```
<PAGE>

                          CAPITAL INCOME BUILDER, INC.

                                     Part B
                      Statement of Additional Information

                                January 1, 2006
                       (as supplemented November 13, 2006)

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, 2006. 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

Item                                                                  Page no.
----                                                                  --------

Certain investment limitations and guidelines . . . . . . . . . . .        2
Description of certain securities and investment techniques . . . .        2
Fundamental policies and investment restrictions. . . . . . . . . .        9
Management of the fund  . . . . . . . . . . . . . . . . . . . . . .       12
Execution of portfolio transactions . . . . . . . . . . . . . . . .       33
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . .       34
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . .       35
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . .       37
Purchase and exchange of shares . . . . . . . . . . . . . . . . . .       42
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . .       45
Sales charge reductions and waivers . . . . . . . . . . . . . . . .       47
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . .       51
Shareholder account services and privileges . . . . . . . . . . . .       51
General information . . . . . . . . . . . . . . . . . . . . . . . .       54
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       59
Financial statements

                        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 equity securities of
     issuers domiciled outside the United States.

..    The fund may invest up to 5% of its assets in debt 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 adversely affect 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, limited 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 periodic interest and repay the amount borrowed
either periodically during the life of the security and/or 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 accrue interest at the
applicable coupon rate over a specified time period. 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 meet projected business goals, to obtain additional
     financing and to service their principal and interest payment obligations.
     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
<PAGE>

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. Certain of these securities will be treated
as debt for fund investment limit purposes.

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 ("GDP") and a low market capitalization to GDP ratio 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.

                        Capital Income Builder -- Page 4
<PAGE>

While entering into forward currency transactions could minimize the risk of
loss due to a decline in the value of the hedged currency, it could also limit
any potential gain 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).

OTHER 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--

                        Capital Income Builder -- Page 5
<PAGE>

     backed obligations issued by U.S. government agencies may be guaranteed by
     the full 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 issue 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 the effective maturities of certain issues
     of these securities 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 their 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 the
cash flows generated by their holdings, the

                        Capital Income Builder -- Page 6
<PAGE>

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.

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

                        Capital Income Builder -- Page 7
<PAGE>

securities in advance of settlement if necessary to generate additional cash to
meet its obligations.

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. 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. Difficulty in selling such securities may result in a loss or be
costly to the fund.

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, 2005 and 2004 were 20% and 24%, 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

                                          YEAR FIRST                                              NUMBER OF PORTFOLIOS
                           POSITION        ELECTED                                                  WITHIN THE FUND
                           WITH THE       A DIRECTOR         PRINCIPAL OCCUPATION(S) DURING       COMPLEX/2/ OVERSEEN
     NAME AND AGE            FUND       OF THE FUND/1/              PAST FIVE YEARS                   BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------
 "NON-INTERESTED" DIRECTORS/4/
------------------------------------------------------------------------------------------------------------------------

 Joseph C. Berenato      Director            2005        Chairman of the Board and CEO,                     6
 Age: 59                                                 Ducommun Incorporated (aerospace
                                                         components manufacturer)
------------------------------------------------------------------------------------------------------------------------
 H. Frederick            Director            1987        Private investor; former President and            19
 Christie                                                CEO, The Mission Group (non-utility
 Age: 72                                                 holding company, subsidiary of
                                                         Southern California Edison Company)
------------------------------------------------------------------------------------------------------------------------
 Robert J. Denison       Director            2005        Chair, First Security Management                   6
 Age: 64                                                 (private investment)
------------------------------------------------------------------------------------------------------------------------
 Koichi Itoh             Director            2005        Executive Chairman of the Board, Itoh              5
 Age: 65                                                 Building Co., Ltd. (building
                                                         management); former President,
                                                         Autosplice KK (electronics)
------------------------------------------------------------------------------------------------------------------------
 Merit E. Janow          Director            2001        Professor, Columbia University, School             2
 Age: 47                                                 of International and Public Affairs
------------------------------------------------------------------------------------------------------------------------
 Mary Myers Kauppila     Chairman of         1992        Private investor; Chairman of the                  5
 Age: 51                 the Board                       Board and CEO, Ladera Management
                         (Independent                    Company (venture capital and
                         and                             agriculture); former owner and
                         Non-Executive)                  President, Energy Investment, Inc.
------------------------------------------------------------------------------------------------------------------------

                         OTHER DIRECTORSHIPS/3/ HELD
     NAME AND AGE                BY DIRECTOR
-----------------------------------------------------
 "NON-INTERESTED" DIRECTORS/4/
-----------------------------------------------------

 Joseph C. Berenato      Ducommun Incorporated
 Age: 59
-----------------------------------------------------
 H. Frederick            Ducommun Incorporated;
 Christie                IHOP Corporation;
 Age: 72                 Southwest Water Company
-----------------------------------------------------
 Robert J. Denison       None
 Age: 64
-----------------------------------------------------
 Koichi Itoh             None
 Age: 65
-----------------------------------------------------
 Merit E. Janow          The NASDAQ Stock Market,
 Age: 47                 Inc.
-----------------------------------------------------
 Mary Myers Kauppila     None
 Age: 51
-----------------------------------------------------

                       Capital Income Builder -- Page 12

<PAGE>

                                          YEAR FIRST                                              NUMBER OF PORTFOLIOS
                           POSITION        ELECTED                                                  WITHIN THE FUND
                           WITH THE       A DIRECTOR         PRINCIPAL OCCUPATION(S) DURING       COMPLEX/2/ OVERSEEN
     NAME AND AGE            FUND       OF THE FUND/1/              PAST FIVE YEARS                   BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------
 "NON-INTERESTED" DIRECTORS/4/
------------------------------------------------------------------------------------------------------------------------

 Gail L. Neale           Director            1987        President, The Lovejoy Consulting                  6
 Age: 70                                                 Group, Inc. (a pro bono consulting
                                                         group advising nonprofit
                                                         organizations)
------------------------------------------------------------------------------------------------------------------------
 Robert J. O'Neill       Director            1992        Member of the Board of Directors, The              3
 Age: 69                                                 Lowy Institute of International
                                                         Policy, Sydney, Australia; former
                                                         Deputy Chairman of the Council and
                                                         Chairman of the International Advisory
                                                         Panel, Graduate School of Government,
                                                         University of Sydney, Australia;
                                                         former Chairman of the Council,
                                                         Australian Strategic Policy Institute;
                                                         former Chairman of the Council,
                                                         International Institute for Strategic
                                                         Studies; former Chichele Professor of
                                                         the History of War and Fellow, All
                                                         Souls College, University of Oxford
------------------------------------------------------------------------------------------------------------------------
 Donald E. Petersen      Director            1992        Retired; former Chairman of the Board              2
 Age: 79                                                 and CEO, Ford Motor Company
------------------------------------------------------------------------------------------------------------------------
 Stefanie Powers         Director        1989 - 1996     Actor, Producer; Co-founder and                    2
 Age: 63                                     1997        President, The William Holden Wildlife
                                                         Foundation; conservation consultant to
                                                          Land Rover and Jaguar North America;
                                                         author of The Jaguar Conservation
                                                         Trust
------------------------------------------------------------------------------------------------------------------------

                         OTHER DIRECTORSHIPS/3/ HELD
     NAME AND AGE                BY DIRECTOR
-----------------------------------------------------
 "NON-INTERESTED" DIRECTORS/4/
-----------------------------------------------------

 Gail L. Neale           None
 Age: 70
-----------------------------------------------------
 Robert J. O'Neill       None
 Age: 69
-----------------------------------------------------
 Donald E. Petersen      None
 Age: 79
-----------------------------------------------------
 Stefanie Powers         None
 Age: 63
-----------------------------------------------------

                      Capital Income Builder -- Page 13

<PAGE>

                                          YEAR FIRST                                              NUMBER OF PORTFOLIOS
                           POSITION        ELECTED                                                  WITHIN THE FUND
                           WITH THE       A DIRECTOR         PRINCIPAL OCCUPATION(S) DURING       COMPLEX/2/ OVERSEEN
     NAME AND AGE            FUND       OF THE FUND/1/              PAST FIVE YEARS                   BY DIRECTOR
------------------------------------------------------------------------------------------------------------------------
 "NON-INTERESTED" DIRECTORS/4/
------------------------------------------------------------------------------------------------------------------------

 Steadman Upham          Director            2001        President and Professor of                         2
 Age: 56                                                 Anthropology, The University of Tulsa;
                                                         former President and Professor of
                                                         Archaeology, Claremont Graduate
                                                         University
------------------------------------------------------------------------------------------------------------------------
 Charles Wolf, Jr.       Director            1987        Senior Economic Adviser and Corporate              2
 Age: 81                                                 Fellow in International Economics, The
                                                         RAND Corporation; former Dean, The
                                                         RAND Graduate School
------------------------------------------------------------------------------------------------------------------------

                         OTHER DIRECTORSHIPS/3/ HELD
     NAME AND AGE                BY DIRECTOR
-----------------------------------------------------
 "NON-INTERESTED" DIRECTORS/4/
-----------------------------------------------------

 Steadman Upham          None
 Age: 56
-----------------------------------------------------
 Charles Wolf, Jr.       None
 Age: 81
-----------------------------------------------------

                                                    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/5/
-----------------------------------------------------------------------------------------------------------------------------------

 James B. Lovelace    Vice               1992        Senior Vice President and                 2            None
 Age: 49              Chairman of                    Director, Capital Research
                      the Board                      and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
 Catherine M. Ward    Director           1987        Senior Vice President and                 1            None
 Age: 59                                             Director, Capital Research
                                                     and Management Company;
                                                     Director, American Funds
                                                     Service Company; Director,
                                                     Capital Group Research, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 14

<PAGE>

                                                                                  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/
-----------------------------------------------------------------------------------------------------------------------------------

 Joyce E. Gordon          President                1996          Senior Vice President and Director, Capital Research and
 Age: 49                                                         Management Company*
-----------------------------------------------------------------------------------------------------------------------------------
 Mark R.                Executive Vice             2001          Senior Vice President and Director, Capital Research and
 Macdonald                President                              Management Company
 Age: 46
-----------------------------------------------------------------------------------------------------------------------------------
 Darcy B. Kopcho             Senior                2006          Senior Vice President and Director, Capital Research and
 Age: 53                 Vice President                          Management Company*
-----------------------------------------------------------------------------------------------------------------------------------
 Michael Cohen           Vice President            2006          Vice President, Capital Research Company
 Age: 44
-----------------------------------------------------------------------------------------------------------------------------------
 David A. Hoag           Vice President            2006          Senior Vice President, Capital Research Company
 Age: 41
-----------------------------------------------------------------------------------------------------------------------------------
 David M. Riley          Vice President            2006          Senior Vice President, Capital Research Company
 Age: 39
-----------------------------------------------------------------------------------------------------------------------------------
 Vincent P. Corti         Secretary                1987          Vice President - Fund Business Management Group, Capital Research
 Age: 49                                                         and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
 Sheryl F.                Treasurer                2003          Vice President - Fund Business Management Group, Capital Research
 Johnson                                                         and Management Company
 Age: 37
-----------------------------------------------------------------------------------------------------------------------------------
 Jeffrey P. Regal    Assistant Treasurer           2001          Vice President - Fund Business Management Group, Capital Research
 Age: 34                                                         and Management Company
-----------------------------------------------------------------------------------------------------------------------------------

*    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/  A "Non-Interested" Director refers to a Director who is not an "interested
     person" within the meaning of the 1940 Act, on the basis of his or her
     affiliation with the fund's investment adviser, Capital Research and Management
     Company, or affiliated entities (including the fund's principal underwriter).
