stearns ARM Trust, Series 2003-3, Class II-A-2, 4.153% 2033(5)                                   7,193            7,188
Bear Stearns ARM Trust, Series 2004-3, Class II-A, 4.343% 2034(5)                                    38,394           38,419
Bear Stearns ARM Trust, Series 2004-1, Class I-2-A-5, 4.509% 2034(5)                                 15,494           15,547
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 5.058% 2034(5)                                 19,468           19,638
Bear Stearns ARM Trust, Series 2004-9, Class I-2-A-3, 5.08% 2034(5)                                  17,400           17,684
Bear Stearns ARM Trust, Series 2004-6, Class II-A-1, 5.198% 2034(5)                                   2,514            2,561
Bear Stearns ARM Trust, Series 2003-8, Class III-A-1, 5.216% 2034(5)                                 27,389           27,614
CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.794% 2033(5)                            5,416            5,387
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.895% 2033(5)                         19,238           19,456
CHL Mortgage Pass-Through Trust, Series 2004-7, Class 3-A-1, 4.101% 2034(5)                           9,564            9,439
CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.739% 2034(5)                            6,941            7,001
CHL Mortgage Pass-Through Trust, Series 2004-12, Class 12-A-1, 4.909% 2034(5)                        23,143           23,420
CHL Mortgage Pass-Through Trust, Series 2004-12, Class 13-A-1, 4.929% 2034(5)                        12,467           12,622
CHL Mortgage Pass-Through Trust, Series 2003-60, Class 2-A-1, 5.017% 2034(5)                         10,675           10,806
CHL Mortgage Pass-Through Trust, Series 2004-HYB6, Class A-3, 5.264% 2034(5)                          9,945           10,166
Freddie Mac 6.00% 2017                                                                                  934              982
Freddie Mac 4.50% 2018                                                                                8,783            8,833
Freddie Mac 5.00% 2018                                                                               18,407           18,840
Freddie Mac 6.50% 2032                                                                               10,000           10,527
Freddie Mac 7.50% 2032                                                                                5,416            5,819
Freddie Mac 6.00% 2034                                                                               42,000           43,496
Freddie Mac 6.50% 2034                                                                                4,400            4,640
Freddie Mac, Series T-056, Class A-2A, 2.842% 2036                                                    4,717            4,684
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-CB2, Class VII-A,
     5.50% 2019                                                                                      14,528           14,924
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR7, Class A-7,
     3.842% 2033(5)                                                                                  13,382           13,251
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR8, Class A,
     4.03% 2033(5)                                                                                    6,340            6,336
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR6, Class A-1,
     4.364% 2033(5)                                                                                  19,830           19,906
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR1, Class A,
     4.229% 2034(5)                                                                                   3,648            3,598
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A,
     4.71% 2034(5)                                                                                   30,921           31,159
Citigroup Mortgage Loan Trust, Series 2004-HYB1, Class A-3-1, 4.55% 2034(5)                          71,713           72,652
Chase Commercial Mortgage Securities Corp., Series 1998-2, Class A-1,
     6.025% 2030                                                                                      9,755           10,166
Chase Commercial Mortgage Securities Corp., Series 2000-2, Class A-1,
     7.543% 2032                                                                                     15,731           17,145
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-1,
     7.656% 2032                                                                                      5,982            5,997
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2,
     7.757% 2032                                                                                      7,500            8,694
Banc of America Mortgage Securities Trust, Series 2003-F, Class 2-A-1,
     3.734% 2033(5)                                                                                   2,544            2,540
Banc of America Mortgage Securities Trust, Series 2003-G, Class 2-A-1,
     4.088% 2033(5)                                                                                  10,920           10,911
Banc of America Mortgage Securities Trust, Series 2003-D, Class 2-A-1,
     4.183% 2033(5)                                                                                   9,349            9,371
Banc of America Mortgage Securities Trust, Series 2003-E, Class 2-A-2,
     4.35% 2033(5)                                                                                    6,044            6,071
Banc of America Mortgage Securities Trust, Series 2003-I, Class 3-A-1,
     4.544% 2033(5)                                                                                   4,202            4,187
Banc of America Mortgage Securities Trust, Series 2004-B, Class 1-A-1,
     3.432% 2034(5)                                                                                   6,030            6,015
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033                          14,756           15,750
GE Capital Commercial Mortgage Corp., Series 2001-3, Class A-2, 6.07% 2038                           13,250           14,605
Morgan Stanley Mortgage Trust, Series 2004-3, Class 4-A, 5.722% 2034(5)                              29,672           30,258
Salomon Brothers Commercial Mortgage Trust, Series 2001-C2, Class A-1,
     4.482% 2006                                                                                      8,617            8,741
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1,
     7.46% 2008                                                                                      17,233           18,874
Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-1,
     5.02% 2035                                                                                      13,441           13,797
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1,
     3.98% 2036                                                                                       9,306            9,361
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1,
     Class A-1, 3.972% 2039                                                                          18,991           19,051
Wells Fargo Mortgage Backed Securities Trust, Series 2004-7, Class II-A-1,
     4.50% 2019                                                                                       9,823            9,764
Wells Fargo Mortgage Backed Securities Trust, Series 2003-M, Class A-1,
     4.743% 2033(5)                                                                                   8,442            8,466
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-WF2, Class A-1,
     6.80% 2031                                                                                      17,195           18,142
GMAC Commercial Mortgage Securities, Inc., Series 1998-C1, Class D, 6.974% 2030                      15,595           16,644
Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.206% 2033                                    15,169           16,328
Merrill Lynch Mortgage Investors, Inc., Series 2003-A6, Class II-A,
     4.27% 2033(5)                                                                                    7,926            7,928
Merrill Lynch Mortgage Investors, Inc., Series 2004-A1, Class II-A-1,
     4.67% 2034(5)                                                                                    8,265            8,176
Morgan Stanley Capital I, Inc., Series 2003-KIDS, Class B, 2.918% 2016(2),(5)                        13,000           13,044
Banc of America Commercial Mortgage Inc., Series 2002-2, Class A-1, 3.366% 2043                      10,456           10,512
Host Marriott Pool Trust, Series 1999-HMTA, Class A, 6.98% 2015(2)                                    9,512           10,248
Countrywide Alternative Loan Trust, Series 2004-14T2, Class A-6, 5.50% 2034                           9,312            9,465
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.528% 2027(2),(5)                       3,453            3,728
Structured Asset Securities Corp., Series 2003-17A, Class 3-A1, 4.01% 2033(5)                         4,140            4,135
Government National Mortgage Assn. 6.50% 2034                                                         1,300            1,374
                                                                                                                   1,340,474

FINANCIALS -- 3.52%
AIG SunAmerica Global Financing II 7.60% 2005(2)                                                     20,000           20,617
ASIF Global Financing XXVIII 1.74% 2007(2),(5)                                                        7,000            7,003
International Lease Finance Corp., Series P, 3.125% 2007                                              5,000            4,976
International Lease Finance Corp. 4.35% 2008                                                         28,500           28,979
International Lease Finance Corp. 4.50% 2008                                                         12,000           12,305
International Lease Finance Corp. 3.50% 2009                                                          2,000            1,955
International Lease Finance Corp., Series O, 4.55% 2009                                               4,600            4,678
International Lease Finance Corp. 6.375% 2009                                                         7,500            8,191
Household Finance Corp. 8.00% 2005                                                                   15,206           15,648
Household Finance Corp. 6.50% 2006                                                                   20,000           20,911
Household Finance Corp. 5.75% 2007                                                                   11,000           11,633
Household Finance Corp. 4.125% 2008                                                                   6,000            6,097
Household Finance Corp. 6.40% 2008                                                                   30,000           32,880
Prudential Financial, Inc. 4.104% 2006                                                               15,000           15,283
Prudential Insurance Co. of America 6.375% 2006(2)                                                   35,445           37,693
Prudential Funding LLC 6.60% 2008(2)                                                                 12,412           13,691
Prudential Holdings, LLC, Series C, 8.695% 2023(2),(4)                                               15,000           19,367
EOP Operating LP 6.625% 2005                                                                            500              506
EOP Operating LP 8.375% 2006                                                                            600              643
EOP Operating LP 7.75% 2007                                                                          45,000           50,348
EOP Operating LP 6.75% 2008                                                                           9,195           10,045
Spieker Properties, L.P. 6.75% 2008                                                                   3,500            3,833
Spieker Properties, LP 7.125% 2009                                                                    2,000            2,250
EOP Operating LP 4.65% 2010                                                                          17,500           17,797
USA Education, Inc. 5.625% 2007                                                                      38,000           40,085
SLM Corp., Series A, 3.625% 2008                                                                     10,000           10,068
SLM Corp., Series A, 4.00% 2009                                                                      10,000           10,065
SLM Corp., Series A, 4.19% 2009(5)                                                                   10,000           10,177
SLM Corp., Series A, 5.375% 2014                                                                     10,000           10,394
Monumental Global Funding Trust II, Series 2001-B, 6.05% 2006(2)                                     25,000           26,045
Monumental Global Funding II, Series 2003-F, 3.45% 2007(2)                                           10,000           10,203
Monumental Global Funding Trust II, Series 2002-A, 5.20% 2007(2)                                     40,000           42,042
BankAmerica Corp., Series I, 7.125% 2005                                                              1,500            1,537
BankAmerica Corp. 7.125% 2006                                                                         1,000            1,065
Bank of America Corp. 5.25% 2007                                                                     20,000           20,970
BankBoston NA 7.00% 2007                                                                              7,500            8,292
Bank of America Corp. 3.875% 2008                                                                     4,400            4,476
BankAmerica Corp. 5.875% 2009                                                                         7,500            8,150
Bank of America Corp. 4.25% 2010                                                                     10,000           10,083
Bank of America Corp. 4.375% 2010                                                                     8,000            8,121
BankAmerica Corp. 7.125% 2011                                                                         1,750            2,023
Bank of America Corp. 4.875% 2012                                                                     2,000            2,057
Bank One, National Association 5.50% 2007                                                            20,000           21,113
J.P. Morgan Chase & Co. 3.50% 2009                                                                    5,000            4,958
J.P. Morgan & Co. Inc., Series A, 6.00% 2009                                                         10,000           10,820
J.P. Morgan Chase & Co. 4.50% 2010                                                                   20,000           20,469
Allstate Corp. 5.375% 2006                                                                           20,000           20,946
Allstate Financial Global Funding LLC 5.25% 2007(2)                                                  15,000           15,681
Allstate Life Global Funding Trust, Series 2004-1, 4.50% 2009                                        13,000           13,361
MBNA Corp. 5.625% 2007                                                                               26,000           27,611
MBNA America Bank, National Association 5.375% 2008                                                  15,500           16,344
MBNA Corp., Series B, 2.494% 2027(5)                                                                  5,000            4,733
Washington Mutual, Inc. 2.40% 2005                                                                    7,000            6,983
Washington Mutual, Inc. 7.50% 2006                                                                   34,000           36,657
Wells Fargo & Co. 5.125% 2007                                                                        27,500           28,710
Wells Fargo & Co. 3.50% 2008                                                                         10,000           10,050
United Dominion Realty Trust, Inc., Series E, 4.50% 2008                                              4,500            4,660
United Dominion Realty Trust, Inc. 6.50% 2009                                                        28,925           31,666
Developers Diversified Realty Corp. 3.875% 2009                                                      15,000           14,790
Developers Diversified Realty Corp. 4.625% 2010                                                      19,750           19,826
Capital One Bank 6.875% 2006                                                                         15,000           15,748
Capital One Financial Corp. 7.125% 2008                                                               5,750            6,364
Capital One Bank 5.75% 2010                                                                          10,500           11,235
Simon Property Group, LP 6.375% 2007                                                                  5,000            5,404
Simon Property Group, LP 5.375% 2008                                                                  2,000            2,108
Simon Property Group, LP 3.75% 2009                                                                  15,500           15,320
Simon Property Group, LP 4.875% 2010                                                                  5,000            5,118
Simon Property Group, LP 4.875% 2010(2)                                                               2,500            2,552
Nationwide Life Insurance Co. 5.35% 2007(2)                                                          27,500           28,799
Hospitality Properties Trust 7.00% 2008                                                               3,000            3,247
Hospitality Properties Trust 6.75% 2013                                                              18,925           20,692
CIT Group Inc. 3.375% 2009                                                                            5,000            4,903
CIT Group Inc. 6.875% 2009                                                                           16,000           18,064
American Express Credit Corp. 3.00% 2008                                                              5,000            4,932
American Express Co. 4.75% 2009                                                                      15,000           15,627
Mangrove Bay Pass Through Trust 6.102% 2033(2),(5)                                                   19,490           20,021
Metropolitan Life Global Funding I, Series 2004-10, 3.375% 2007(2)                                   20,000           19,951
Kimco Realty Corp., Series A, 6.73% 2005                                                             10,120           10,399
Price REIT, Inc. 7.50% 2006                                                                           2,900            3,169
Kimco Realty Corp., Series C, 3.95% 2008                                                              3,000            3,025
Kimco Realty Corp. 6.00% 2012                                                                         2,000            2,155
Archstone-Smith Operating Trust 5.00% 2007                                                            5,000            5,185
Archstone-Smith Operating Trust 5.625% 2014                                                          11,750           12,284
ERP Operating LP 4.75% 2009                                                                           6,360            6,558
ERP Operating LP 6.95% 2011                                                                           8,200            9,321
ERP Operating LP 6.625% 2012                                                                          1,250            1,401
Rouse Co. 3.625% 2009                                                                                 5,000            4,669
Rouse Co. 7.20% 2012                                                                                  7,865            8,383
Rouse Co. 5.375% 2013                                                                                 4,000            3,778
ING Security Life Institutional Funding 2.70% 2007(2)                                                15,000           14,812
Westfield Capital Corp. Ltd. and WT Finance (Aust) Pty Ltd. and WEA Finance
     LLC 4.375% 2010(2)                                                                              14,500           14,504
Genworth Financial, Inc. 4.75% 2009                                                                  13,795           14,286
Commercial Credit Co. 6.625% 2006                                                                     1,975            2,128
Citigroup Inc. 5.125% 2014                                                                           10,000           10,368
Principal Life Global Funding I 4.40% 2010(2)                                                        10,000           10,099
Popular North America, Inc., Series E, 3.875% 2008                                                   10,000           10,057
Colonial Realty LP 4.80% 2011                                                                         9,000            8,860
Signet Bank 7.80% 2006                                                                                7,760            8,489
PNC Funding Corp. 5.75% 2006                                                                          7,500            7,858
Boston Properties LP 6.25% 2013                                                                       6,500            7,083
Lincoln National Corp. 5.25% 2007                                                                     6,145            6,442
Federal Realty Investment Trust 6.125% 2007                                                           4,500            4,808
Federal Realty Investment Trust 8.75% 2009                                                            1,000            1,197
Zions Bancorporation 6.00% 2015                                                                       4,000            4,299
Independence Community Bank 3.75% 2014(5)                                                             4,000            3,904
ACE Capital Trust II 9.70% 2030                                                                       2,000            2,616
Abbey National PLC 6.70% (undated)(5)                                                                    70               77
                                                                                                                   1,284,859