/5/  "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).
/6/  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, 2004

                                                     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
-------------------------------------------------------------------------------

 "NON-INTERESTED" DIRECTORS
-------------------------------------------------------------------------------
 Joseph C. Berenato               None/2/              $50,001 - $100,000/2/
-------------------------------------------------------------------------------
 H. Frederick Christie         Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Robert J. Denison                None/2/                     None/2/
-------------------------------------------------------------------------------
 Koichi Itoh                      None/2/                Over $100,000/2/
-------------------------------------------------------------------------------
 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
-------------------------------------------------------------------------------
 Catherine M. Ward             Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 James B. Lovelace             Over $100,000               Over $100,000
-------------------------------------------------------------------------------

/1/  Ownership disclosure is made using the following ranges: None; $1 - $10,000;
     $10,001 - $50,000; $50,001 - $100,000; and Over $100,000. The amounts listed
     for "interested" Directors include shares owned through The Capital Group
     Companies, Inc. retirement plan and 401(k) plan.
/2/  Messrs. Berenato, Denison and Itoh were elected Directors of the fund on
     October 17, 2005. The dollar ranges of fund shares owned on that day were
     "$10,001 - $50,000" (Berenato), "$10,001 - $50,000" (Denison) and "Over
     $100,000" (Itoh). The aggregate dollar range of shares owned in the American
     Funds family on that day were "Over $100,000" for all three Directors.

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 typically pays each Non-Interested Director an annual fee
of $15,000. If the aggregate annual fees paid to a Non-Interested Director by
all funds advised by the investment adviser is less than $50,000, that
Non-Interested Director would be eligible for a $50,000 alternative fee. This
alternative fee is paid by those funds for which the Non-Interested Director
serves as a director on a pro rata basis according to each fund's relative share
of the annual fees that it would typically pay. The alternative fee reflects the
significant time and labor commitment required for a Director to oversee even
one fund. A Non-Interested Director who is Chairman of the Board (an
"independent chair") also receives an additional annual fee of $25,000, paid in
equal portions by the fund and the funds whose Boards and Committees typically
meet jointly with those of the fund. The fund pays to its independent chair an
attendance fee (as described below) for each meeting of a committee of the Board
of Directors attended as a non-voting ex-officio member.

                       Capital Income Builder -- Page 16
<PAGE>

In addition, the fund generally pays to Non-Interested Directors fees of (a)
$2,500 for each Board of Directors meeting attended and (b) $1,500 for each
meeting attended as a member of a committee of the Board of Directors.

Non-Interested Directors also receive attendance fees of (a) $2,500 for each
Director seminar or information session organized by the investment adviser, (b)
$1,500 for each joint Audit Committee meeting with all other audit committees of
funds advised by the investment adviser and (c) $500 for each meeting of the
Board or Committee Chairs of other funds advised by the investment adviser.  The
fund and the other funds served by each Non-Interested Director each pay an
equal portion of these attendance fees.

The Nominating Committee of the Board of Directors, a Committee comprised
exclusively of Non-Interested Directors, 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
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.
Non-Interested 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 Non-Interested Directors.

 DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED OCTOBER 31, 2005

                                                        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/
------------------------------------------------------------------------------------------

 Joseph C. Berenato/3/           $ 4,583                          $149,334
------------------------------------------------------------------------------------------
 H. Frederick Christie/3/         31,419                           317,180
------------------------------------------------------------------------------------------
 Robert J. Denison                 3,667                            94,837
------------------------------------------------------------------------------------------
 Koichi Itoh/3/                    6,334                           116,001
------------------------------------------------------------------------------------------
 Merit E. Janow                   42,450                            87,500
------------------------------------------------------------------------------------------
 Mary Myers Kauppila/3/           32,400                           186,500
------------------------------------------------------------------------------------------
 Gail L. Neale                    28,900                           145,500
------------------------------------------------------------------------------------------
 Robert J. O'Neill                41,450                            94,000
------------------------------------------------------------------------------------------
 Donald E. Petersen/3/            38,200                            78,000
------------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 17
<PAGE>

                                                        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/
------------------------------------------------------------------------------------------

 Stefanie Powers                  32,200                            66,000
------------------------------------------------------------------------------------------
 Steadman Upham/3/                42,450                            87,500
------------------------------------------------------------------------------------------
 Charles Wolf, Jr.                43,450                            89,500
------------------------------------------------------------------------------------------

/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 shown in this table for the fiscal
     year ended October 31, 2005 does not include earnings on amounts deferred in
     previous fiscal years. See footnote 3 to this table for more information.
/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 2005
     fiscal year for participating Directors is as follows: Joseph C. Berenato
     ($2,944), H. Frederick Christie ($186,880), Koichi Itoh ($2,541), Mary Myers
     Kauppila ($421,715), Donald E. Petersen ($93,605) and Steadman Upham
     ($138,983). 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, 2005, the officers and Directors of the fund and their
families, as a group, owned beneficially or of record less than 1% of the
outstanding shares of the fund.

FUND ORGANIZATION AND THE BOARD OF DIRECTORS -- The fund, an open-end,
diversified management investment company, was organized as a Maryland
corporation on June 8, 1987. 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 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.

                       Capital Income Builder -- Page 18
<PAGE>

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 Non-Interested
Directors provide in effect that, subject to certain conditions, the fund will
indemnify its officers and Directors 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, Robert J. Denison, Merit E. Janow, 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.
Four Audit Committee meetings were held during the 2005 fiscal year.

The fund has a Nominating Committee comprised of Koichi Itoh, 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

                       Capital Income Builder -- Page 19
<PAGE>

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
Non-Interested 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 2005
fiscal year.

The fund has a Contracts Committee comprised of Joseph C. Berenato, H. Frederick
Christie, Robert J. Denison, Koichi Itoh, 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 principal 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 adopted pursuant to rule 12b-1 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 2005 fiscal year.

The fund has a Proxy Committee comprised of Joseph C. Berenato, H. Frederick
Christie, Robert J. Denison, Koichi Itoh, 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 2005
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 fund, other 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 those 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

                       Capital Income Builder -- Page 20
<PAGE>

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.

Information regarding how the fund voted proxies relating to portfolio
securities during the 12-month period ended June 30 of each year will be
available on or about September 1 of each year (a) without charge, upon request
by calling American Funds Service Company at 800/421-0180 and (b) on the SEC's
website at www.sec.gov.

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.

                       Capital Income Builder -- Page 21
<PAGE>

     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.

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, 2005. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.

                 NAME AND ADDRESS                    OWNERSHIP PERCENTAGE
----------------------------------------------------------------------------

 Edward D. Jones & Co.                               Class A        34.12%
 201 Progress Parkway                                Class B        20.10
 Maryland Heights, MO 63043-3009
----------------------------------------------------------------------------
 Citigroup Global Markets, Inc.                      Class B         8.72
 333 W. 34th Street                                  Class C        14.71
 New York, NY 10001-2402
----------------------------------------------------------------------------
 MLPF&S                                              Class B         7.32
 4800 Deer Lake Drive East, Floor 2                  Class C        16.16
 Jacksonville, FL 32246-6484
----------------------------------------------------------------------------
 Hartford Life Insurance Co.                         Class R-1      18.48
 P.O. Box 2999                                       Class R-3      21.34
 Hartford, CT 06104-2999
----------------------------------------------------------------------------
 Nationwide Trust Company                            Class R-3      10.79
 P.O. Box 182029
 Columbus, OH 43218-2029
----------------------------------------------------------------------------
 Marshall & Ilsley Trust Co.                         Class R-4      16.17
 11270 W. Park Place, Suite 400
 Milwaukee, WI 53224-3638
----------------------------------------------------------------------------
 CGTC                                                Class R-5      18.95
 333 S. Hope Street, Floor 49
 Los Angeles, CA 90071
----------------------------------------------------------------------------

INVESTMENT ADVISER -- Capital Research and Management Company, the investment
adviser, 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). These facilities are staffed with experienced
investment professionals. The investment adviser is located at 333 South Hope
Street, Los Angeles, CA 90071 and 135 South State College Boulevard, Brea, CA
92821. It is a wholly owned subsidiary of The Capital Group Companies, Inc., a
holding company for several investment management subsidiaries. The investment
adviser manages equity assets for the American Funds through two divisions.