CONSUMER DISCRETIONARY -- 2.71%
Ford Motor Credit Co. 7.60% 2005                                                                     20,000           20,686
Ford Motor Credit Co. 6.875% 2006                                                                    17,000           17,680
Ford Motor Credit Co. 6.50% 2007                                                                      6,000            6,307
Ford Motor Credit Co. 7.20% 2007                                                                      5,000            5,407
Ford Motor Credit Co. 5.80% 2009                                                                      4,750            4,905
Ford Motor Credit Co. 7.375% 2009                                                                    25,000           27,218
Ford Motor Credit Co. 7.875% 2010                                                                    36,000           39,993
Ford Motor Credit Co. 7.375% 2011                                                                    25,000           27,154
General Motors Acceptance Corp. 7.50% 2005                                                           25,000           25,832
General Motors Acceptance Corp. 4.50% 2006                                                            5,000            5,076
General Motors Acceptance Corp. 6.75% 2006                                                            8,000            8,282
General Motors Acceptance Corp. 6.125% 2007                                                           9,750           10,176
General Motors Acceptance Corp. 7.75% 2010                                                           25,145           27,473
General Motors Acceptance Corp. 6.875% 2011                                                          17,000           17,721
General Motors Acceptance Corp. 7.25% 2011                                                           30,000           31,895
Viacom Inc. 5.625% 2007                                                                              25,000           26,563
Viacom Inc. 7.70% 2010                                                                               25,000           29,403
Viacom Inc. 6.625% 2011                                                                              10,000           11,290
AOL Time Warner Inc. 6.15% 2007                                                                      15,000           16,055
Time Warner Inc. 8.18% 2007                                                                          20,000           22,520
AOL Time Warner Inc. 6.875% 2012                                                                     20,000           22,783
DaimlerChrysler North America Holding Corp. 6.40% 2006                                               28,000           29,450
DaimlerChrysler North America Holding Corp. 4.05% 2008                                                6,480            6,529
DaimlerChrysler North America Holding Corp. 4.75% 2008                                               11,520           11,877
DaimlerChrysler North America Holding Corp. 7.20% 2009                                                3,000            3,386
DaimlerChrysler North America Holding Corp. 8.00% 2010                                                7,500            8,764
Clear Channel Communications, Inc. 6.00% 2006                                                         7,000            7,350
Clear Channel Communications, Inc. 6.625% 2008                                                        8,245            8,922
Chancellor Media Corp. of Los Angeles 8.00% 2008                                                     29,000           32,999
Clear Channel Communications, Inc. 5.50% 2014                                                         7,000            7,077
Comcast Cable Communications, Inc. 8.375% 2007                                                       26,000           29,098
Comcast Cable Communications, Inc. 6.875% 2009                                                       18,000           20,157
Liberty Media Corp. 3.50% 2006                                                                        7,000            7,010
Liberty Media Corp. 7.875% 2009                                                                      29,250           33,063
Cox Radio, Inc. 6.625% 2006                                                                          37,567           39,193
Univision Communications Inc. 2.875% 2006                                                            13,000           12,887
Univision Communications Inc. 3.875% 2008                                                             4,100            4,103
Univision Communications Inc. 7.85% 2011                                                             13,900           16,485
May Department Stores Co. 4.80% 2009(2)                                                              28,000           28,713
May Department Stores Co. 5.75% 2014(2)                                                               2,000            2,069
Toys "R" Us, Inc. 6.875% 2006                                                                         5,000            5,212
Toys "R" Us, Inc. 7.625% 2011                                                                         7,500            7,575
Toys "R" Us, Inc. 7.875% 2013                                                                        17,760           17,893
Cox Communications, Inc. 7.75% 2006                                                                  22,351           24,108
Lowe's Companies, Inc. 7.50% 2005                                                                    10,096           10,645
Lowe's Companies, Inc., Series B, 6.70% 2007                                                          5,455            5,984
Lowe's Companies, Inc. 8.25% 2010                                                                     5,455            6,628
Harrah's Operating Co., Inc. 7.125% 2007                                                              6,000            6,530
Harrah's Operating Co., Inc. 7.50% 2009                                                              10,000           11,252
Harrah's Operating Co., Inc. 5.50% 2010                                                               4,325            4,518
Hilton Hotels Corp. 7.625% 2008                                                                       4,000            4,486
Hilton Hotels Corp. 7.20% 2009                                                                        8,412            9,505
Hilton Hotels Corp. 8.25% 2011                                                                        5,645            6,738
Hilton Hotels Corp. 7.625% 2012                                                                       1,000            1,178
Pulte Homes, Inc. 4.875% 2009                                                                        12,000           12,291
Pulte Homes, Inc. 8.125% 2011                                                                         7,500            8,804
Office Depot, Inc. 6.25% 2013                                                                        19,000           20,425
Carnival Corp. 3.75% 2007                                                                             6,000            6,051
Carnival Corp. 6.15% 2008                                                                            11,600           12,575
Ryland Group, Inc. 9.75% 2010                                                                        16,130           17,783
Hyatt Equities, LLC 6.875% 2007(2)                                                                   15,605           16,671
Lennar Corp., Series B, 9.95% 2010                                                                   12,125           13,185
MGM Mirage, Inc. 8.50% 2010                                                                          10,000           11,550
Target Corp. 3.375% 2008                                                                              1,650            1,653
Target Corp. 5.375% 2009                                                                              7,500            8,029
Kohl's Corp. 6.30% 2011                                                                               7,500            8,329
Delphi Automotive Systems Corp. 6.50% 2009                                                            1,200            1,259
Delphi Corp. 6.50% 2013                                                                               4,000            4,025
Delphi Trust II, trust preferred securities, 6.197% 2033(5)                                           2,750            2,758
Lear Corp., Series B, 8.11% 2009                                                                      3,865            4,442
Marriott International, Inc., Class C, 7.875% 2009                                                    2,000            2,327
Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007                                                 1,500            1,622
                                                                                                                     989,582

TELECOMMUNICATION SERVICES -- 1.84%
AT&T Wireless Services, Inc. 7.50% 2007                                                              18,575           20,487
AT&T Wireless Services, Inc. 7.875% 2011                                                             48,200           57,494
Tritel PCS, Inc. 10.375% 2011                                                                        47,364           53,802
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006                                      91,600           96,057
Sprint Capital Corp. 6.00% 2007                                                                      15,000           15,870
Sprint Capital Corp. 6.375% 2009                                                                      8,000            8,793
Sprint Capital Corp. 7.625% 2011                                                                     57,000           66,749
Deutsche Telekom International Finance BV 8.25% 2005(5)                                              20,000           20,689
Deutsche Telekom International Finance BV 3.875% 2008                                                10,375           10,464
Deutsche Telekom International Finance BV 8.50% 2010(5)                                              26,500           31,963
Deutsche Telekom International Finance BV 8.75% 2030(5)                                              13,900           18,397
France Telecom 7.95% 2006(5)                                                                         12,000           12,770
France Telecom 8.50% 2011(5)                                                                         31,750           38,181
British Telecommunications PLC 7.00% 2007                                                            18,000           19,593
British Telecommunications PLC 8.375% 2010(5)                                                        23,250           28,248
Koninklijke KPN NV 7.50% 2005                                                                        29,007           30,275
Koninklijke KPN NV 8.00% 2010                                                                        13,250           15,876
SBC Communications Inc. 5.75% 2006                                                                   19,900           20,776
SBC Communications 4.125% 2009                                                                       10,000           10,061
SBC Communications, Inc. 6.25% 2011                                                                  10,000           11,055
Telecom Italia Capital SA, Series A, 4.00% 2008                                                       5,750            5,794
Telecom Italia Capital SA, Series B, 5.25% 2013                                                      13,650           14,001
Telefonos de Mexico, SA de CV 8.25% 2006                                                             15,000           15,986
Singapore Telecommunications Ltd. 6.375% 2011(2)                                                      7,175            8,024
Singapore Telecommunications Ltd. 6.375% 2011                                                         6,575            7,353
Telefonica Europe BV 7.35% 2005                                                                      10,000           10,411
Qwest Services Corp. 13.00% 2007(2)                                                                   8,840           10,166
Vodafone Group PLC 5.375% 2015                                                                        8,000            8,385
PCCW-HKT Capital Ltd. 8.00% 2011(2),(5)                                                               2,450            2,838
PCCW-HKT Capital Ltd. 8.00% 2011                                                                      1,800            2,085
                                                                                                                     672,643