These divisions generally function separately from each other with respect to
investment research activities and they make investment decisions for the funds
on a separate basis.

                       Capital Income Builder -- Page 22
<PAGE>

POTENTIAL CONFLICTS OF INTEREST -- The investment adviser has adopted policies
and procedures that address conflicts of interest that may arise between a
portfolio counselor's management of the fund and his or her management of other
funds and accounts. Potential areas of conflict could involve allocation of
investment opportunities and trades among funds and accounts, use of information
regarding the timing of fund trades, personal investing activities, portfolio
counselor compensation and proxy voting of portfolio securities. The investment
adviser has adopted policies and procedures that it believes are reasonably
designed to address these conflicts. However, there is no guarantee that such
policies and procedures will be effective or that the investment adviser will
anticipate all potential conflicts of interest.

COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. In addition, Capital Research and Management Company's investment
analysts may make investment decisions with respect to a portion of a fund's
portfolio within their research coverage. Portfolio counselors and investment
analysts may also manage assets in other mutual funds advised by Capital
Research and Management Company.

Portfolio counselors and investment analysts are paid competitive salaries by
Capital Research and Management Company. In addition, they may receive bonuses
based on their individual portfolio results. Investment professionals also may
participate in profit-sharing plans. The relative mix of compensation
represented by bonuses, salary and profit-sharing will vary depending on the
individual's portfolio results, contributions to the organization and other
factors. In order to encourage a long-term focus, bonuses based on investment
results are calculated by comparing pretax total returns to relevant benchmarks
over both the most recent year and a four-year rolling average, with the greater
weight placed on the four-year rolling average. For portfolio counselors,
benchmarks may include measures of the marketplaces in which the relevant fund
invests and measures of the results of comparable mutual funds. For investment
analysts, benchmarks may include relevant market measures and appropriate
industry or sector indexes reflecting their areas of expertise. Capital Research
and Management Company also separately compensates analysts for the quality of
their research efforts. The benchmarks against which Capital Income Builder
portfolio counselors are measured include: Lipper Income Funds Index; Citigroup
Broad Investment-Grade 1-10 Year Bond Index and total return of the Cash
Management Trust of America.

PORTFOLIO COUNSELOR FUND HOLDINGS AND OTHER MANAGED ACCOUNTS -- As described
below, portfolio counselors may personally own shares of the fund. In addition,
portfolio counselors may manage a portion of other mutual funds or accounts
advised by Capital Research and Management Company or its affiliates.

                       Capital Income Builder -- Page 23
<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF OCTOBER 31, 2005:

                                        NUMBER             NUMBER
                                       OF OTHER           OF OTHER          NUMBER
                                      REGISTERED           POOLED          OF OTHER
                                      INVESTMENT         INVESTMENT        ACCOUNTS
                                   COMPANIES (RICS)   VEHICLES (PIVS)        THAT
                                         THAT               THAT           PORTFOLIO
                                      PORTFOLIO          PORTFOLIO         COUNSELOR
                    DOLLAR RANGE      COUNSELOR          COUNSELOR          MANAGES
                      OF FUND          MANAGES            MANAGES         (ASSETS OF
    PORTFOLIO          SHARES      (ASSETS OF RICS    (ASSETS OF PIVS   OTHER ACCOUNTS
    COUNSELOR         OWNED/1/     IN BILLIONS)/2/    IN BILLIONS)/3/   IN BILLIONS)/4/
-----------------------------------------------------------------------------------------

 James B. Lovelace      Over         2       $151.9       1      $0.04        None
                     $1,000,000
------------------------------------------------------------------------------------------
 Joyce E. Gordon        Over         2       $ 93.1         None              None
                     $1,000,000
------------------------------------------------------------------------------------------
 Mark R. Macdonald   $500,001 -      4       $198.5         None              None
                     $1,000,000
------------------------------------------------------------------------------------------
 Steven T. Watson    $100,001 -      3       $173.4         None              None
                      $500,000
------------------------------------------------------------------------------------------
 Timothy D. Armour   $500,001 -      3       $103.5         None              None
                     $1,000,000
------------------------------------------------------------------------------------------
 Michael Cohen        None/5/            None               None              None
------------------------------------------------------------------------------------------
 David A. Hoag       $500,001 -      1       $  5.2         None              None
                     $1,000,000
------------------------------------------------------------------------------------------
 David M. Riley         Over             None               None              None
                     $1,000,000
------------------------------------------------------------------------------------------

/1/  Ownership disclosure is made using the following ranges: None; $1 - $10,000;
     $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
     $1,000,000; and Over $1,000,000. The amounts listed include shares owned
     through The Capital Group Companies, Inc. retirement plan and 401(k) plan.
/2/  Indicates fund(s) where the portfolio counselor also has significant
     responsibilities for the day to day management of the fund(s). Assets noted are
     the total net assets of the registered investment companies and are not
     indicative of the total assets managed by the individual, which is a
     substantially lower amount.
/3/  Represents funds advised or sub-advised by Capital Research and Management
     Company and sold outside the United States. Assets noted are the total net
     assets of the fund and are not indicative of the total assets managed by the
     individual, which is a substantially lower amount.
/4/  Reflects other professionally managed accounts held at companies affiliated
     with Capital Research and Management Company. Personal brokerage accounts of
     portfolio counselors and their families are not reflected.
/5/  Portfolio counselor resides outside the United States. As such, tax
     considerations may adversely influence his or her ability to own shares of the
     fund.

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, 2007, 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,

                       Capital Income Builder -- Page 24
<PAGE>

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 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 Non-Interested Directors; 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 the following annualized rates and daily net
asset levels:

                                Net asset level

       RATE                 IN EXCESS OF                    UP TO
-----------------------------------------------------------------------------

      0.240%              $             0              $ 1,000,000,000
-----------------------------------------------------------------------------
      0.200                 1,000,000,000                2,000,000,000
-----------------------------------------------------------------------------
      0.180                 2,000,000,000                3,000,000,000
-----------------------------------------------------------------------------

                       Capital Income Builder -- Page 25
<PAGE>

                                Net asset level

       RATE                 IN EXCESS OF                    UP TO
-----------------------------------------------------------------------------

      0.165                 3,000,000,000                5,000,000,000
-----------------------------------------------------------------------------
      0.155                 5,000,000,000                8,000,000,000
-----------------------------------------------------------------------------
      0.150                 8,000,000,000               13,000,000,000
-----------------------------------------------------------------------------
      0.145                13,000,000,000               17,000,000,000
-----------------------------------------------------------------------------
      0.140                17,000,000,000               21,000,000,000
-----------------------------------------------------------------------------
      0.135                21,000,000,000               27,000,000,000
-----------------------------------------------------------------------------
      0.130                27,000,000,000               34,000,000,000
-----------------------------------------------------------------------------
      0.125                34,000,000,000               44,000,000,000
-----------------------------------------------------------------------------
      0.120                44,000,000,000               55,000,000,000
-----------------------------------------------------------------------------
      0.117                55,000,000,000               71,000,000,000
-----------------------------------------------------------------------------
      0.114                71,000,000,000               89,000,000,000
-----------------------------------------------------------------------------
      0.112                89,000,000,000
-----------------------------------------------------------------------------

The Agreement also provides for fees based on monthly gross investment income at
the following annualized rates:

                              Monthly gross income

        RATE                IN EXCESS OF                    UP TO
----------------------------------------------------------------------------

       3.00%                $          0                $100,000,000
----------------------------------------------------------------------------
       2.50                  100,000,000
----------------------------------------------------------------------------

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 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.

                       Capital Income Builder -- Page 26
<PAGE>

For the fiscal years ended October 31, 2005 and 2004, the investment adviser was
entitled to receive from the fund management fees of $124,219,000 and
$81,037,000, respectively. After giving effect to the management fee waivers
described below, the fund paid the investment adviser management fees of
$114,050,000 (a reduction of $10,169,000) and $79,841,000 (a reduction of
$1,196,000) for the fiscal years ended October 31, 2005 and 2004, respectively.
For the fiscal year ended October 31, 2003, the fund paid the investment adviser
management  fees of $48,915,000.

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 the investment adviser is otherwise entitled
to receive and is expected to 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.

In addition, during the year ended October 31, 2005, the investment adviser
waived the fees in excess of the rates provided in the November 1, 2005 amended
investment advisory and service agreement.

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, 2007, 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 Non-Interested Directors. 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 and R-2 shares, the investment
adviser has agreed to pay a portion of the fees payable under the Administrative
Agreement that would otherwise have been paid by the fund. For the year ended
October 31, 2005, the total fees paid by the investment adviser were $283,000.

As compensation for its services, the investment adviser receives transfer agent
fees for transfer agent services provided to the fund's Class C, F, R and 529
shares. 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 at the annual rate of up to 0.15% of the average daily net assets
for each applicable share class (excluding Class R-5 shares) for administrative
services provided to these share classes. Administrative services fees are paid
monthly and accrued daily. The

                       Capital Income Builder -- Page 27
<PAGE>

investment adviser uses a portion of this fee to compensate third parties for
administrative services provided to the fund. Of the remainder, the investment
adviser will not retain more than 0.05% of the average daily net assets for each
applicable share class. For Class R-5 shares, the administrative services fee is
calculated at the annual rate of up to 0.10% of the average daily net assets.
This fee is subject to the same uses and limitations described above.