ASSET-BACKED OBLIGATIONS(4) -- 1.71%
Metris Master Trust, Series 2000-3, Class A, 2.17% 2009(5)                                           18,000           17,963
Metris Master Trust, Series 2001-2, Class A, 2.23% 2009(5)                                           41,500           41,408
CPS Auto Receivables Trust, Series 2003-A, Class A-2, XLCA insured,
     2.89% 2009(2)                                                                                    3,982            3,952
CPS Auto Receivables Trust, Series 2002-B, Class A-2, XLCA insured,
     3.50% 2009(2)                                                                                    8,276            8,338
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured,
     3.52% 2009(2)                                                                                    2,454            2,454
CPS Auto Receivables Trust, Series 2004-A, Class A-2, FSA insured,
     3.87% 2010(2)                                                                                   10,000           10,058
CPS Auto Receivables Trust, Series 2004-B, Class A-2, 3.56% 2011(2)                                  34,000           34,239
AmeriCredit Automobile Receivables Trust, Series 2002-C, Class A-4,
     FSA insured, 3.55% 2009                                                                         32,000           32,282
AmeriCredit Automobile Receivables Trust, Series 2003-C-F, Class A-4,
     FSA insured, 3.48% 2010                                                                         20,000           20,209
AmeriCredit Automobile Receivables Trust, Series 2004-B-M, Class A-4, MBIA
     insured, 2.67% 2011                                                                              5,000            4,920
Consumer Credit Reference Index Securities Program Trust,
     Series 2002-1A, Class A, AMBAC insured, 3.919% 2007(2),(5),(6)                                  35,000           35,483
CWABS, Inc., Series 2004-10, Class 2-AV-2, 2.283% 2033(5)                                            35,000           35,022
MBNA Master Credit Card Trust II, Series 2000-I, Class A, 6.90% 2008                                 25,000           25,881
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 2.47% 2013(5)                               5,000            5,069
PP&L Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05% 2009                                   10,000           10,794
PP&L Transition Bond Co. LLC, Series 1999-1, Class A-8, 7.15% 2009                                   16,190           18,157
MMCA Auto Owner Trust, Series 2000-2, Class B, 7.42% 2005                                             1,009            1,011
MMCA Auto Owner Trust, Series 2001-3, Class B, 2.82% 2008(5)                                          1,336            1,327
MMCA Auto Owner Trust, Series 2002-4, Class A-4, 3.05% 2009                                           4,000            3,998
MMCA Auto Owner Trust, Series 2002-3, Class A-4, 3.57% 2009                                          10,000           10,047
MMCA Auto Owner Trust, Series 2002-2, Class A-4, 4.30% 2010                                          10,000           10,071
MMCA Auto Owner Trust, Series 2002-2, Class B, 4.67% 2010                                             1,509            1,494
New Century Home Equity Loan Trust, Series 2004-A, Class A-II-3, FGIC insured,
     4.45% 2034                                                                                      25,881           26,289
Drive Auto Receivables Trust, Series 2003-1, Class A-3, MBIA insured,
     2.41% 2007(2)                                                                                    9,000            8,976
Drive Auto Receivables Trust, Series 2004-A, Class A-4, MBIA insured,
     4.14% 2010(2)                                                                                   14,000           14,269
Drivetime Auto Owner Trust, Series 2004-A, Class A-3, XLCA insured,
     2.419% 2008(2)                                                                                   6,250            6,174
Drivetime Auto Owner Trust, Series 2004-B, Class A-3 3.475% 2009(2)                                  16,656           16,778
Impac CMB Trust, Series 2004-6, Class 1-A-1, 2.333% 2034(5)                                          13,909           13,911
Impac CMB Grantor Trust, Series 2004-6, Class M-2, 2.533% 2034(5)                                     8,682            8,718
Prestige Auto Receivables Trust, Series 2004-1, Class A-2, FSA insured,
     3.69% 2011(2)                                                                                   20,000           20,012
Home Equity Asset Trust, Series 2004-7, Class M-2, 2.593% 2035(5)                                    20,000           20,000
Structured Asset Investment Loan Trust, Series 2004-BNC2, Class A4,
     2.26% 2034(5)                                                                                   19,950           19,950
World Financial Network Credit Card Master Note Trust, Series 2004-A, Class C,
     2.87% 2013(5)                                                                                   15,000           15,209
UPFC Auto Receivables Trust, Series 2004-A, Class A-3, AMBAC insured, 3.27% 201                      14,850           14,885
Triad Automobile Receivables Trust, Series 2002-A, Class A-3, AMBAC insured,
     2.62% 2007                                                                                       3,700            3,707
Triad Automobile Receivables Owner Trust, Series 2002-1, Class A-3, AMBAC
     insured, 3.00% 2009(2)                                                                           8,674            8,705
Capital One Multi-asset Execution Trust, Series 2003-1, Class A, 2.26% 2009(5)                        8,000            8,042
GE SeaCo Finance SRL, Series 2004-1, Class A, AMBAC insured, 1.579% 2019(2),(5)                       7,932            7,932
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70% 2023                               7,500            7,694
SeaWest Securitization, LLC, Series 2002-A, Class A-3, XLCA insured,
     3.58% 2008(2)                                                                                      588              590
SeaWest Securitization, LLC, Series 2003-A, Class A-2, XLCA insured,
     2.84% 2009(2)                                                                                    6,944            6,958
Residential Asset Securities Corp. Trust, Series 2002-KS8, Class A-3,
     AMBAC insured, 3.69% 2027                                                                        7,198            7,211
California Infrastructure and Economic Development Bank, Special Purpose Trust,
     SCE-1, Series 1997-1, Class A-6, 6.38% 2008                                                      4,813            4,996
California Infrastructure and Economic Development Bank, Special Purpose Trust,
     PG&E-1, Series 1997-1, Class A-7, 6.42% 2008                                                     1,755            1,819
Green Tree Financial Corp., Series 1998-4, Class A-5, 6.18% 2030                                      5,943            6,093
Banco Itau SA, Series 2002-2, XLCA insured, 2.73% 2006(2),(5)                                         6,000            5,970
First Investors Auto Owners Trust, Series 2003-A, Class A, MBIA insured,
     2.58% 2011(2)                                                                                    5,963            5,952
New South Motor Vehicle Trust, Series 2002-A, Class A-3, AMBAC insured,
     3.03% 2010                                                                                       5,667            5,691
SLM Private Credit Student Loan Trust, Series 2002-A, Class A-2, 2.31% 2030(5)                        5,000            5,047
Navistar Financial Owner Trust, Series 2004-A, Class B, 2.46% 2011                                    4,438            4,382
Pass-through Amortizing Credit Card Trusts, Series 2002-1A, Class A-3FX,
     6.298% 2012(2),(6)                                                                               3,937            3,955
Residential Asset Mortgage Products Trust, Series 2003-RZ3, Class A-6,
     3.40% 2033                                                                                       2,000            1,900
Long Beach Mortgage Loan Trust, Series 2000-1, Class AF-3, 7.434% 2031                                1,783            1,824
Coast-to-Coast Motor Vehicle Owner Trust, Series 2000-A, Class A-4, MBIA
     insured, 7.33% 2006(2)                                                                           1,230            1,236
Duck Auto Owner Trust, Series 2002-B, Class A, XLCA insured, 2.985% 2007(2)                           1,150            1,151
Ameriquest Mortgage Securities Inc., Series 2003-5, Class A-2, 2.43% 2033                             1,138            1,138
NPF XII, Inc., Series 2001-1A, Class A, 1.989% 2006(2),(5),(6),(7)                                    3,000              281
NPF XII, Inc., Series 2001-3, Class A, 5.52% 2007(2),(6),(7)                                          5,000              469
                                                                                                                     622,091

HEALTH CARE -- 1.05%
Cardinal Health, Inc. 6.75% 2011                                                                     92,250          100,862
Health Net, Inc. 8.375% 2011(5)                                                                      38,545           46,785
Wyeth 4.375% 2008(5)                                                                                 22,790           23,183
Wyeth 5.50% 2013(5)                                                                                  22,025           22,701
Hospira, Inc. 4.95% 2009                                                                             28,050           28,787
Hospira, Inc. 5.90% 2014                                                                             15,000           15,792
UnitedHealth Group Inc. 7.50% 2005                                                                   10,770           11,243
UnitedHealth Group Inc. 3.75% 2009                                                                   15,000           14,950
UnitedHealth Group Inc. 4.125% 2009                                                                  12,000           12,098
Columbia/HCA Healthcare Corp. 6.91% 2005                                                              4,595            4,674
HCA Inc. 7.125% 2006                                                                                 25,991           27,273
Columbia/HCA Healthcare Corp. 7.25% 2008                                                              5,000            5,326
Schering-Plough Corp. 5.30% 2013                                                                     18,200           18,910
Aetna Inc. 7.375% 2006                                                                               17,250           18,190
Humana Inc. 7.25% 2006                                                                               12,850           13,646
Johnson & Johnson 8.72% 2024                                                                         12,330           12,868
Universal Health Services, Inc. 6.75% 2011                                                            5,000            5,538
                                                                                                                     382,826

UTILITIES -- 0.97%
Duke Energy Corp. First and Ref. Mortgage Bonds, Series A, 3.75% 2008                                10,000           10,086
Duke Capital Corp. 7.50% 2009                                                                        40,000           45,749
Duke Capital LLC 5.668% 2014                                                                          6,000            6,225
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007                                           6,000            6,281
Dominion Resources, Inc., Series B, 4.125% 2008                                                      10,000           10,162
Dominion Resources, Inc., Series 2002-D, 5.125% 2009                                                 15,561           16,279
Dominion Resources, Inc., Series 2000-A, 8.125% 2010                                                 15,000           17,876
Dominion Resources, Inc., Series 2002-C, 5.70% 2012(5)                                                4,250            4,511
NiSource Finance Corp. 7.625% 2005                                                                   32,285           33,848
NiSource Finance Corp. 6.15% 2013                                                                     3,000            3,284
NiSource Finance Corp. 5.40% 2014                                                                    17,000           17,589
Cilcorp Inc. 8.70% 2009                                                                              17,025           20,446
AmerenEnergy Generating Co., Series D, 8.35% 2010                                                     5,000            5,987
Union Electric Co. 4.65% 2013                                                                         4,250            4,264
Cilcorp Inc. 9.375% 2029                                                                              5,000            7,027
PSEG Power LLC 3.75% 2009                                                                            10,000            9,842
PSEG Power LLC 7.75% 2011                                                                            22,500           26,301
Commonwealth Edison Co., Series 99, 3.70% 2008                                                        2,750            2,790
Exelon Corp. 6.75% 2011                                                                               2,000            2,257
Exelon Generation Co., LLC 6.95% 2011                                                                21,600           24,632
Alabama Power Co., Senes Y, 2.80% 2006                                                                5,000            4,985
Alabama Power Co., Series X, 3.125% 2008                                                              1,800            1,780
Alabama Power Co., Series R, 4.70% 2010                                                               1,750            1,803
Southern Power Co., Series B, 6.25% 2012                                                              6,000            6,601
Alabama Power Co., Series Q, 5.50% 2017                                                               4,000            4,207
Oncor Electric Delivery Co. 6.375% 2012                                                              13,725           15,251
Constellation Energy Group, Inc. 6.125% 2009                                                         11,000           12,024
Progress Energy, Inc. 6.85% 2012                                                                      4,000            4,494
Progress Energy Florida, Inc., First Mortgage Bonds 4.80% 2013                                        5,000            5,057
Equitable Resources, Inc. 5.15% 2012                                                                  2,500            2,616
Equitable Resources, Inc. 5.15% 2018                                                                  3,125            3,160
Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% 2011                             5,500            5,551
Public Service Co. of Colorado, First Collateral Trust Bonds, Series No. 12,
     4.875% 2013                                                                                      5,000            5,120
Centerpoint Energy Resources Corp., Series B, 7.875% 2013                                             3,000            3,592
MidAmerican Energy Co. 5.125% 2013                                                                    1,500            1,568
Pacific Gas and Electric Co., First Mortgage Bonds, 4.20% 2011                                        1,000              996
                                                                                                                     354,241

INDUSTRIALS -- 0.94%
General Electric Capital Corp., Series A, 5.00% 2007                                                 47,500           49,762
General Electric Capital Corp. 4.25% 2008                                                            10,000           10,289
Tyco International Group SA 6.375% 2005                                                              20,000           20,459
Tyco International Group SA 6.125% 2008                                                              25,500           27,791
Tyco International Group SA 6.125% 2009                                                               7,000            7,644
Cendant Corp. 6.875% 2006                                                                            14,525           15,482
Cendant Corp. 6.25% 2008                                                                             15,750           17,009
Cendant Corp. 7.375% 2013                                                                             7,000            8,165
Waste Management, Inc. 6.50% 2008                                                                     6,180            6,822
Waste Management, Inc. 6.875% 2009                                                                   22,500           25,251
Waste Management, Inc. 5.00% 2014                                                                       890              902
Raytheon Co. 6.50% 2005                                                                               7,063            7,250
Raytheon Co. 4.85% 2011                                                                              16,000           16,596
Bombardier Inc. 6.75% 2012(2)                                                                         5,000            4,690
Bombardier Inc. 6.30% 2014(2)                                                                        21,000           18,869
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011(2),(4)                               18,446           19,945
Continental Airlines, Inc., MBIA insured, 2.72% 2009(5)                                               2,000            2,019
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 2019(4)                                     4,956            4,787
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 2022(4)                                  6,784            6,635
Delta Air Lines, Inc., Series 2003-1, Class G, AMBAC insured, 2.85% 2009(4),(5)                       3,975            4,002
Delta Air Lines, Inc., Series 2001-1, Class A-2, 7.111% 2013                                          5,000            4,698
Delta Air Lines, Inc., Series 2002-1, Class C, 7.779% 2013(4)                                         8,348            3,931
Delta Air Lines, Inc., 1991 Equipment Certificates Trust, Series K,
     10.00% 2014(2),(4)                                                                               2,000              800
Hutchison Whampoa International Ltd. 6.50% 2013(2)                                                   11,800           12,584
Northwest Airlines, Inc., Series 1999-2, Class A, 7.575% 2020(4)                                     11,187           11,210
Northwest Airlines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.264% 2021(4                         875              908
American Airlines, Inc., Series 2001-2, Class B, 8.608% 2012                                         10,000            8,495
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 2013                                        3,000            3,039
Southwest Airlines Co., Series 2001-1, Class A-2, 5.496% 2006(4)                                      1,400            1,459
Southwest Airlines Co., Series 2001-1, Class B, 6.126% 2006(4)                                        8,500            8,968
American Standard Inc. 7.625% 2010                                                                    7,000            8,068
Worldspan, LP and WS Financing Corp. 9.625% 2011                                                      5,305            5,066
                                                                                                                     343,595

MATERIALS -- 0.68%
Weyerhaeuser Co. 5.95% 2008                                                                          34,593           37,465
Weyerhaeuser Co. 5.25% 2009                                                                          23,500           24,805
Weyerhaeuser Co. 6.75% 2012                                                                           2,000            2,267
Dow Chemical Co. 5.00% 2007                                                                          10,500           10,983
Dow Chemical Co. 5.75% 2008                                                                          10,500           11,279
Dow Chemical Pass Through Trust, Series 2004, 4.027% 2009(2)                                          7,500            7,398
Dow Chemical Co. 5.75% 2009                                                                          24,000           25,814
Norske Skogindustrier ASA 7.625% 2011(2)                                                             32,765           37,381
Packaging Corp. of America 4.375% 2008                                                               25,000           25,422
Packaging Corp. of America 5.75% 2013                                                                 7,000            7,250
International Paper Co. 4.00% 2010                                                                   27,000           26,605
Phelps Dodge Corp. 8.75% 2011                                                                         8,000            9,901
Alcan Inc. 6.45% 2011                                                                                 1,000            1,121
Alcan Inc. 5.20% 2014                                                                                 8,000            8,280
Temple-Inland Inc., Series F, 6.75% 2009                                                                500              553
Temple-Inland Inc. 7.875% 2012                                                                        5,285            6,316
MeadWestvaco Corp. 2.75% 2005                                                                         5,500            5,506
                                                                                                                     248,346

ENERGY -- 0.36%
Williams Companies, Inc. 7.125% 2011                                                                 20,000           22,500
Williams Companies, Inc. 8.125% 2012                                                                 22,600           26,668
Transcontinental Gas Pipe Line Corp., Series B, 8.875% 2012                                           8,000            9,920
Devon Financing Corp., ULC 6.875% 2011                                                               17,500           20,066
El Paso Corp. 7.00% 2011                                                                              5,000            5,050
El Paso Corp. 7.875% 2012                                                                             8,000            8,380
El Paso Corp. 7.75% 2032                                                                              7,000            6,475
Pemex Finance Ltd. 8.875% 2010(4)                                                                    12,427           14,805
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(2),(4)                                          7,250            7,222
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(4)                                              1,287            1,282
Apache Corp. 6.25% 2012                                                                               7,500            8,435
                                                                                                                     130,803

INFORMATION TECHNOLOGY -- 0.32%
Motorola, Inc. 4.608% 2007                                                                           12,500           12,880
Motorola, Inc. 7.625% 2010                                                                           27,500           32,297
Motorola, Inc. 8.00% 2011                                                                            10,000           12,078
Electronic Data Systems Corp., Series B, 6.00% 2013(5)                                               50,000           51,150
Jabil Circuit, Inc. 5.875% 2010                                                                       7,500            7,894
                                                                                                                     116,299

CONSUMER STAPLES -- 0.31%
SUPERVALU INC 7.875% 2009                                                                             5,212            6,047
SUPERVALU INC. 7.50% 2012                                                                            18,730           21,867
Wal-Mart Stores, Inc. 8.00% 2006                                                                      9,500           10,372
Wal-Mart Stores, Inc. 6.875% 2009                                                                    12,000           13,675
Kraft Foods Inc. 4.625% 2006                                                                          1,000            1,030
Nabisco, Inc. 7.05% 2007                                                                              1,000            1,095
Kraft Foods Inc. 6.25% 2012                                                                           1,855            2,045
Nabisco, Inc. 7.55% 2015                                                                              6,645            7,994
Nabisco, Inc. 6.375% 2035(5)                                                                         10,020           10,096
Kellogg Co. 6.00% 2006                                                                               13,250           13,839
Kellogg Co. 6.60% 2011                                                                                3,250            3,688
Anheuser-Busch Co. Inc. 9.00% 2009                                                                   12,000           14,824
Cadbury Schweppes US Finance LLC 5.125% 2013(2)                                                       5,500            5,626
                                                                                                                     112,198

MUNICIPALS -- 0.23%
County of Los Angeles, Taxable Pension Obligation Bonds, Series 1994-A,
     FSA insured, 8.57% 2005                                                                         25,000           26,024
State of California, Golden State Tobacco Securitization Corp., Tobacco
     Settlement Asset-backed Bonds, Series 2003-A1, 5.00% 2021                                       11,280           11,425
State of California, Golden State Tobacco Securitization Corp., Tobacco
     Settlement Asset-backed Bonds, Series 2003-A1, 6.25% 2033                                       14,080           13,458
State of South Dakota, Educational Enhancement Funding Corp. Tobacco
     Settlement Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025                               10,641           10,168
State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco
     Settlement Asset-backed Bonds, 6.125% 2027                                                       9,710         9,432
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement
     Asset-Backed Bonds, Series 2001-A, Class A, 6.36% 2025                                           6,991            6,807
State of Louisiana, Tobacco Settlement Auth., Asset-backed Bonds, Series 2001-B
     5.50% 2030                                                                                       5,900            5,273
                                                                                                                      82,587

NON-U.S. GOVERNMENT OBLIGATIONS -- 0.04%
United Mexican States Government Global 4.625% 2008                                                  12,200           12,423


TOTAL BONDS AND NOTES(cost: $8,371,865,000)                                                                        8,532,447




                                                                                           Principal amount     Market value
SHORT-TERM SECURITIES -- 6.14%                                                                        (000)            (000)

DuPont(E.I.) de Nemours & Co. 1.66%-1.89% due 11/4-12/27/2004                                       167,000          166,670
Coca-Cola Co. 1.60%-1.85% due 11/3-12/13/2004                                                       154,816          154,700
Citicorp 1.91% due 12/21/2004                                                                        40,000           39,889
CAFCO LLC 1.79%-2.03% due 11/18/2004-1/6/2005(2)                                                     85,000           84,812
Ciesco LLC 1.88% due 12/13/2004                                                                      16,900           16,862
Pfizer Inc 1.79%-1.96% due 12/6/2004-1/12/2005(2)                                                   128,551          128,185
Procter & Gamble Co. 1.60%-1.97% due 11/12/2004-1/21/2005(2),(8)                                    125,200          124,972
Federal Home Loan Bank 1.60%-1.98% due 11/9/2004-1/21/2005                                          121,700          121,407
Wal-Mart Stores Inc. 1.67%-1.86% due 11/2-11/30/2004(2)                                             115,800          115,719
Private Export Funding Corp. 1.72%-2.00% due 11/8/2004-1/25/2005(2)                                 106,700          106,313
U.S. Treasury Bills 1.705%-1.761% due 1/13/2005(8)                                                  104,900          104,508
Variable Funding Capital Corp. 1.75%-1.80% due 11/18-11/22/2004(2),(8)                              100,000           99,902
Wells Fargo & Co. CD 1.91%-1.93% due 12/6-12/28/2004                                                 96,000           95,908
Three Pillars Funding, LLC 1.85%-2.02% due 12/17/2004-1/20/2005(2),(8)                               85,827           85,469
Clipper Receivables Co. LLC 1.84%-1.89% due 11/22-12/22/2004(2)                                      82,400           82,250
Edison Asset Securitization 1.65%-1.90% due 11/1-12/20/2004(2)                                       80,000           79,916
Eli Lilly and Co. 1.69%-2.01% due 11/4/2004-1/19/2005(2)                                             70,400           70,254
FCAR Owner Trust 1.65%-1.76% due 11/3-11/10/2004                                                     70,000           69,982
Federal Farm Credit Banks 1.81% due 12/23/2004                                                       70,000           69,818
Park Avenue Receivables Co. LLC 1.93%-1.94% due 12/2-12/15/2004(2)                                   62,283           62,162
Abbott Laboratories Inc. 1.57%-1.84% due 11/2-12/14/2004(2)                                          47,820           47,768
Ranger Funding Co. LLC 1.78%-1.79% due 11/2-11/17/2004(2)                                            37,300           37,278
Gannett Co. 1.80% due 12/2/2004(2)                                                                   35,000           34,944
SBC Communications Inc. 1.90% due 12/3/2004(2)                                                       30,000           29,948
Colgate-Palmolive Co. 1.78% due 11/19/2004(2)                                                        29,000           28,973
Caterpillar Financial Services Corp. 1.60%-1.78% due 11/3-11/16/2004                                 28,050           28,033
IBM Capital Inc. 1.96% due 1/6/2005(2)                                                               27,140           27,035
American Express Credit Corp. 1.75% due 12/1/2004                                                    27,000           26,959
Hershey Foods Corp. 1.56% due 11/8/2004(2)                                                           25,000           24,991
Minnesota Mining and Manufacturing Co. 1.80% due 11/29/2004                                          25,000           24,964
Tenessee Valley Authority 1.77% due 12/16/2004                                                       25,000           24,939
Exxon Project Investment Corp. 1.78% due 11/30/2004(2)                                               13,800           13,779
NetJets Inc. 1.65% due 11/9/2004(2)                                                                  10,000            9,996
                                                                                                                   2,239,305


TOTAL SHORT-TERM SECURITIES (cost: $2,239,437,000)                                                                 2,239,305


TOTAL INVESTMENT SECURITIES (cost: $31,256,956,000)                                                               36,490,752
Other assets less liabilities                                                                                        (27,530)

NET ASSETS                                                                                                       $36,463,222
</TABLE>


(1) Represents an affiliated company as defined under the Investment Company
    Act of 1940.
(2) Purchased in a private placement transaction; resale may be limited to
    qualified institutional buyers; resale to the public may require
    registration. The total value of all such restriced securities was
    $2,052,439,000, which represented 5.63% of the net assets of the fund.
(3) Index-linked bond whose principal amount moves with a government retail
    price index.
(4) Pass-through securities backed by a pool of mortgages or other loans on
    which principal payments are periodically made.  Therefore, the effective
    maturities are shorter than the stated maturities.
(5) Coupon rate may change periodically.
(6) Valued under fair value procedures adopted by authority of the Board of
    Directors.
(7) Company not making scheduled interest payments; bankruptcy proceedings
    pending.
(8) This security, or a portion of this security, has been segregated to cover
    funding requirements on investment transaction settling in the future.