During the 2005 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

                                             ADMINISTRATIVE SERVICES FEE
------------------------------------------------------------------------------

               CLASS C                               $7,329,000
------------------------------------------------------------------------------
               CLASS F                                2,364,000
------------------------------------------------------------------------------
             CLASS 529-A                                459,000
------------------------------------------------------------------------------
             CLASS 529-B                                110,000
------------------------------------------------------------------------------
             CLASS 529-C                                226,000
------------------------------------------------------------------------------
             CLASS 529-E                                 26,000
------------------------------------------------------------------------------
             CLASS 529-F                                  6,000
------------------------------------------------------------------------------
              CLASS R-1                                  46,000
------------------------------------------------------------------------------
              CLASS R-2                               1,066,000
------------------------------------------------------------------------------
              CLASS R-3                                 407,000
------------------------------------------------------------------------------
              CLASS R-4                                  74,000
------------------------------------------------------------------------------
              CLASS R-5                                 252,000
------------------------------------------------------------------------------

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

                       Capital Income Builder -- Page 28
<PAGE>

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 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:

                                                           COMMISSIONS,        ALLOWANCE OR
                                                              REVENUE          COMPENSATION
                                     FISCAL YEAR/PERIOD  OR FEES RETAINED       TO DEALERS
-----------------------------------------------------------------------------------------------

                 CLASS A                    2005            $62,521,000        $278,645,000
                                            2004             39,449,000         176,000,000
                                            2003             34,650,000         162,187,000
-----------------------------------------------------------------------------------------------
                 CLASS B                    2005              3,982,000          30,029,000
                                            2004              4,241,000          28,435,000
                                            2003              4,991,000          35,354,000
-----------------------------------------------------------------------------------------------
                 CLASS C                    2005                     --          23,732,000
                                            2004                     --          15,511,000
                                            2003                     --          11,256,000
-----------------------------------------------------------------------------------------------
               CLASS 529-A                  2005              1,102,000           5,196,000
                                            2004                583,000           2,772,000
                                            2003                466,000           2,298,000
-----------------------------------------------------------------------------------------------
               CLASS 529-B                  2005                120,000             734,000
                                            2004                132,000             709,000
                                            2003                132,000             806,000
-----------------------------------------------------------------------------------------------
               CLASS 529-C                  2005                     --             691,000
                                            2004                     --             477,000
                                            2003                     --             343,000
-----------------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 29
<PAGE>

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; and benefits
to the investment process from growth or stability of assets. The selection and
nomination of Directors who are not "interested persons" of the fund are
committed to the discretion of the Directors who are not "interested persons"
during the existence of the Plans. The Plans may not be amended to increase
materially the amount spent for distribution without shareholder approval. Plan
expenses are reviewed quarterly and the Plans must be renewed annually by the
Board of Directors.

Under the Plans, the fund may annually expend the following amounts to finance
any activity primarily intended to result in the sale of fund shares, provided
the fund's Board of Directors has approved the category of expenses for which
payment is being made: (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, up to 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, up to 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, up to 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 the 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) up to 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.

                       Capital Income Builder -- Page 30
<PAGE>

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

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

As of the end of the 2005 fiscal year, total 12b-1 expenses, and the portion of
the expense that remained unpaid, were:

                                                             12B-1 UNPAID LIABILITY
                                      12B-1 EXPENSES              OUTSTANDING
-------------------------------------------------------------------------------------

               CLASS A                 $82,450,000                $10,074,000
-------------------------------------------------------------------------------------
               CLASS B                  30,223,000                  3,246,000
-------------------------------------------------------------------------------------
               CLASS C                  48,483,000                  7,522,000
-------------------------------------------------------------------------------------
               CLASS F                   4,332,000                    874,000
-------------------------------------------------------------------------------------
             CLASS 529-A                   658,000                    107,000
-------------------------------------------------------------------------------------
             CLASS 529-B                   709,000                     81,000
-------------------------------------------------------------------------------------
             CLASS 529-C                 1,556,000                    254,000
-------------------------------------------------------------------------------------
             CLASS 529-E                   103,000                     19,000
-------------------------------------------------------------------------------------
             CLASS 529-F                     5,000                          0
-------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 31
<PAGE>

                                                             12B-1 UNPAID LIABILITY
                                      12B-1 EXPENSES              OUTSTANDING
-------------------------------------------------------------------------------------

              CLASS R-1                    222,000                     53,000
-------------------------------------------------------------------------------------
              CLASS R-2                  1,413,000                    280,000
-------------------------------------------------------------------------------------
              CLASS R-3                    978,000                    198,000
-------------------------------------------------------------------------------------
              CLASS R-4                    115,000                     28,000
-------------------------------------------------------------------------------------

OTHER COMPENSATION TO DEALERS -- As of January 2006, the top dealers that
American Funds Distributors anticipates will receive additional compensation
(as described in the prospectus) include:

     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.
     Genworth Financial Securities Corp.
     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
     McDonald Investments Inc./Society National Bank
     Merrill Lynch, Pierce, Fenner & Smith Inc.
     Metlife Enterprises
     MML Investors Services, Inc.
     Morgan Keegan & Company, Inc.
     Morgan Stanley DW
     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
     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
     Stifel, Nicolaus & Company, Inc.
     The O.N. Equity Sales Company
     UBS Financial Services Inc.
     US Bancorp Investments, Inc.
     Wachovia Securities

                       Capital Income Builder -- Page 32
<PAGE>

                      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.

Brokerage commissions paid on portfolio transactions, including investment
dealer concessions on underwritings, if applicable, for the fiscal years ended
October 31, 2005, 2004 and 2003 amounted to $34,660,000, $25,365,000 and
$20,946,000, 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 paid since 2004 is attributable to
growth in the sale of the fund's shares since 2004, which led the fund to
purchase additional securities for its portfolio, thereby increasing brokerage
commissions.

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.

                       Capital Income Builder -- Page 33
<PAGE>

At the end of the fund's most recent fiscal year, the fund's regular
broker-dealers included Banc of America Securities LLC, Citigroup Global Markets
Inc., J.P. Morgan Securities Inc., UBS AG, A.B.N. AMRO Bank NV and Deutsche Bank
A.G. As of the fund's most recent fiscal year-end, the fund held equity
securities of Bank of America Corp. in the amount of $458,809,000, Citigroup
Inc. in the amount of $413,165,000, J.P. Morgan Chase & Co. in the amount of
$210,162,000, UBS AG in the amount of $108,949,000 and ABN AMRO Holding NV in
the amount of $106,108,000. The fund held debt securities of Bank of America
Corp. in the amount of $296,908,000, Citigroup Inc. in the amount of
$30,463,000, J.P. Morgan Chase & Co. in the amount of $133,608,000 and Deutsche
Bank A.G. in the amount of $8,330,000.

                        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.

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 practice, the public portfolio
typically is posted on the website approximately 45 days after the end of the
calendar quarter. In addition, the fund's list of top 10 equity 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 portfolio holdings information for legitimate business and fund
oversight purposes may receive the 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 applicable codes 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 typically 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.

Subject to board policies, the authority to disclose a fund's portfolio
holdings, and to establish policies with respect to such disclosure, resides
with the appropriate investment-related committees of the fund's investment
adviser. In exercising their authority, the committees determine whether

                       Capital Income Builder -- Page 34
<PAGE>

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 investment adviser's 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 until such
holdings have been made public on the American Funds website (other than
to certain fund service providers for legitimate business and fund
oversight purposes) 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 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

                       Capital Income Builder -- Page 35
<PAGE>

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. The pricing services base bond prices
on, among other things, an evaluation of the yield curve as of approximately
3:00 p.m. New York time. The fund's investment adviser performs certain checks
on these prices prior to the fund's net asset value being calculated.

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.

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 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 pro rata based on 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

                       Capital Income Builder -- Page 36
<PAGE>

expense items attributable to particular share classes, are deducted from total
assets attributable to such 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.

                            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.

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, net income from certain
publicly traded partnerships 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; two or more issuers which the fund
controls and which are determined to be engaged in the same or similar trades or
businesses; or the securities of certain publicly traded partnerships.

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.

                       Capital Income Builder -- Page 37
<PAGE>

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 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 and meets the
     applicable holding period requirement, 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

                       Capital Income Builder -- Page 38
<PAGE>

     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 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.

                       Capital Income Builder -- Page 39
<PAGE>

     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.

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." If the fund meets the applicable holding
     period requirement, it will distribute dividends derived from qualified
     corporation dividends 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 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.

                       Capital Income Builder -- Page 40
<PAGE>

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 fund(s).

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. Any loss disallowed under this rule will be added to the
shareholder's tax basis in the new shares purchased.

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

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.

                       Capital Income Builder -- Page 41
<PAGE>

                        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 FINANCIAL 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
           ABA Routing No. 121000248
           Account No. 4600-076178

     Your bank should include the following information when
                    wiring funds:

           For credit to the account of:
           American Funds Service Company
           (fund's name)

           For further credit to:
           (shareholder's fund account number)
           (shareholder's name)

     You may contact American Funds Service Company at 800/421-0180 if you have
     questions about making wire transfers.

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.

Class 529 shares may be purchased only through CollegeAmerica by investors
establishing qualified higher education savings accounts. Class 529-E shares may
be purchased only by investors participating in CollegeAmerica through an
eligible employer plan. The R share classes are generally available only to
employer-sponsored retirement plans. Class R-5 shares are also

                       Capital Income Builder -- Page 42
<PAGE>

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. In addition, the
American Funds state tax-exempt funds are qualified for sale only in certain
jurisdictions, and tax-exempt funds in general should not serve as retirement
plan investments. The fund and the Principal Underwriter reserve the right to
reject any purchase order.