ADR = American Depositary Receipts





FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
at October 31, 2004                           (dollars and shares in thousands,
                                                      except per-share amounts)
<TABLE>
<S>                                                                                         <C>                        <C>
ASSETS:
 Investment securities at market:
  Unaffiliated issuers (cost: $30,149,625)                                                  $35,088,597
  Affiliated issuers (cost: $1,107,331)                                                       1,402,155                $36,490,752
 Cash denominated in non-U.S. currencies (cost: $2,383)                                                                      2,419
 Cash                                                                                                                       17,509
 Receivables for:
  Sales of investments                                                                          157,823
  Sales of fund's shares                                                                        191,230
  Dividends and interest                                                                        188,341                    537,394
                                                                                                                        37,048,074
LIABILITIES:
 Payables for:
  Purchases of investments                                                                      381,832
  Repurchases of fund's shares                                                                   22,142
  Dividends on fund's shares                                                                    157,198
  Investment advisory services                                                                    6,740
  Services provided by affiliates                                                                15,897
  Deferred Directors' compensation                                                                  673
  Other fees and expenses                                                                           370                    584,852
NET ASSETS AT OCTOBER 31, 2004                                                                                         $36,463,222

NET ASSETS CONSIST OF:
 Capital paid in on shares of capital stock                                                                            $30,818,352
 Undistributed net investment income                                                                                        32,399
 Undistributed net realized gain                                                                                           378,292
 Net unrealized appreciation                                                                                             5,234,179
NET ASSETS AT OCTOBER 31, 2004                                                                                         $36,463,222
</TABLE>

Total authorized capital stock - 1,000,000 shares, $.01 par value (718,431 total
shares outstanding)
<TABLE>
<S>                                                                  <C>             <C>                       <C>
                                                                                                               Net asset value
                                                                      Net assets     Shares outstanding          per share (1)

Class A                                                             $28,458,237                 560,710                 $50.75
Class B                                                               2,469,431                  48,655                  50.75
Class C                                                               3,476,272                  68,493                  50.75
Class F                                                               1,160,880                  22,873                  50.75
Class 529-A                                                             243,632                   4,800                  50.75
Class 529-B                                                              55,138                   1,086                  50.75
Class 529-C                                                             112,981                   2,226                  50.75
Class 529-E                                                              14,746                     290                  50.75
Class 529-F                                                               2,677                      53                  50.75
Class R-1                                                                10,819                     213                  50.75
Class R-2                                                               129,326                   2,548                  50.75
Class R-3                                                               119,526                   2,355                  50.75
Class R-4                                                                15,267                     301                  50.75
Class R-5                                                               194,290                   3,828                  50.75
</TABLE>

(1) Maximum offering price and redemption price per share were equal to the net
    asset value per share for all share classes, except for classes A and
    529-A, for which the maximum offering price per share were $53.85 for each.

See Notes to Financial Statements



STATEMENT OF OPERATIONS
for the year ended October 31, 2004                     (dollars in thousands)
<TABLE>
<S>                                                                                       <C>                      <C>
INVESTMENT INCOME:
 Income:
  Dividends (net of non-U.S. withholding
            tax of $51,047; also includes
            $48,976 from affiliates)                                                      $893,803
  Interest (net of non-U.S. withholding
            tax of $3)                                                                     347,738                 $1,241,541

 Fees and expenses:
  Investment advisory services                                                              81,037
  Distribution services                                                                    100,697
  Transfer agent services                                                                   19,399
  Administrative services                                                                    7,643
  Reports to shareholders                                                                    1,021
  Registration statement and prospectus                                                      1,649
  Postage, stationery and supplies                                                           1,757
  Directors' compensation                                                                      310
  Auditing and legal                                                                           215
  Custodian                                                                                  3,625
  State and local taxes                                                                        194
  Other                                                                                        119
  Total expenses before reimbursement/waiver                                               217,666
   Reimbursement/waiver of expenses                                                          1,459                    216,207
 Net investment income                                                                                              1,025,334

NET REALIZED GAIN AND UNREALIZED
 APPRECIATION ON INVESTMENTS
 AND NON-U.S. CURRENCY:
 Net realized gain (loss) on:
  Investments (including $200 net gain from affiliates)                                    612,380
  Non-U.S. currency transactions                                                            (1,299)                   611,081
 Net unrealized appreciation on:
  Investments                                                                            2,797,538
  Non-U.S. currency translations                                                               159                  2,797,697
   Net realized gain and
    unrealized appreciation
    on investments and non-U.S. currency                                                                            3,408,778
NET INCREASE IN NET ASSETS RESULTING
 FROM OPERATIONS                                                                                                   $4,434,112

See Notes to Financial Statements




STATEMENT OF CHANGES IN NET ASSETS                     (dollars in thousands)

                                                                                                      Year ended
                                                                                                     October 31,
                                                                                              2004                       2003
OPERATIONS:
 Net investment income                                                                  $1,025,334                   $633,742
 Net realized gain on investments and
  non-U.S. currency transactions                                                           611,081                    119,095
 Net unrealized appreciation
  on investments and non-U.S. currency translations                                      2,797,697                  2,008,399
  Net increase in net assets
   resulting from operations                                                             4,434,112                  2,761,236

DIVIDENDS AND DISTRIBUTIONS PAID OR ACCRUED TO
 SHAREHOLDERS:
 Dividends from net investment income and currency gains                                (1,061,748)                  (738,021)
 Distributions from net realized gain
  on investments                                                                           (89,806)                  (149,966)
   Total dividends and distributions paid or accrued
    to shareholders                                                                     (1,151,554)                  (887,987)

CAPITAL SHARE TRANSACTIONS                                                              10,692,160                  9,444,131

TOTAL INCREASE IN NET ASSETS                                                            13,974,718                 11,317,380

NET ASSETS:
 Beginning of year                                                                      22,488,504                 11,171,124
 End of year (including undistributed net investment income
   and distributions in excess of
  net investment income: $32,399 and $112,250,
  respectively)                                                                        $36,463,222                $22,488,504

See Notes to Financial Statements
</TABLE>


NOTES TO FINANCIAL STATEMENTS


1.       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION - Capital Income Builder, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company.  The fund seeks to  provide a growing  dividend  - with  higher  income
distributions  every  quarter to the extent  possible - together  with a current
yield exceeding that of U.S. stocks generally.

The fund offers 14 share classes  consisting of four retail share classes,  five
CollegeAmerica(R)  savings  plan share  classes and five  retirement  plan share
classes.  The CollegeAmerica  savings plan share classes (529-A,  529-B,  529-C,
529-E and  529-F) are  sponsored  by the  Commonwealth  of  Virginia  and can be
utilized to save for college  education.  The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights.

<TABLE>
<S>                     <C>                  <C>                               <C>
---------------------------------------------------------------------------------------------------------
      Share class       Initial sales charge Contingent deferred sales         Conversion feature
                                               charge upon redemption
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
  Classes A and 529-A       Up to 5.75%         None (except 1% for                   None
                                                certain redemptions
                                                 within one year of
                                                purchase without an
                                               initial sales charge)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
  Classes B and 529-B           None          Declines from 5% to zero   Classes B and 529-B convert to
                                               for redemptions within         classes A and 529-A,
                                               six years of purchase    respectively, after eight years
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
        Class C                 None         1% for redemptions within    Class C converts to Class F
                                                one year of purchase             after 10 years
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
      Class 529-C               None         1% for redemptions within                None
                                                one year of purchase
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
      Class 529-E               None                    None                          None
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
  Classes F and 529-F           None                    None                          None
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3,          None                    None                          None
      R-4 and R-5
---------------------------------------------------------------------------------------------------------
</TABLE>


Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation  proceeds.  Each share class has identical voting rights, except for
the exclusive right to vote on matters  affecting only its class.  Share classes
have different fees and expenses ("class-specific fees and expenses"), primarily
due to different  arrangements for distribution,  administrative and shareholder
services.  Differences  in  class-specific  fees and  expenses  will  result  in
differences in net investment  income and,  therefore,  the payment of different
per-share dividends by each class.

SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with  accounting  principles  generally  accepted in the United States of
America.  These principles  require management to make estimates and assumptions
that affect reported amounts and  disclosures.  Actual results could differ from
those  estimates.  The  following  is a summary  of the  significant  accounting
policies followed by the fund:

          SECURITY  VALUATION  - Equity  securities  are valued at the  official
          closing  price of, or the last reported sale price on, the exchange or
          market  on  which  such  securities  are  traded,  as of the  close of
          business on the day the  securities  are being valued or,  lacking any
          sales,  at the last available bid price.  Prices for each security are
          taken  from the  principal  exchange  or market in which the  security
          trades.  Fixed-income securities are valued at prices obtained from an
          independent pricing service, when such prices are available.  However,
          where the investment  adviser deems it  appropriate,  such  securities
          will be valued at the mean quoted bid and asked prices (or bid prices,
          if asked  prices are not  available)  or at prices for  securities  of
          comparable   maturity,   quality  and  type.   Securities   with  both
          fixed-income and equity  characteristics  or equity  securities traded
          principally  among  fixed-income  dealers,  are  valued in the  manner
          described  above  for  either  equity  or   fixed-income   securities,
          depending on which method is deemed most appropriate by the investment
          advisor.  Short-term  securities  purchased within 60 days to maturity
          are valued at amortized cost,  which  approximates  market value.  The
          value of short-term  securities purchased with greater than 60 days to
          maturity  with 60 days or less  remaining  to maturity  is  determined
          based on the market  value on the 61st day. The ability of the issuers
          of the debt securities held by the fund to meet their  obligations may
          be affected by economic developments in a specific industry,  state or
          region.  Securities and other assets for which  representative  market
          quotations are not readily  available are fair valued as determined in
          good faith under  procedures  adopted by authority of the fund's Board
          of Directors.  Various factors may be reviewed in order to make a good
          faith determination of a security's fair value. These factors include,
          but are not limited to, the type and cost of the security; contractual
          or legal restrictions on resale of the security; relevant financial or
          business  developments  of the  issuer;  actively  traded  similar  or
          related  securities;  conversion  or exchange  rights on the security;
          related  corporate  actions;  significant  events  occurring after the
          close of  trading in the  security;  and  changes  in  overall  market
          conditions.

          SECURITY   TRANSACTIONS  AND  RELATED  INVESTMENT  INCOME  -  Security
          transactions  are  recorded  by the fund as of the date the trades are
          executed  with  brokers.  Realized  gains  and  losses  from  security
          transactions are determined  based on the specific  identified cost of
          the  securities.  In the event a security is purchased  with a delayed
          payment date, the fund will segregate liquid assets sufficient to meet
          its  payment  obligations.   Dividend  income  is  recognized  on  the
          ex-dividend  date and  interest  income is  recognized  on an  accrual
          basis.  Market  discounts,  premiums and original  issue  discounts on
          fixed-income  securities are amortized daily over the expected life of
          the security.

CollegeAmerica is a registered trademark of the Virginia College Savings
Plan./SM/

          CLASS   ALLOCATIONS   -  Income,   fees  and   expenses   (other  than
          class-specific  fees and expenses) and realized and  unrealized  gains
          and losses are  allocated  daily among the various share classes based
          on their relative net assets.  Class-specific fees and expenses,  such
          as distribution,  administrative and shareholder services, are charged
          directly to the respective share class.

          DIVIDENDS  AND  DISTRIBUTIONS  TO  SHAREHOLDERS  -  Dividends  paid to
          shareholders  are declared  daily from net  investment  income and are
          paid to shareholders quarterly. Distributions paid to shareholders are
          recorded on the ex-dividend date.

          NON-U.S.  CURRENCY  TRANSLATION  - Assets and  liabilities,  including
          investment   securities,   denominated  in  non-U.S.   currencies  are
          translated  into U.S.  dollars at the exchange  rates in effect at the
          end of  the  reporting  period.  Purchases  and  sales  of  investment
          securities and income and expenses are translated into U.S. dollars at
          the  exchange  rates  on  the  dates  of  such  transactions.  In  the
          accompanying financial statements,  the effects of changes in non-U.S.
          exchange  rates on  investment  securities  are included  with the net
          realized gain or loss and net unrealized  appreciation or depreciation
          on investments.  The realized gain or loss and unrealized appreciation
          or depreciation  resulting from all other transactions  denominated in
          non-U.S. currencies are disclosed separately.

          MORTGAGE  DOLLAR ROLLS - The fund may enter into mortgage  dollar roll
          transactions in which the fund sells a  mortgage-backed  security to a
          counterparty and simultaneously enters into an agreement with the same
          counterparty to buy back a similar  security on a specific future date
          at a  predetermined  price.  Each mortgage dollar roll is treated as a
          financing  transaction,  therefore,  any  gain or  loss is  considered
          unrealized until the roll reaches  completion.  Risks may arise due to
          the delayed payment date and the potential inability of counterparties
          to complete the transaction.  Income is generated as consideration for
          entering into these transactions and is included in interest income in
          the accompanying financial statements.

2.       NON-U.S. INVESTMENTS

INVESTMENT  RISK - The risks of investing in securities of non-U.S.  issuers may
include,  but are not  limited to,  investment  and  repatriation  restrictions;
revaluation of currencies;  adverse political, social and economic developments;
government involvement in the private sector; limited and less reliable investor
information;  lack of  liquidity;  certain  local  tax law  considerations;  and
limited regulation of the securities markets.

TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.

3.       FEDERAL INCOME TAXATION AND DISTRIBUTIONS

The fund  complies  with the  requirements  under  Subchapter  M of the Internal
Revenue Code applicable to mutual funds and intends to distribute  substantially
all of its net taxable  income and net capital gains each year.  The fund is not
subject to income taxes to the extent such distributions are made.

DISTRIBUTIONS - Distributions  paid to shareholders  are based on net investment
income and net realized gains  determined on a tax basis,  which may differ from
net investment income and net realized gains for financial  reporting  purposes.
These  differences  are due  primarily to differing  treatment for items such as
non-U.S.  currency  gains and  losses;  short-term  capital  gains  and  losses;
deferred   expenses;   cost  of  investments  sold;   paydowns  on  investments;
amortization  of premiums or discounts;  and unrealized  appreciation of certain
investment  in non-U.S.  securities.  As of October 31,  2004,  a portion of the
difference  between  the tax  basis  undistributed  net  investment  income  and
currency  gains  and the  undistributed  net  investment  income  for  financial
reporting  purposes is attributed to  amortization  of premiums and discounts of
$120,412,000 and appreciation of certain  investments in non-U.S.  securities of
$72,891,000.  The remainder of the difference is substantially attributed to the
accrual  of  dividends  payable to  shareholders  on fund  shares for  financial
reporting purposes of $157,198,000. Such amounts are not deducted from tax basis
undistributed  net  investment  income and currency gains until paid. The fiscal
year in which amounts are  distributed may differ from the year in which the net
investment  income and net realized gains are recorded by the fund. The fund may
also  designate  a portion of the amount  paid to  redeeming  shareholders  as a
distribution  for tax purposes.  As of October 31, 2004,  the cost of investment
securities and cash  denominated  in non-U.S.  currencies for federal income tax
purposes was $31,449,227,000.

During the year ended October 31, 2004, the fund reclassified  $181,108,000 from
realized  gain  to  undistributed  net  investment   income;   and  $45,000  and
$9,020,000,  respectively, from undistributed net investment income and realized
capital gains to additional  paid-in capital to align  financial  reporting with
tax reporting.

As of October 31, 2004, the components of distributable  earnings on a tax basis
were as follows (dollars in thousands):

<TABLE>
<S>                                                                                                         <C>
Undistributed net investment income and currency gains                                                       $368,581
Undistributed long-term capital gains                                                                         389,868
Gross unrealized appreciation on investment securities                                                      5,189,073
Gross unrealized depreciation on investment securities                                                       (145,129)
Net unrealized appreciation on investment securities                                                        5,043,944
</TABLE>

During the year ended October 31, 2004, the fund realized, on a tax basis, a net
capital gain of $436,221,000.

The tax  character  of  distributions  paid or  accrued to  shareholders  was as
follows (dollars in thousands):

<TABLE>
<S>                                                       <C>                   <C>                             <C>
                                                                               Year ended October 31, 2004

                                                          Distributions from          Distributions from       Total distributions
                                                             ordinary income     long-term capital gains          paid or accrued
Share class
Class A                                                            $ 874,799                    $ 72,464                $ 947,263
Class B                                                               59,472                       6,167                   65,639
Class C                                                               74,753                       7,105                   81,858
Class F                                                               30,229                       2,233                   32,462
Class 529-A                                                            6,677                         500                    7,177
Class 529-B                                                            1,199                         127                    1,326
Class 529-C                                                            2,352                         224                    2,576
Class 529-E                                                              365                          30                      395
Class 529-F                                                               69                           5                       74
Class R-1                                                                222                          21                      243
Class R-2                                                              2,708                         238                    2,946
Class R-3                                                              2,646                         202                    2,848
Class R-4                                                                320                          23                      343
Class R-5                                                              5,937                         467                    6,404
Total                                                            $ 1,061,748                    $ 89,806              $ 1,151,554




                                                                               Year ended October 31, 2003

                                                          Distributions from          Distributions from      Total distributions
                                                             ordinary income     long-term capital gains          paid or accrued
Share class
Class A                                                            $ 638,512                   $ 132,738                $ 771,250
Class B                                                               36,618                       6,635                   43,253
Class C                                                               36,073                       6,351                   42,424
Class F                                                               14,536                       2,286                   16,822
Class 529-A                                                            3,446                         481                    3,927
Class 529-B                                                              707                         118                      825
Class 529-C                                                            1,197                         204                    1,401
Class 529-E                                                              188                          26                      214
Class 529-F                                                               29                           2                       31
Class R-1                                                                 89                           7                       96
Class R-2                                                              1,076                          91                    1,167
Class R-3                                                                856                          65                      921
Class R-4                                                                120                           4                      124
Class R-5                                                              4,574                         958                    5,532
Total                                                              $ 738,021                   $ 149,966                $ 887,987
</TABLE>


4.       FEES AND TRANSACTIONS WITH RELATED PARTIES

Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent  company of American  Funds Service  Company  ("AFS"),  the fund's
transfer agent, and American Funds  Distributors,  Inc.  ("AFD"),  the principal
underwriter of the fund's shares.

INVESTMENT  ADVISORY  SERVICES - The Investment  Advisory and Service  Agreement
with CRMC  provided  for monthly  fees accrued  daily.  At the  beginning of the
period,  these fees were based on a declining  series of annual rates  beginning
with 0.240% on the first $1 billion of daily net assets and decreasing to 0.130%
on such assets in excess of $27 billion. The agreement also provided for monthly
fees,  accrued daily, of 3.00% of the fund's monthly gross income.  The Board of
Directors approved an amended agreement  effective November 1, 2004,  continuing
the series of rates to include  additional  annual  rates of 0.125% on daily net
assets in excess of $34 billion but not  exceeding  $44 billion,  0.120% on such
assets in excess of $44 billion and 2.50% of the fund's  monthly gross income in
excess of $100,000,000. Effective June 1, 2004, CRMC reduced investment advisory
services fees to the rates  provided by the amended  agreement.  During the year
ended October 31, 2004, CRMC also reduced  investment  advisory services fees by
an additional $748,000. As a result, the fee shown on the accompanying financial
statements of $81,037,000, which was equivalent to an annualized rate of 0.277%,
was reduced by $1,196,000 to $79,841,000, or 0.273% of average daily net assets.

CLASS-SPECIFIC  FEES AND  EXPENSES - Expenses  that are  specific to  individual
share classes are accrued  directly to the respective share class. The principal
class-specific fees and expenses are described below:

          DISTRIBUTION SERVICES - The fund has adopted plans of distribution for
          all share  classes,  except Class R-5.  Under the plans,  the Board of
          Directors  approves  certain  categories  of expenses that are used to
          finance  activities  primarily intended to sell fund shares. The plans
          provide for annual  expenses,  based on a percentage  of average daily
          net assets, ranging from 0.30% to 1.00% as noted below. In some cases,
          the Board of Directors  has approved  expense  amounts lower than plan
          limits.  All share  classes  may use up to 0.25% of average  daily net
          assets to pay service fees, or to  compensate  AFD for paying  service
          fees,  to  firms  that  have  entered  into  agreements  with  AFD for
          providing certain  shareholder  services.  Expenses in excess of these
          amounts,  up to approved limits, may be used to compensate dealers and
          wholesalers for shares sold.

          For classes A and 529-A,  the Board of Directors has also approved the
          reimbursement  of dealer and  wholesaler  commissions  paid by AFD for
          certain shares sold without a sales charge.  Each class reimburses AFD
          for amounts  billed  within the prior 15 months but only to the extent
          that the overall annual expense limit of 0.30% is not exceeded.  As of
          October  31,  2004,  there were no  unreimbursed  expenses  subject to
          reimbursement for classes A or 529-A.

         <TABLE>
         <S>                                              <C>                           <C>
         ------------------------------------------------ ----------------------------- -----------------------------
         Share class                                       Currently approved limits              Plan limits
         ------------------------------------------------ ----------------------------- -----------------------------
         ------------------------------------------------ ----------------------------- -----------------------------
         Class A                                                      0.30%                             0.30%
         ------------------------------------------------ ----------------------------- -----------------------------
         ------------------------------------------------ ----------------------------- -----------------------------
         Class 529-A                                                  0.30                          0.50
         ------------------------------------------------ ----------------------------- -----------------------------
         ------------------------------------------------ ----------------------------- -----------------------------
         Classes B and 529-B                                          1.00                          1.00
         ------------------------------------------------ ----------------------------- -----------------------------
         ------------------------------------------------ ----------------------------- -----------------------------
         Classes C, 529-C and R-1                                     1.00                          1.00
         ------------------------------------------------ ----------------------------- -----------------------------
         ------------------------------------------------ ----------------------------- -----------------------------
         Class R-2                                                    0.75                          1.00
         ------------------------------------------------ ----------------------------- -----------------------------
         ------------------------------------------------ ----------------------------- -----------------------------
         Classes 529-E and R-3                                        0.50                          0.75
         ------------------------------------------------ ----------------------------- -----------------------------
         ------------------------------------------------ ----------------------------- -----------------------------
         Classes F, 529-F and R-4                                     0.25                          0.50
         ------------------------------------------------ ----------------------------- -----------------------------
         </TABLE>

          TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
          AFS for classes A and B. Under this  agreement,  these  share  classes
          compensate  AFS for  transfer  agent  services  including  shareholder
          recordkeeping,  communications and transaction processing. AFS is also
          compensated for certain transfer agent services  provided to all other
          share  classes  from the  administrative  services  fees  paid to CRMC
          described below.

          ADMINISTRATIVE  SERVICES  - The  fund has an  administrative  services
          agreement  with CRMC to  provide  transfer  agent  and  other  related
          shareholder  services  for all classes of shares  other than classes A
          and B. Each  relevant  class pays CRMC annual fees of 0.15% (0.10% for
          Class R-5) based on its  respective  average  daily net  assets.  Each
          relevant class also pays AFS additional  amounts for certain  transfer
          agent  services.  CRMC and AFS may use these fees to compensate  third
          parties for performing  these services.  During the year ended October
          31, 2004,  CRMC agreed to pay a portion of these fees for classes R-1,
          R-2,  R-3 and R-4.  Each 529 share  class is subject to an  additional
          annual administrative  services fee of 0.10% of its respective average
          daily net assets;  this fee is payable to the Commonwealth of Virginia
          for the maintenance of the CollegeAmerica plan. Although these amounts
          are included with  administrative  services  fees in the  accompanying
          financial statements, the Commonwealth of Virginia is not considered a
          related party. Administrative services fees are presented gross of any
          payments made by CRMC.

          Expenses  under the  agreements  described  above  for the year  ended
          October 31, 2004, were as follows (dollars in thousands):

         <TABLE>
         <S>              <C>             <C>                <C>             <C>                    <C>
         --------------------------------------------------------------------------------------------------------------
           Share class    Distribution    Transfer agent                     Administrative services
                            services         services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
                                                                  CRMC          Transfer agent      Commonwealth of
                                                             administrative        services             Virginia
                                                                services                             administrative
                                                                                                        services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
             Class A         $49,914          $17,600        Not applicable     Not applicable       Not applicable
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
             Class B          20,024           1,799         Not applicable     Not applicable       Not applicable
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
             Class C          25,888         Included            $3,883              $461            Not applicable
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
             Class F          2,072          Included             1,243               124            Not applicable
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
           Class 529-A         271           Included              273                 21                 $182
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
           Class 529-B         431           Included              65                  18                  43
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
           Class 529-C         842           Included              126                 25                  84
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
           Class 529-E          55           Included              16                  1                   11
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
           Class 529-F          5            Included               3                  -*                   2
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
            Class R-1           78           Included              12                  6             Not applicable
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
            Class R-2          695           Included              139                508            Not applicable
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
            Class R-3          400           Included              120                107            Not applicable
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
            Class R-4           22           Included              13                  3             Not applicable
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
            Class R-5    Not applicable      Included              150                 4             Not applicable
                                                in
                                          administrative
                                             services
         --------------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------------
              Total         $100,697          $19,399            $6,043             $1,278                $322
         --------------------------------------------------------------------------------------------------------------
         * Amount less than one thousand.
         </TABLE>

DEFERRED   DIRECTORS'   COMPENSATION  -  Since  the  adoption  of  the  deferred
compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to
defer the cash  payment  of part or all of their  compensation.  These  deferred
amounts,  which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American  Funds.  These amounts  represent  general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Directors' compensation in the accompanying financial statements
includes  $216,000 in current fees  (either paid in cash or deferred)  and a net
increase of $94,000 in the value of the deferred amounts.