PURCHASE MINIMUMS AND MAXIMUMS -- All investments are subject to the purchase
minimums and maximums described in the prospectus. Purchase minimums may be
waived or reduced in certain cases. For accounts established with an automatic
investment plan, the initial purchase minimum of $250 may be waived if the
purchases (including purchases through exchanges from another fund) made under
the plan are sufficient to reach $250 within five months of account
establishment.

The initial purchase minimum of $25 may be waived for the following account types:

     .     Payroll deduction retirement plan accounts (such as, but not limited
           to, 403(b), 401(k), SIMPLE IRA, SARSEP and deferred compensation plan
           accounts); and

     .     Employer-sponsored CollegeAmerica accounts.

The following account types may be established without meeting the initial
purchase minimum:

     .     Retirement accounts that are funded with employer contributions; and

     .     Accounts that are funded with monies set by court decree.

The following account types may be established without meeting the initial
purchase minimum, but shareholders wishing to invest in two or more funds must
meet the normal initial purchase minimum of each fund:

     .     Accounts that are funded with (a) transfers of assets, (b) rollovers
           from retirement plans, (c) rollovers from 529 college savings plans or
           (d) required minimum distribution automatic exchanges; and

     .     American Funds money market fund accounts registered in the name of
           clients of Capital Guardian Trust Company's Personal Investment
           Management group.

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

                       Capital Income Builder -- Page 43
<PAGE>

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).

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.

MOVING BETWEEN SHARE CLASSES

     AUTOMATIC CONVERSIONS -- As described more fully in the prospectus, Class
     B, 529-B and C shares automatically convert to Class A, 529-A and F shares,
     respectively, after a certain period from the purchase date.

     MOVING FROM CLASS B TO CLASS A SHARES -- Under the right of reinvestment
     policy as described in the prospectus, if you redeem Class B shares during
     the contingent deferred sales charge period, you may reinvest the proceeds
     in Class A shares without paying a Class A sales charge if you notify
     American Funds Service Company and the reinvestment occurs within 90 days
     after the date of redemption. If you redeem your Class B shares after the
     contingent deferred sales charge period and with the redemption proceeds
     you purchase Class A shares, you are still responsible for paying any
     applicable Class A sales charges.

     MOVING FROM CLASS C TO CLASS A SHARES -- If you redeem Class C shares and
     with the redemption proceeds purchase Class A shares, you are still
     responsible for paying any Class C contingent deferred sales charges and
     applicable Class A sales charges.

     MOVING FROM CLASS F TO CLASS A SHARES -- You can redeem Class F shares held
     in a qualified fee-based program and with the redemption proceeds purchase
     Class A shares without paying an initial Class A sales charge if all of the
     following are met: (a) you are leaving or have left the fee-based program,
     (b) you have held the Class F shares in the program for at least one year,
     and (c) you notify American Funds Service Company and purchase the Class A
     shares within 90 days after redeeming the Class F shares.

                       Capital Income Builder -- Page 44
<PAGE>

     MOVING FROM CLASS A TO CLASS F SHARES -- If you are part of a qualified
     fee-based program and you wish to redeem your Class A shares and with the
     redemption proceeds purchase Class F shares for the program, any Class A
     sales charges (including contingent deferred sales charges) that you paid
     or are payable will not be credited back to your account.

                                 SALES CHARGES

CLASS A PURCHASES

     PURCHASES BY CERTAIN 403(B) PLANS

     Individual 403(b) plans may be treated similarly to employer-sponsored
     plans for Class A 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:

     (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)  currently registered representatives and assistants directly employed
          by such representatives, retired registered representatives with
          respect to accounts established while active, or full-time employees
          (collectively, "Eligible Persons") (and their (a) spouses or
          equivalents if recognized under local law, (b) parents and children,
          including parents and children in step and adoptive relationships,
          sons-in-law and daughters-in-law, and (c) parents-in-law, if the
          Eligible Persons or the spouses, children or parents of the Eligible
          Persons are listed in the account registration with the
          parents-in-law) of dealers who have sales agreements with the
          Principal Underwriter (or who clear transactions through such
          dealers), plans for the dealers, and plans that include as
          participants only the Eligible Persons, their spouses, parents and/or
          children;

     (3)  currently registered investment advisers ("RIAs") and assistants
          directly employed by such RIAs, retired RIAs with respect to accounts
          established while active, or full-time employees (collectively,
          "Eligible Persons") (and their (a) spouses or equivalents if
          recognized under local law, (b) parents and children, including
          parents and children in step and adoptive relationships, sons-in-law
          and

                       Capital Income Builder -- Page 45
<PAGE>

          daughters-in-law and (c) parents-in-law, if the Eligible Persons or
          the spouses, children or parents of the Eligible Persons are listed in
          the account registration with the parents-in-law) of RIA firms that
          are authorized to sell shares of the funds, plans for the RIA firms,
          and plans that include as participants only the Eligible Persons,
          their spouses, parents and/or children;

     (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.

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 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) 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.

                       Capital Income Builder -- Page 46
<PAGE>

                      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 (expressed as a percentage of your purchases) as if
     all shares had been purchased at once.

     The market value of your existing holdings eligible to be aggregated (see
     below) as of the day immediately before the start of the Statement period
     may be credited toward satisfying the Statement.

     The Statement may be revised upward at any time during the Statement
     period, and such a revision will be treated as a new Statement, except that
     the Statement period during which the purchases must be made will remain
     unchanged. Purchases made from the date of revision will receive the
     reduced sales charge, if any, resulting from the revised 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.

     When a shareholder elects to use a Statement, shares equal to 5% of the
     dollar amount specified in the Statement may 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 Statement period,
     the purchaser may be required to 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. Any dealers assigned to the shareholder's account at the
     time a purchase was made during the Statement period will receive a
     corresponding commission adjustment if appropriate. 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 may be liable
     to the Principal Underwriter for the balance still outstanding.

     Certain payroll deduction retirement plans purchasing Class A shares under
     a Statement on or before November 12, 2006, may continue to purchase Class
     A shares at the sales charge determined by that particular Statement until
     the plans' values reach the amounts specified in their Statements. Upon

                       Capital Income Builder -- Page 47
<PAGE>

     reaching such amounts, the Statements for these plans will be deemed
     completed and will terminate at that time. After such termination, these
     plans are eligible for additional sales charge reductions by meeting the
     criteria under the fund's rights of accumulation policy.

     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, individual
          403(b) plan (see exception in "Purchases by certain 403(b) plans"
          under "Sales charges") 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 (For trusts
          with only one primary beneficiary, upon the trustor's death the trust
          account may be aggregated with such beneficiary's own accounts; for
          trusts with multiple primary beneficiaries, upon the trustor's death
          the trustees of the trust may instruct American Funds Service Company
          to establish separate trust accounts for each primary beneficiary;
          each primary beneficiary's separate trust account may then be
          aggregated with such beneficiary's own accounts);

     .    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, excluding the
          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
          endowments or foundations established and controlled by such
          organizations, or any employer-sponsored retirement plans established
          for the benefit of the employees of such organizations, their
          endowments, or their foundations; or

     .    for individually established participant accounts of a 403(b) plan
          that is treated similarly to an employer-sponsored plan for sales
          charge purposes (see "Purchases by certain 403(b) plans" under "Sales
          charges" above), or made for two or more such 403(b) plans that are
          treated similarly to employer-sponsored plans for sales charge
          purposes of a single employer or affiliated employers as defined in
          the 1940 Act.

                       Capital Income Builder -- Page 48
<PAGE>

     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 your accumulated 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. Subject to your investment dealer's or
     recordkeeper's capabilities, your accumulated holdings will be calculated
     as the higher of (a) the current value of your existing holdings (the
     "market value") or (b) the amount you invested (including reinvested
     dividends and capital gains, but excluding capital appreciation) less any
     withdrawals (the "cost value"). Depending on the entity on whose books your
     account is held, the value of your holdings in that account may not be
     eligible for calculation at cost value. For example, the value of accounts
     held in nominee or street name are not eligible for calculation at cost
     value and instead will be calculated at market value for purposes of rights
     of accumulation.

     The value of all of your holdings in accounts established in calendar year
     2005 or earlier will be assigned an initial cost value equal to the market
     value of those holdings as of the last business day of 2005. Thereafter,
     the cost value of such accounts will increase or decrease according to
     actual investments or withdrawals. You must contact your financial adviser
     or American Funds Service Company if you have additional information that
     is relevant to the calculation of the value of your holdings.

     When determining your American Funds Class A sales charge, if you are not
     an employer-sponsored retirement plan, you may also take into account the
     market value (as of the end of the week prior to your American Funds
     investment) of your individual holdings in various American Legacy variable
     annuity contracts and variable life insurance policies. An
     employer-sponsored retirement plan may also take into account the market
     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 American Funds Class A 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

                       Capital Income Builder -- Page 49
<PAGE>

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).

     .    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.

                       Capital Income Builder -- Page 50
<PAGE>

                                 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.

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

                       Capital Income Builder -- Page 51
<PAGE>

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.

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

                       Capital Income Builder -- Page 52
<PAGE>

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 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 Class A shares
(but not Class 529-A shares) of American Funds money market funds. This can be
done 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
account application.

                       Capital Income Builder -- Page 53
<PAGE>

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.

                              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 $26,024,000 for Class A shares and
$2,558,000 for Class B shares for the 2005 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 Non-Interested
Directors 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

                       Capital Income Builder -- Page 54
<PAGE>

determination with respect to the independence of the fund's "independent legal
counsel" will be made at least annually by the Non-Interested 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 summary 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 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 alleged 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. 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 alleged
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. On November 22, 2005, the Los Angeles
Superior Court dismissed the Attorney General's complaint. The Attorney General
is appealing the Superior Court's decision to California's Court of Appeal for
the Second Appellate District.