AFFILIATED  OFFICERS AND DIRECTORS - Officers and certain  Directors of the fund
are or may be considered to be affiliated  with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.

5.       CAPITAL SHARE TRANSACTIONS

Capital share  transactions  in the fund were as follows  (dollars and shares in
thousands):

<TABLE>
<S>                                                             <C>                <C>                   <C>                <C>
                                                                                                            Reinvestments of
Share class                                                                Sales(1)                    dividends and distributions
                                                                     Amount         Shares                   Amount         Shares
Year ended October 31, 2004
Class A                                                         $ 8,575,196        177,997                $ 815,422         16,984
Class B                                                             798,922         16,609                   56,724          1,182
Class C                                                           1,656,850         34,412                   66,256          1,379
Class F                                                             624,829         12,944                   23,499            489
Class 529-A                                                         103,557          2,154                    6,661            138
Class 529-B                                                          19,180            398                    1,248             26
Class 529-C                                                          51,496          1,070                    2,384             50
Class 529-E                                                           6,390            133                      368              7
Class 529-F                                                           1,274             27                       68              1
Class R-1                                                             5,903            123                      222              5
Class R-2                                                            83,376          1,731                    2,681             56
Class R-3                                                            75,618          1,570                    2,554             53
Class R-4                                                            10,806            222                      302              6
Class R-5                                                           101,596          2,091                    4,270             89
Total net increase
   (decrease)                                                  $ 12,114,993        251,481                $ 982,659         20,465

Year ended October 31, 2003
Class A                                                         $ 7,405,320        174,398                $ 663,828         15,700
Class B                                                           1,007,923         23,803                   35,734            840
Class C                                                           1,213,322         28,456                   33,454            786
Class F                                                             398,746          9,376                   12,315            289
Class 529-A                                                          80,292          1,896                    3,520             83
Class 529-B                                                          21,377            506                      744             17
Class 529-C                                                          36,230            855                    1,262             30
Class 529-E                                                           5,100            120                      190              4
Class 529-F                                                           1,063             25                       25              1
Class R-1                                                             4,490            106                       79              1
Class R-2                                                            55,487          1,307                      958             22
Class R-3                                                            45,582          1,071                      735             17
Class R-4                                                             5,754            135                      100              2
Class R-5                                                            51,100          1,190                    3,666             87
Total net increase
   (decrease)                                                  $ 10,331,786        243,244                $ 756,610         17,879




Share class                                                             Repurchases(1)                            Net increase
                                                                     Amount         Shares                   Amount         Shares
Year ended October 31, 2004
Class A                                                        $ (1,813,363)       (37,709)             $ 7,577,255        157,272
Class B                                                            (142,576)        (2,962)                 713,070         14,829
Class C                                                            (227,960)        (4,738)               1,495,146         31,053
Class F                                                            (117,839)        (2,449)                 530,489         10,984
Class 529-A                                                          (7,810)          (162)                 102,408          2,130
Class 529-B                                                          (1,532)           (32)                  18,896            392
Class 529-C                                                          (3,916)           (81)                  49,964          1,039
Class 529-E                                                            (447)            (9)                   6,311            131
Class 529-F                                                            (134)            (3)                   1,208             25
Class R-1                                                            (1,056)           (22)                   5,069            106
Class R-2                                                           (24,014)          (500)                  62,043          1,287
Class R-3                                                           (13,447)          (279)                  64,725          1,344
Class R-4                                                            (2,403)           (49)                   8,705            179
Class R-5                                                           (48,995)        (1,018)                  56,871          1,162
Total net increase
   (decrease)                                                  $ (2,405,492)       (50,013)            $ 10,692,160        221,933

Year ended October 31, 2003
Class A                                                        $ (1,364,724)       (32,332)             $ 6,704,424        157,766
Class B                                                             (79,340)        (1,870)                 964,317         22,773
Class C                                                             (93,871)        (2,208)               1,152,905         27,034
Class F                                                             (66,373)        (1,572)                 344,688          8,093
Class 529-A                                                          (3,520)           (83)                  80,292          1,896
Class 529-B                                                            (693)           (16)                  21,428            507
Class 529-C                                                          (1,034)           (24)                  36,458            861
Class 529-E                                                            (278)            (6)                   5,012            118
Class 529-F                                                             - *            - *                    1,088             26
Class R-1                                                              (479)           (11)                   4,090             96
Class R-2                                                            (7,472)          (175)                  48,973          1,154
Class R-3                                                            (5,700)          (134)                  40,617            954
Class R-4                                                              (850)           (20)                   5,004            117
Class R-5                                                           (19,931)          (458)                  34,835            819
Total net increase
   (decrease)                                                  $ (1,644,265)       (38,909)             $ 9,444,131        222,214

* Amount less than one thousand.
(1) Includes exchanges between share classes of the fund.
</TABLE>

6.       INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES

The fund made purchases and sales of investment securities, excluding short-term
securities, of $16,335,461,000 and $6,476,276,000, respectively, during the year
ended October 31, 2004.

The fund  receives  a  reduction  in its  custodian  fee equal to the  amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended October 31, 2004,  the custodian fee of $3,625,000  included  $67,000
that was offset by this reduction, rather than paid in cash.


Financial highlights (1)
<TABLE>
<S>                                                                  <C>           <C>            <C>               <C>
                                                                                 Income (loss) from investment operations (2)(3)
                                                                                                            Net
                                                                     Net asset                    gains (losses)
                                                                        value,            Net     on securities     Total from
                                                                     beginning     investment    (both realized     investment
                                                                     of period         income    and unrealized)    operations
Class A:
 Year ended 10/31/2004                                                  $45.29          $1.76             $5.68          $7.44
 Year ended 10/31/2003                                                   40.73           1.72              5.36           7.08
 Year ended 10/31/2002                                                   43.80           1.82             (1.67)           .15
 Year ended 10/31/2001                                                   43.69           1.94              1.19           3.13
 Year ended 10/31/2000                                                   44.90           1.99               .26           2.25
Class B:
 Year ended 10/31/2004                                                   45.29           1.38              5.68           7.06
 Year ended 10/31/2003                                                   40.73           1.38              5.36           6.74
 Year ended 10/31/2002                                                   43.80           1.48             (1.67)          (.19)
 Year ended 10/31/2001                                                   43.69           1.60              1.19           2.79
 Period from 3/15/2000 to 10/31/2000                                     40.33            .96              3.44           4.40
Class C:
 Year ended 10/31/2004                                                   45.29           1.34              5.68           7.02
 Year ended 10/31/2003                                                   40.73           1.35              5.36           6.71
 Year ended 10/31/2002                                                   43.80           1.45             (1.67)          (.22)
 Period from 3/15/2001 to 10/31/2001                                     44.15            .81              (.14)           .67
Class F:
 Year ended 10/31/2004                                                   45.29           1.70              5.68           7.38
 Year ended 10/31/2003                                                   40.73           1.67              5.36           7.03
 Year ended 10/31/2002                                                   43.80           1.76             (1.67)           .09
 Period from 3/15/2001 to 10/31/2001                                     44.15            .99              (.14)           .85
Class 529-A:
 Year ended 10/31/2004                                                   45.29           1.70              5.68           7.38
 Year ended 10/31/2003                                                   40.73           1.70              5.36           7.06
 Period from 2/19/2002 to 10/31/2002                                     43.06           1.19             (2.13)          (.94)
Class 529-B:
 Year ended 10/31/2004                                                   45.29           1.28              5.68           6.96
 Year ended 10/31/2003                                                   40.73           1.30              5.36           6.66
 Period from 2/15/2002 to 10/31/2002                                     43.33            .98             (2.40)         (1.42)
Class 529-C:
 Year ended 10/31/2004                                                   45.29           1.29              5.68           6.97
 Year ended 10/31/2003                                                   40.73           1.31              5.36           6.67
 Period from 2/20/2002 to 10/31/2002                                     43.12            .97             (2.20)         (1.23)
Class 529-E:
 Year ended 10/31/2004                                                   45.29           1.54              5.68           7.22
 Year ended 10/31/2003                                                   40.73           1.53              5.36           6.89
 Period from 3/1/2002 to 10/31/2002                                      43.74           1.08             (2.83)         (1.75)
Class 529-F:
 Year ended 10/31/2004                                                   45.29           1.65              5.68           7.33
 Year ended 10/31/2003                                                   40.73           1.64              5.36           7.00
 Period from 9/17/2002 to 10/31/2002                                     41.74            .14              (.89)          (.75)




Financial highlights (1)                                          (continued)

                                                                                 Income (loss) from investment operations (2)(3)
                                                                                                            Net
                                                                     Net asset                     gains(losses)
                                                                        value,            Net     on securities     Total from
                                                                     beginning     investment    (both realized     investment
                                                                     of period         income    and unrealized)    operations
Class R-1:
 Year ended 10/31/2004                                                  $45.29          $1.32             $5.68          $7.00
 Year ended 10/31/2003                                                   40.73           1.35              5.36           6.71
 Period from 6/11/2002 to 10/31/2002                                     45.41            .52             (4.53)         (4.01)
Class R-2:
 Year ended 10/31/2004                                                   45.29           1.34              5.68           7.02
 Year ended 10/31/2003                                                   40.73           1.36              5.36           6.72
 Period from 5/31/2002 to 10/31/2002                                     46.10            .51             (5.16)         (4.65)
Class R-3:
 Year ended 10/31/2004                                                   45.29           1.53              5.68           7.21
 Year ended 10/31/2003                                                   40.73           1.52              5.36           6.88
 Period from 6/4/2002 to 10/31/2002                                      45.74            .56             (4.80)         (4.24)
Class R-4:
 Year ended 10/31/2004                                                   45.29           1.70              5.68           7.38
 Year ended 10/31/2003                                                   40.73           1.68              5.36           7.04
 Period from 5/20/2002 to 10/31/2002                                     45.84            .65             (4.85)         (4.20)
Class R-5:
 Year ended 10/31/2004                                                   45.29           1.85              5.68           7.53
 Year ended 10/31/2003                                                   40.73           1.81              5.36           7.17
 Period from 5/15/2002 to 10/31/2002                                     45.87            .89             (5.02)         (4.13)




Financial highlights (1)

                                                                                Dividends)and distributions

                                                                      Dividends
                                                                      (from net  Distributions             Total      Net asset
                                                                     investment  (from capital     dividends and     value, end
                                                                        income)         gains)     distributions      of period
Class A:
 Year ended 10/31/2004                                                  $(1.81)         $(.17)           $(1.98)        $50.75
 Year ended 10/31/2003                                                   (2.00)          (.52)            (2.52)         45.29
 Year ended 10/31/2002                                                   (2.05)         (1.17)            (3.22)         40.73
 Year ended 10/31/2001                                                   (2.08)          (.94)            (3.02)         43.80
 Year ended 10/31/2000                                                   (1.92)         (1.54)            (3.46)         43.69
Class B:
 Year ended 10/31/2004                                                   (1.43)          (.17)            (1.60)         50.75
 Year ended 10/31/2003                                                   (1.66)          (.52)            (2.18)         45.29
 Year ended 10/31/2002                                                   (1.71)         (1.17)            (2.88)         40.73
 Year ended 10/31/2001                                                   (1.74)          (.94)            (2.68)         43.80
 Period from 3/15/2000 to 10/31/2000                                     (1.04)             -             (1.04)         43.69
Class C:
 Year ended 10/31/2004                                                   (1.39)          (.17)            (1.56)         50.75
 Year ended 10/31/2003                                                   (1.63)          (.52)            (2.15)         45.29
 Year ended 10/31/2002                                                   (1.68)         (1.17)            (2.85)         40.73
 Period from 3/15/2001 to 10/31/2001                                     (1.02)             -             (1.02)         43.80
Class F:
 Year ended 10/31/2004                                                   (1.75)          (.17)            (1.92)         50.75
 Year ended 10/31/2003                                                   (1.95)          (.52)            (2.47)         45.29
 Year ended 10/31/2002                                                   (1.99)         (1.17)            (3.16)         40.73
 Period from 3/15/2001 to 10/31/2001                                     (1.20)             -             (1.20)         43.80
Class 529-A:
 Year ended 10/31/2004                                                   (1.75)          (.17)            (1.92)         50.75
 Year ended 10/31/2003                                                   (1.98)          (.52)            (2.50)         45.29
 Period from 2/19/2002 to 10/31/2002                                     (1.39)             -             (1.39)         40.73
Class 529-B:
 Year ended 10/31/2004                                                   (1.33)          (.17)            (1.50)         50.75
 Year ended 10/31/2003                                                   (1.58)          (.52)            (2.10)         45.29
 Period from 2/15/2002 to 10/31/2002                                     (1.18)             -             (1.18)         40.73
Class 529-C:
 Year ended 10/31/2004                                                   (1.34)          (.17)            (1.51)         50.75
 Year ended 10/31/2003                                                   (1.59)          (.52)            (2.11)         45.29
 Period from 2/20/2002 to 10/31/2002                                     (1.16)             -             (1.16)         40.73
Class 529-E:
 Year ended 10/31/2004                                                   (1.59)          (.17)            (1.76)         50.75
 Year ended 10/31/2003                                                   (1.81)          (.52)            (2.33)         45.29
 Period from 3/1/2002 to 10/31/2002                                      (1.26)             -             (1.26)         40.73
Class 529-F:
 Year ended 10/31/2004                                                   (1.70)          (.17)            (1.87)         50.75
 Year ended 10/31/2003                                                   (1.92)          (.52)            (2.44)         45.29
 Period from 9/17/2002 to 10/31/2002                                      (.26)             -              (.26)         40.73




Financial highlights (1)                                            (continued)

                                                                              Dividends)and distributions

                                                                      Dividends
                                                                      (from net  Distributions             Total      Net asset
                                                                     investment  (from capital     dividends and     value, end
                                                                        income)         gains)     distributions      of period
Class R-1:
 Year ended 10/31/2004                                                  $(1.37)         $(.17)           $(1.54)        $50.75
 Year ended 10/31/2003                                                   (1.63)          (.52)            (2.15)         45.29
 Period from 6/11/2002 to 10/31/2002                                      (.67)             -              (.67)         40.73
Class R-2:
 Year ended 10/31/2004                                                   (1.39)          (.17)            (1.56)         50.75
 Year ended 10/31/2003                                                   (1.64)          (.52)            (2.16)         45.29
 Period from 5/31/2002 to 10/31/2002                                      (.72)             -              (.72)         40.73
Class R-3:
 Year ended 10/31/2004                                                   (1.58)          (.17)            (1.75)         50.75
 Year ended 10/31/2003                                                   (1.80)          (.52)            (2.32)         45.29
 Period from 6/4/2002 to 10/31/2002                                       (.77)             -              (.77)         40.73
Class R-4:
 Year ended 10/31/2004                                                   (1.75)          (.17)            (1.92)         50.75
 Year ended 10/31/2003                                                   (1.96)          (.52)            (2.48)         45.29
 Period from 5/20/2002 to 10/31/2002                                      (.91)             -              (.91)         40.73
Class R-5:
 Year ended 10/31/2004                                                   (1.90)          (.17)            (2.07)         50.75
 Year ended 10/31/2003                                                   (2.09)          (.52)            (2.61)         45.29
 Period from 5/15/2002 to 10/31/2002                                     (1.01)             -             (1.01)         40.73
</TABLE>




Financial highlights (1)

<TABLE>
<S>                                            <C>         <C>           <C>                  <C>                  <C>
                                                                         Ratio of expenses    Ratio of expenses
                                                                            to average net       to average net    Ratio of net
                                                            Net assets,      assets before         assets after       income to
                                                   Total  end of period     reimbursement/       reimbursement/     average net
                                               return (4)  (in millions)            waiver           waiver (5)      assets (6)
Class A:
 Year ended 10/31/2004                             16.73%       $28,458                .60%                .59%          3.65%
 Year ended 10/31/2003                             17.95         18,273                .65                 .65           4.04
 Year ended 10/31/2002                               .16         10,006                .67                 .67           4.19
 Year ended 10/31/2001                              7.39          8,057                .66                 .66           4.36
 Year ended 10/31/2000                              5.56          7,368                .67                 .67           4.67
Class B:
 Year ended 10/31/2004                             15.81          2,469               1.40                1.39           2.85
 Year ended 10/31/2003                             17.03          1,532               1.44                1.44           3.19
 Year ended 10/31/2002                              (.61)           450               1.44                1.44           3.41
 Year ended 10/31/2001                              6.56            118               1.41                1.41           3.35
 Period from 3/15/2000 to 10/31/2000               10.97             18               1.44 (7)            1.44 (7)       3.90 (7)
Class C:
 Year ended 10/31/2004                             15.72          3,476               1.47                1.47           2.76
 Year ended 10/31/2003                             16.94          1,696               1.51                1.51           3.08
 Year ended 10/31/2002                              (.69)           424               1.52                1.52           3.31
 Period from 3/15/2001 to 10/31/2001                1.52             65               1.51 (7)            1.51 (7)       2.98 (7)
Class F:
 Year ended 10/31/2004                             16.58          1,161                .72                 .71           3.51
 Year ended 10/31/2003                             17.82            539                .76                 .76           3.86
 Year ended 10/31/2002                               .03            155                .79                 .79           4.04
 Period from 3/15/2001 to 10/31/2001                1.94             17                .80 (7)             .80 (7)       3.70 (7)
Class 529-A:
 Year ended 10/31/2004                             16.59            244                .72                 .71           3.53
 Year ended 10/31/2003                             17.89            121                .70                 .70           3.99
 Period from 2/19/2002 to 10/31/2002               (2.31)            32                .91 (7)             .91 (7)       4.05 (7)
Class 529-B:
 Year ended 10/31/2004                             15.58             55               1.60                1.60           2.66
 Year ended 10/31/2003                             16.82             31               1.64                1.64           3.04
 Period from 2/15/2002 to 10/31/2002               (3.37)             8               1.66 (7)            1.66 (7)       3.32 (7)
Class 529-C:
 Year ended 10/31/2004                             15.60            113               1.59                1.58           2.67
 Year ended 10/31/2003                             16.83             54               1.63                1.63           3.05
 Period from 2/20/2002 to 10/31/2002               (2.96)            13               1.65 (7)            1.65 (7)       3.31 (7)
Class 529-E:
 Year ended 10/31/2004                             16.19             15               1.07                1.07           3.18
 Year ended 10/31/2003                             17.44              7               1.10                1.10           3.57
 Period from 3/1/2002 to 10/31/2002                (4.09)             2               1.11 (7)            1.11 (7)       3.87 (7)
Class 529-F:
 Year ended 10/31/2004                             16.47              3                .82                 .82           3.44
 Year ended 10/31/2003                             17.72              1                .85                 .85           3.78
 Period from 9/17/2002 to 10/31/2002               (1.79)             - (8)            .10                 .10            .35




Financial highlights (1)                                            (continued)


                                                                         Ratio of expenses   Ratio of expenses
                                                                            to average net      to average net    Ratio of net
                                                            Net assets,      assets before        assets after       income to
                                                   Total  end of period     reimbursement/      reimbursement/     average net
                                                  return   (in millions)            waiver          waiver (5)      assets (6)
Class R-1:
 Year ended 10/31/2004                             15.69%           $11               1.53%               1.50%          2.74%
 Year ended 10/31/2003                             16.94              5               1.66                1.53           3.12
 Period from 6/11/2002 to 10/31/2002               (8.84)             - (8)            .87                 .60           1.27
Class R-2:
 Year ended 10/31/2004                             15.73            129               1.75                1.47           2.78
 Year ended 10/31/2003                             16.99             57               1.85                1.49           3.11
 Period from 5/31/2002 to 10/31/2002              (10.10)             4                .77                 .63           1.29
Class R-3:
 Year ended 10/31/2004                             16.17            120               1.09                1.08           3.15
 Year ended 10/31/2003                             17.42             46               1.15                1.11           3.46
 Period from 6/4/2002 to 10/31/2002                (9.27)             2                .62                 .46           1.40
Class R-4:
 Year ended 10/31/2004                             16.57             15                .74                 .73           3.49
 Year ended 10/31/2003                             17.84              6                .79                 .76           3.79
 Period from 5/20/2002 to 10/31/2002               (9.20)             - (8)            .76                 .34           1.59
Class R-5:
 Year ended 10/31/2004                             16.95            194                .41                 .40           3.85
 Year ended 10/31/2003                             18.20            121                .44                 .44           4.28
 Period from 5/15/2002 to 10/31/2002               (9.04)            75                .21                 .21           2.10
</TABLE>


<TABLE>
<S>                                                        <C>         <C>          <C>           <C>           <C>
                                                                              Year ended October 31
                                                           2004        2003         2002          2001          2000

Portfolio turnover rate                                     24%         27%          36%           37%           41%
</TABLE>


(1) Based on operations for the period shown (unless otherwise noted) and,
    accordingly, may not be representative of a full year.
(2) Based on average shares outstanding.
(3) For the year ended October 31, 2002, net investment income was lower and
    net gains (losses) on securities (both realized and unrealized) were higher
    by approximately $0.14 per share for Class A as a result of an accounting
    change related to the amortization of bond premium. On an annualized basis,
    the impact of the accounting change  on the other share classes would have
    been approximately the same.
(4) Total returns exclude all sales charges, including contingent deferred
    sales charges.
(5) The ratios in this column reflect the impact, if any, of certain
    reimbursements/waivers from CRMC.  During some of the periods shown CRMC
    reduced fees for investment advisory services for all share classes. In
    addition, during the start-up period for the retirement plan share classes
    (except Class R-5), CRMC agreed to pay a portion of the fees related to
    transfer agent services.
(6) For the year ended October 31, 2002, the ratio of net income to average
    net assets for Class A was lower by .34 percentage points as a result of
    an accounting change related to the amortization of bond premium.  On an
    annualized basis, the impact of the accounting change on the other share
    classes would have been approximately the same.
(7) Annualized.
(8) Amount less than $1 million.


See Notes to Financial Statements


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Capital Income Builder, Inc.:


In our opinion, the accompanying statement of assets and liabilities,  including
the summary investment  portfolio,  and the related statements of operations and
changes  in net assets  and the  financial  highlights  present  fairly,  in all
material respects,  the financial position of Capital Income Builder,  Inc. (the
"Fund") at October 31,  2004,  the results of its  operations  for the year then
ended,  the  changes  in its net  assets for each of the two years in the period
then ended and the  financial  highlights  for each of the periods  presented in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (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 the standards of the Public Company  Accounting  Oversight Board
(United States).  Those standards require that we plan and perform the audits 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, 2004,  by
correspondence  with the custodian and brokers,  provide a reasonable  basis for
our opinion.


Price Waterhouse Coopers LLP

Los Angeles, California
December 14,2004


TAX INFORMATION (unaudited)

We are  required  to advise  you within 60 days of the  fund's  fiscal  year-end
regarding  the  federal  tax  status  of  certain   distributions   received  by
shareholders  during such fiscal year. The information below is provided for the
fund's fiscal year ending October 31, 2004.

During  the  fiscal  year  ended,  the  fund  paid  a  long-term   capital  gain
distribution  of  $89,806,000.  The  fund  also  designated  as a  capital  gain
distribution  a  portion  of  earnings  and  profits  paid  to  shareholders  in
redemption of their shares.

Individual shareholders are eligible for reduced tax rates on qualified dividend
income.  For purposes of computing the dividends eligible for reduced tax rates,
$776,347,000  of the  dividends  paid by the fund from  ordinary  income  earned
during the fiscal year are considered qualified dividend income.

Corporate  shareholders  may  exclude  up to 70% of  qualifying  dividends.  For
purposes of computing this exclusion,  $332,247,000 of the dividends paid by the
fund from ordinary  income earned  during the fiscal year  represent  qualifying
dividends.

Certain states may exempt from income taxation that portion of dividends paid by
the fund from  ordinary  income  that was derived  from  direct U.S.  government
obligations.  For  purposes of computing  this  exclusion,  $121,674,000  of the
dividends  paid by the fund from  ordinary  income earned during the fiscal year
were derived from interest on direct U.S. government obligations.

Dividends  and  distributions   received  by  retirement  plans  such  as  IRAs,
Keogh-type  plans and 403(b)  plans  need not be  reported  as  taxable  income.
However,  many retirement plan trusts may need this information for their annual
information reporting.

SINCE THE  INFORMATION  ABOVE IS REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR  YEAR,  SHAREHOLDERS  SHOULD REFER TO THEIR FORM  1099-DIV OR OTHER TAX
INFORMATION  WHICH WILL BE MAILED IN JANUARY 2005 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2004 TAX RETURNS.  SHAREHOLDERS  SHOULD  CONSULT
THEIR TAX ADVISERS.