                       Capital Income Builder -- Page 55
<PAGE>

The investment adviser and Principal Underwriter believe that the likelihood
that these matters could have a material adverse effect on the fund or on the
ability of the investment adviser or Principal Underwriter to perform their
contracts with the fund is remote. 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 class
action lawsuit has been filed in the U.S. District Court, Central District of
California, relating to these matters. Although most of the claims in the suit
were dismissed with prejudice, an amended complaint relating to management fees
has been filed. The investment adviser believes that this suit is without merit
and will defend itself vigorously. 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, 2005

Net asset value and redemption price per share
  (Net assets divided by shares outstanding). .                     $52.58
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). . . . . . . . . . . . . . . .                      $55.79

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

                                                                            FUND NUMBERS
                                                                 ------------------------------------
FUND                                                             CLASS A  CLASS B  CLASS C   CLASS F
-----------------------------------------------------------------------------------------------------

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

                       Capital Income Builder -- Page 56
<PAGE>

                                                 FUND NUMBERS
                                  ---------------------------------------------
                                   CLASS    CLASS    CLASS    CLASS     CLASS
FUND                               529-A    529-B    529-C    529-E     529-F
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund  . . . . . . . . . .    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

                       Capital Income Builder -- Page 57
<PAGE>

                                                    FUND NUMBERS
                                       ----------------------------------------
                                       CLASS   CLASS   CLASS   CLASS    CLASS
FUND                                    R-1     R-2     R-3     R-4      R-5
-------------------------------------------------------------------------------

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.

                       Capital Income Builder -- Page 58
<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 and Standard & Poor's Corporation.

                       Capital Income Builder -- Page 59
<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 60
<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 61
<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 62
```

| October                      31,                      2005                                                                                                                                       |   |   |                                             |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | Market                      value  |   |
| Common                      stocks                      — 66.46%                                                                                                                                |   |   | Shares                                           |   |   | (000 | ) |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| FINANCIALS—                      18.68%                                                                                                                                                         |   |   |                                             |   |   |   |   |
| Société                      Générale                                                                                                                                             |   |   | 4,189,400                                        |   | $      | 478,409 |   |
| Bank                      of                      America Corp.                                                                                                                                       |   |   | 10,489,460                                       |   |   | 458,809 |   |
| Washington                      Mutual, Inc.                                                                                                                                                          |   |   | 11,300,000                                       |   |   | 447,480 |   |
| HSBC                      Holdings                      PLC (United Kingdom)                                                                                                                          |   |   | 14,056,302                                       |   |   | 220,831 |   |
| HSBC                      Holdings                      PLC (Hong Kong)                                                                                                                               |   |   | 13,664,097                                       |   |   | 213,813 |   |
| Citigroup                      Inc.                                                                                                                                                                   |   |   | 9,025,000                                        |   |   | 413,165 |   |
| Westpac                      Banking Corp.                                                                                                                                                            |   |   | 24,916,988                                       |   |   | 386,220 |   |
| Fannie                      Mae                                                                                                                                                                       |   |   | 7,800,000                                        |   |   | 370,656 |   |
| Lloyds                      TSB                      Group PLC                                                                                                                                        |   |   | 39,486,400                                       |   |   | 322,568 |   |
| Fortis                                                                                                                                                                                                |   |   | 11,215,720                                       |   |   | 319,355 |   |
| Banco                      Santander Central Hispano, SA                                                                                                                                              |   |   | 21,507,614                                       |   |   | 274,357 |   |
| iStar                      Financial, Inc.1                                                                                                                                                           |   |   | 7,065,500                                        |   |   | 260,505 |   |
| Danske                      Bank                      A/S                                                                                                                                             |   |   | 7,041,000                                        |   |   | 220,912 |   |
| Irish                      Life                      & Permanent PLC                                                                                                                              |   |   | 12,474,949                                       |   |   | 219,856 |   |
| J.P.                      Morgan                      Chase & Co.                                                                                                                                 |   |   | 5,739,000                                        |   |   | 210,162 |   |
| Bank                      of Nova                      Scotia                                                                                                                                         |   |   | 5,647,200                                        |   |   | 205,531 |   |
| U.S.                      Bancorp                                                                                                                                                                     |   |   | 6,800,000                                        |   |   | 201,144 |   |
| Archstone-Smith                      Trust                                                                                                                                                            |   |   | 4,815,000                                        |   |   | 195,345 |   |
| ING                      Groep                      NV                                                                                                                                                |   |   | 6,739,729                                        |   |   | 194,330 |   |
| Wells                      Fargo                      & Co.                                                                                                                                       |   |   | 3,035,000                                        |   |   | 182,707 |   |
| Freddie                      Mac                                                                                                                                                                      |   |   | 2,959,300                                        |   |   | 181,553 |   |
| Cathay                      Financial Holding Co., Ltd.                                                                                                                                               |   |   | 101,987,000                                      |   |   | 179,571 |   |
| St.                      George                      Bank Ltd.                                                                                                                                        |   |   | 8,779,601                                        |   |   | 178,650 |   |
| Boston                      Properties, Inc.                                                                                                                                                          |   |   | 2,397,400                                        |   |   | 165,948 |   |
| Arthur                      J.                      Gallagher & Co.1                                                                                                                              |   |   | 5,069,200                                        |   |   | 149,136 |   |
| Royal                      Bank of                      Canada                                                                                                                                        |   |   | 2,090,000                                        |   |   | 147,443 |   |
| Regions                      Financial Corp.                                                                                                                                                          |   |   | 4,426,700                                        |   |   | 144,089 |   |
| Equity                      Residential                                                                                                                                                               |   |   | 3,550,500                                        |   |   | 139,357 |   |
| DnB                      NOR                      ASA                                                                                                                                                 |   |   | 12,870,000                                       |   |   | 131,670 |   |
| Banco                      Itaú                      Holding Financeira SA, preferred nominative                                                                                                 |   |   | 5,480,000                                        |   |   | 131,388 |   |
| Equity                      Office                      Properties Trust                                                                                                                              |   |   | 4,200,000                                        |   |   | 129,360 |   |
| Kimco                      Realty                      Corp.                                                                                                                                          |   |   | 4,116,600                                        |   |   | 121,934 |   |
| CapitaMall                      Trust Management Ltd.1                                                                                                                                                |   |   | 89,200,470                                       |   |   | 121,594 |   |
| AMB                      Property                      Corp.                                                                                                                                          |   |   | 2,675,000                                        |   |   | 118,181 |   |
| Developers                      Diversified Realty Corp.                                                                                                                                              |   |   | 2,670,000                                        |   |   | 116,626 |   |
| Westfield                      Group                                                                                                                                                                  |   |   | 8,911,830                                        |   |   | 110,575 |   |
| Westfield                      Group                                                                                                                                                                  |   |   | 114,617                                          |   |   | 1,408 |   |
| UBS                      AG                                                                                                                                                                           |   |   | 1,283,310                                        |   |   | 108,949 |   |
| Chinatrust                      Financial Holding Co., Ltd.                                                                                                                                           |   |   | 138,838,285                                      |   |   | 107,933 |   |
| Fidelity                      National Financial, Inc.                                                                                                                                                |   |   | 2,850,000                                        |   |   | 106,761 |   |
| UniCredito                      Italiano SpA                                                                                                                                                          |   |   | 19,080,000                                       |   |   | 106,552 |   |
| ABN                      AMRO                      Holding NV                                                                                                                                         |   |   | 4,485,768                                        |   |   | 106,108 |   |
| Marsh&                      McLennan Companies, Inc.                                                                                                                                              |   |   | 3,600,000                                        |   | $      | 104,940 |   |
| Weingarten                      Realty Investors                                                                                                                                                      |   |   | 2,634,750                                        |   |   | 93,692 |   |
| Health                      Care                      Property Investors, Inc.                                                                                                                        |   |   | 3,670,000                                        |   |   | 93,401 |   |
| Fubon                      Financial Holding Co., Ltd.                                                                                                                                                |   |   | 107,785,000                                      |   |   | 93,281 |   |
| Hongkong                      Land                      Holdings Ltd.                                                                                                                                 |   |   | 32,613,000                                       |   |   | 93,273 |   |
| FirstMerit                      Corp.                                                                                                                                                                 |   |   | 3,445,000                                        |   |   | 90,845 |   |
| Hang                      Lung                      Properties Ltd.                                                                                                                                   |   |   | 60,113,100                                       |   |   | 86,076 |   |
| Ascendas                      Real                      Estate Investment Trust1                                                                                                                      |   |   | 70,189,600                                       |   |   | 83,254 |   |
| ProLogis                                                                                                                                                                                              |   |   | 1,750,000                                        |   |   | 75,250 |   |
| United                      Bankshares, Inc.                                                                                                                                                          |   |   | 1,775,000                                        |   |   | 64,788 |   |
| KeyCorp                                                                                                                                                                                               |   |   | 1,860,000                                        |   |   | 59,966 |   |
| CapitaCommercial                      Trust Management Ltd.1                                                                                                                                          |   |   | 58,257,000                                       |   |   | 54,317 |   |
| Montpelier                      Re                      Holdings Ltd.                                                                                                                                 |   |   | 2,637,300                                        |   |   | 53,010 |   |
| St.                      Paul                      Travelers Companies, Inc.                                                                                                                          |   |   | 1,075,000                                        |   |   | 48,407 |   |
| Camden                      Property Trust                                                                                                                                                            |   |   | 850,000                                          |   |   | 47,897 |   |
| Aareal                      Bank                      AG2                                                                                                                                             |   |   | 1,480,000                                        |   |   | 45,211 |   |
| Wing                      Lung Bank                      Ltd.                                                                                                                                         |   |   | 6,307,600                                        |   |   | 45,159 |   |
| KBC                      Groupe                      SA                                                                                                                                               |   |   | 525,000                                          |   |   | 42,801 |   |
| XL                      Capital                      Ltd., Class A                                                                                                                                    |   |   | 642,800                                          |   |   | 41,178 |   |
| Comerica                      Inc.                                                                                                                                                                    |   |   | 700,000                                          |   |   | 40,446 |   |
| SunTrust                      Banks, Inc.                                                                                                                                                             |   |   | 550,000                                          |   |   | 39,864 |   |
| Fortune                      Real                      Estate Investment Trust1                                                                                                                       |   |   | 51,199,500                                       |   |   | 36,987 |   |
| Dah                      Sing                      Financial Holdings Ltd.                                                                                                                            |   |   | 5,476,400                                        |   |   | 33,274 |   |
| Bank                      of New                      York Co., Inc.                                                                                                                                  |   |   | 1,020,000                                        |   |   | 31,916 |   |
| Macquarie                      International Infrastructure Fund Ltd.1                                                                                                                                |   |   | 52,959,000                                       |   |   | 30,939 |   |
| Lincoln                      National Corp.                                                                                                                                                           |   |   | 541,500                                          |   |   | 27,405 |   |
| JCG                      Holdings                      Ltd.                                                                                                                                           |   |   | 26,009,000                                       |   |   | 25,835 |   |
| Mercury                      General Corp.                                                                                                                                                            |   |   | 400,000                                          |   |   | 24,180 |   |
| Independence                      Community Bank Corp.                                                                                                                                                |   |   | 571,600                                          |   |   | 22,607 |   |
| Mapletree                      Logistics Trust1,2                                                                                                                                                     |   |   | 35,510,000                                       |   |   | 21,584 |   |
| AmSouth                      Bancorporation                                                                                                                                                           |   |   | 750,000                                          |   |   | 18,922 |   |
| Singapore                      Exchange Ltd.                                                                                                                                                          |   |   | 11,800,000                                       |   |   | 18,801 |   |
| Shanghai                      Forte                      Land Co., Ltd., Class H                                                                                                                      |   |   | 57,180,000                                       |   |   | 17,519 |   |
| Wharf                      (Holdings) Ltd.                                                                                                                                                            |   |   | 4,680,000                                        |   |   | 15,968 |   |
| Suncorp-Metway                      Ltd.                                                                                                                                                              |   |   | 1,020,000                                        |   |   | 14,683 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 10,338,617 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| UTILITIES—                      10.39%                                                                                                                                                          |   |   |                                             |   |   |   |   |
| E.ON                      AG                                                                                                                                                                          |   |   | 9,579,700                                        |   |   | 868,274 |   |
| Exelon                      Corp.                                                                                                                                                                     |   |   | 11,470,000                                       |   |   | 596,784 |   |
| National                      Grid                      Transco PLC                                                                                                                                   |   |   | 52,477,551                                       |   |   | 479,265 |   |
| Scottish                      Power                      PLC                                                                                                                                          |   |   | 46,577,000                                       |   |   | 455,437 |   |
| Veolia                      Environnement                                                                                                                                                             |   |   | 10,306,100                                       |   |   | 429,123 |   |
| Southern                      Co.                                                                                                                                                                     |   |   | 11,500,000                                       |   |   | 402,385 |   |
| Gas                      Natural                      SDG, SA                                                                                                                                         |   |   | 10,120,000                                       |   |   | 276,265 |   |
| PPL                      Corp.                                                                                                                                                                        |   |   | 8,650,000                                        |   |   | 271,091 |   |
| FirstEnergy                      Corp.                                                                                                                                                                |   |   | 5,010,500                                        |   |   | 237,999 |   |
| Dominion                      Resources, Inc.                                                                                                                                                         |   |   | 3,019,490                                        |   |   | 229,723 |   |
| Public                      Service                      Enterprise Group Inc.                                                                                                                        |   |   | 2,386,300                                        |   |   | 150,074 |   |
| Edison                      International                                                                                                                                                             |   |   | 3,000,000                                        |   |   | 131,280 |   |
| NiSource                      Inc.                                                                                                                                                                    |   |   | 4,789,307                                        |   |   | 113,267 |   |
| Cheung                      Kong                      Infrastructure Holdings Ltd.                                                                                                                    |   |   | 36,022,000                                       |   |   | 111,989 |   |
| Xcel                      Energy                      Inc.                                                                                                                                            |   |   | 6,016,000                                        |   |   | 110,273 |   |
| Ameren                      Corp.                                                                                                                                                                     |   |   | 2,076,020                                        |   |   | 109,199 |   |
| FPL                      Group,                      Inc.                                                                                                                                             |   |   | 2,000,000                                        |   |   | 86,120 |   |
| Northeast                      Utilities                                                                                                                                                              |   |   | 4,645,000                                        |   |   | 84,493 |   |
| Consolidated                      Edison, Inc.                                                                                                                                                        |   |   | 1,650,000                                        |   |   | 75,075 |   |
| Progress                      Energy, Inc.                                                                                                                                                            |   |   | 1,700,000                                        |   |   | 74,103 |   |
| Equitable                      Resources, Inc.                                                                                                                                                        |   |   | 1,780,000                                        |   |   | 68,797 |   |
| Entergy                      Corp.                                                                                                                                                                    |   |   | 752,500                                          |   | $      | 53,217 |   |
| KeySpan                      Corp.                                                                                                                                                                    |   |   | 1,390,000                                        |   |   | 48,052 |   |
| DTE                      Energy                      Co.                                                                                                                                              |   |   | 1,000,000                                        |   |   | 43,200 |   |
| Scottish                      and                      Southern Energy PLC                                                                                                                            |   |   | 2,400,000                                        |   |   | 41,588 |   |
| Westar                      Energy,                      Inc.                                                                                                                                         |   |   | 1,800,000                                        |   |   | 39,780 |   |
| Duke                      Energy                      Corp.                                                                                                                                           |   |   | 1,400,000                                        |   |   | 37,072 |   |
| Pinnacle                      West                      Capital Corp.                                                                                                                                 |   |   | 800,000                                          |   |   | 33,408 |   |
| Cinergy                      Corp.                                                                                                                                                                    |   |   | 819,000                                          |   |   | 32,678 |   |
| Energy                      East                      Corp.                                                                                                                                           |   |   | 1,190,000                                        |   |   | 28,381 |   |
| United                      Utilities PLC                                                                                                                                                             |   |   | 1,666,666                                        |   |   | 18,375 |   |
| Hong                      Kong and                      China Gas Co. Ltd.                                                                                                                            |   |   | 7,800,000                                        |   |   | 16,099 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 5,752,866 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| TELECOMMUNICATION                      SERVICES — 9.31%                                                                                                                                         |   |   |                                             |   |   |   |   |
| SBC                      Communications Inc.                                                                                                                                                          |   |   | 28,771,000                                       |   |   | 686,188 |   |
| BellSouth                      Corp.                                                                                                                                                                  |   |   | 23,780,000                                       |   |   | 618,756 |   |
| Koninklijke                      KPN NV                                                                                                                                                               |   |   | 53,098,400                                       |   |   | 505,458 |   |
| Verizon                      Communications Inc.                                                                                                                                                      |   |   | 13,585,000                                       |   |   | 428,063 |   |
| Chunghwa                      Telecom Co., Ltd. (ADR)                                                                                                                                                 |   |   | 14,767,600                                       |   |   | 255,775 |   |
| Chunghwa                      Telecom Co., Ltd.                                                                                                                                                       |   |   | 78,348,000                                       |   |   | 132,805 |   |
| Vodafone                      Group                      PLC                                                                                                                                          |   |   | 121,701,000                                      |   |   | 319,022 |   |
| Vodafone                      Group                      PLC (ADR)                                                                                                                                    |   |   | 875,000                                          |   |   | 22,977 |   |
| KT                      Corp.                      (ADR)                                                                                                                                              |   |   | 12,637,420                                       |   |   | 272,336 |   |
| KT                      Corp.                                                                                                                                                                         |   |   | 270,720                                          |   |   | 10,870 |   |
| Deutsche                      Telekom AG                                                                                                                                                              |   |   | 15,310,000                                       |   |   | 270,739 |   |
| Telefónica,                      SA                                                                                                                                                              |   |   | 16,068,480                                       |   |   | 256,411 |   |
| France                      Télécom, SA                                                                                                                                                     |   |   | 8,770,000                                        |   |   | 227,951 |   |
| TDC                      A/S                                                                                                                                                                          |   |   | 3,996,834                                        |   |   | 223,827 |   |
| Belgacom                      SA                                                                                                                                                                      |   |   | 5,855,800                                        |   |   | 196,294 |   |
| BT                      Group                      PLC                                                                                                                                                |   |   | 50,600,000                                       |   |   | 190,573 |   |
| AT&T                      Corp.                                                                                                                                                                   |   |   | 8,130,000                                        |   |   | 160,811 |   |
| Telecom                      Corp.                      of New Zealand Ltd.                                                                                                                           |   |   | 39,363,919                                       |   |   | 160,484 |   |
| Advanced                      Info                      Service PCL                                                                                                                                   |   |   | 27,980,000                                       |   |   | 68,646 |   |
| Eircom                      Group                      PLC                                                                                                                                            |   |   | 27,132,800                                       |   |   | 65,059 |   |
| Perusahaan                      Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, Class                      B                                                                                     |   |   | 111,427,500                                      |   |   | 55,080 |   |
| Portugal                      Telecom, SGPS, SA                                                                                                                                                       |   |   | 2,983,200                                        |   |   | 26,967 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 5,155,092 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| CONSUMER                      STAPLES — 6.92%                                                                                                                                                   |   |   |                                             |   |   |   |   |
| Altria                      Group,                      Inc.                                                                                                                                          |   |   | 12,750,500                                       |   |   | 956,925 |   |
| ConAgra                      Foods,                      Inc.                                                                                                                                         |   |   | 17,110,000                                       |   |   | 398,150 |   |
| Nestlé                      SA                                                                                                                                                                   |   |   | 1,033,000                                        |   |   | 307,545 |   |
| H.J.                      Heinz                      Co.                                                                                                                                              |   |   | 7,880,000                                        |   |   | 279,740 |   |
| UST                      Inc.                                                                                                                                                                         |   |   | 6,575,000                                        |   |   | 272,139 |   |
| Reynolds                      American Inc.                                                                                                                                                           |   |   | 2,690,000                                        |   |   | 228,650 |   |
| Altadis,                      SA                                                                                                                                                                      |   |   | 4,654,995                                        |   |   | 197,563 |   |
| Gallaher                      Group                      PLC                                                                                                                                          |   |   | 11,980,292                                       |   |   | 185,886 |   |
| Diageo                      PLC                                                                                                                                                                       |   |   | 12,353,443                                       |   |   | 182,392 |   |
| Foster’s                      Group                      Ltd.                                                                                                                                   |   |   | 39,930,900                                       |   |   | 173,005 |   |
| Imperial                      Tobacco Group PLC                                                                                                                                                       |   |   | 5,790,000                                        |   |   | 165,854 |   |
| Sara                      Lee                      Corp.                                                                                                                                              |   |   | 7,200,000                                        |   |   | 128,520 |   |
| KT&G                      Corp.                                                                                                                                                                   |   |   | 2,050,000                                        |   |   | 83,886 |   |
| General                      Mills,                      Inc.                                                                                                                                         |   |   | 1,700,000                                        |   |   | 82,042 |   |
| Unilever                      NV                                                                                                                                                                      |   |   | 1,093,600                                        |   |   | 76,962 |   |
| Unilever                      PLC                                                                                                                                                                     |   |   | 4,500,000                                        |   |   | 45,593 |   |
| Lion                      Nathan                      Ltd.                                                                                                                                            |   |   | 4,431,066                                        |   |   | 26,116 |   |
| Wolverhampton                      & Dudley Breweries, PLC                                                                                                                                        |   |   | 1,066,255                                        |   |   | 21,738 |   |
| WD-40                      Co.                                                                                                                                                                        |   |   | 636,650                                          |   |   | 17,527 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 3,830,233 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| INDUSTRIALS—                      4.77%                                                                                                                                                         |   |   |                                             |   |   |   |   |
| General                      Electric Co.                                                                                                                                                             |   |   | 12,000,000                                       |   | $      | 406,920 |   |
| Abertis                      Infraestructuras SA                                                                                                                                                      |   |   | 9,268,021                                        |   |   | 253,341 |   |
| Macquarie                      Infrastructure Group                                                                                                                                                   |   |   | 68,202,140                                       |   |   | 174,748 |   |
| Sandvik                      AB                                                                                                                                                                       |   |   | 3,375,000                                        |   |   | 162,752 |   |
| Macquarie                      Airports                                                                                                                                                               |   |   | 44,982,621                                       |   |   | 100,806 |   |
| Macquarie                      Airports                                                                                                                                                               |   |   | 14,534,005                                       |   |   | 32,571 |   |
| GS                      Engineering                      & Construction Co., Ltd.1                                                                                                                |   |   | 2,550,000                                        |   |   | 109,356 |   |
| Qantas                      Airways                      Ltd.                                                                                                                                         |   |   | 40,322,741                                       |   |   | 103,014 |   |
| Emerson                      Electric Co.                                                                                                                                                             |   |   | 1,470,000                                        |   |   | 102,238 |   |
| Hubbell                      Inc.,                      Class B                                                                                                                                       |   |   | 1,910,000                                        |   |   | 91,986 |   |
| Kowloon                      Motor                      Bus Co. (1933) Ltd.                                                                                                                           |   |   | 15,914,000                                       |   |   | 90,739 |   |
| Hyundai                      Development Co.                                                                                                                                                          |   |   | 2,470,000                                        |   |   | 89,947 |   |
| Stagecoach                      Group PLC                                                                                                                                                             |   |   | 46,814,168                                       |   |   | 88,778 |   |
| Koninklijke                      BAM Groep NV                                                                                                                                                         |   |   | 1,054,138                                        |   |   | 85,560 |   |
| BRISA-Auto-Estradas                      de Portugal, SA                                                                                                                                              |   |   | 10,450,000                                       |   |   | 82,688 |   |
| Transurban                      Group1,2                                                                                                                                                              |   |   | 16,230,502                                       |   |   | 77,595 |   |
| Waste                      Management, Inc.                                                                                                                                                           |   |   | 2,600,000                                        |   |   | 76,726 |   |
| Singapore                      Technologies Engineering Ltd.                                                                                                                                          |   |   | 50,098,000                                       |   |   | 75,386 |   |
| Uponor                      Oyj                                                                                                                                                                       |   |   | 3,480,000                                        |   |   | 75,057 |   |
| Geberit                      AG                                                                                                                                                                       |   |   | 88,850                                           |   |   | 61,516 |   |
| Leighton                      Holdings Ltd.                                                                                                                                                           |   |   | 5,347,000                                        |   |   | 60,912 |   |
| ComfortDelGro                      Corp. Ltd.                                                                                                                                                         |   |   | 67,824,451                                       |   |   | 59,235 |   |
| Spirax-Sarco                      Engineering PLC                                                                                                                                                     |   |   | 3,336,391                                        |   |   | 46,605 |   |
| SMRT                      Corp.                      Ltd.                                                                                                                                             |   |   | 73,763,000                                       |   |   | 44,834 |   |
| Singapore                      Post                      Private Ltd.                                                                                                                                 |   |   | 44,060,000                                       |   |   | 29,640 |   |
| Fong’s                      Industries Co. Ltd.1                                                                                                                                                |   |   | 36,590,000                                       |   |   | 24,781 |   |
| Seco                      Tools AB,                      Class B                                                                                                                                      |   |   | 505,000                                          |   |   | 23,844 |   |
| KCI                      Konecranes                      International Corp.                                                                                                                          |   |   | 212,350                                          |   |   | 9,229 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 2,640,804 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| ENERGY—                      4.57%                                                                                                                                                              |   |   |                                             |   |   |   |   |
| Royal                      Dutch                      Shell PLC, Class A (ADR)                                                                                                                        |   |   | 6,828,000                                        |   |   | 423,609 |   |
| Royal                      Dutch                      Shell PLC, Class B                                                                                                                              |   |   | 6,997,187                                        |   |   | 228,024 |   |
| Royal                      Dutch                      Shell PLC, Class B (ADR)                                                                                                                        |   |   | 1,866,228                                        |   |   | 122,070 |   |
| Husky                      Energy                      Inc.                                                                                                                                           |   |   | 9,315,000                                        |   |   | 429,790 |   |
| ENI                      SpA                                                                                                                                                                          |   |   | 13,957,000                                       |   |   | 374,151 |   |
| TOTAL                      SA                      (ADR)                                                                                                                                              |   |   | 1,752,900                                        |   |   | 220,900 |   |
| TOTAL                      SA                                                                                                                                                                         |   |   | 375,000                                          |   |   | 94,144 |   |
| Repsol                      YPF,                      SA                                                                                                                                              |   |   | 5,856,000                                        |   |   | 174,395 |   |
| SBM                      Offshore                      NV1                                                                                                                                            |   |   | 2,083,797                                        |   |   | 161,138 |   |
| Kinder                      Morgan,                      Inc.                                                                                                                                         |   |   | 1,691,100                                        |   |   | 153,721 |   |
| Enbridge                      Inc.                                                                                                                                                                    |   |   | 3,523,468                                        |   |   | 107,416 |   |
| Marathon                      Oil                      Corp.                                                                                                                                          |   |   | 650,000                                          |   |   | 39,104 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 2,528,462 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MATERIALS—                      2.50%                                                                                                                                                           |   |   |                                             |   |   |   |   |
| Dow                      Chemical                      Co.                                                                                                                                            |   |   | 4,400,000                                        |   |   | 201,784 |   |
| UPM-Kymmene                      Corp.                                                                                                                                                                |   |   | 6,600,000                                        |   |   | 127,633 |   |
| Fletcher                      Building Ltd.                                                                                                                                                           |   |   | 21,176,596                                       |   |   | 116,249 |   |
| POSCO                                                                                                                                                                                                 |   |   | 495,000                                          |   |   | 100,328 |   |
| Lyondell                      Chemical Co.                                                                                                                                                            |   |   | 3,600,000                                        |   |   | 96,480 |   |
| Norske                      Skogindustrier ASA, Class A                                                                                                                                               |   |   | 6,582,142                                        |   |   | 93,922 |   |
| Akzo                      Nobel                      NV                                                                                                                                               |   |   | 2,135,000                                        |   |   | 92,122 |   |
| Worthington                      Industries, Inc.                                                                                                                                                     |   |   | 3,639,800                                        |   |   | 73,233 |   |
| PaperlinX                      Ltd.1                                                                                                                                                                  |   |   | 28,987,000                                       |   |   | 66,692 |   |
| Aracruz                      Celulose SA, Class B, preferred nominative (ADR)                                                                                                                         |   |   | 1,673,000                                        |   |   | 64,076 |   |
| Stora                      Enso                      Oyj, Class R                                                                                                                                     |   |   | 5,000,000                                        |   |   | 63,961 |   |
| RPM                      International, Inc.                                                                                                                                                          |   |   | 3,025,000                                        |   |   | 56,326 |   |
| Taiwan                      Fertilizer Co., Ltd.1                                                                                                                                                     |   |   | 49,000,000                                       |   |   | 47,378 |   |
| AngloGold                      Ashanti Ltd.                                                                                                                                                           |   |   | 987,000                                          |   | $      | 39,421 |   |
| Cía.                      Vale do                      Rio Doce, ordinary nominative (ADR)                                                                                                       |   |   | 800,000                                          |   |   | 33,064 |   |
| M-real                      Oyj,                      Class B                                                                                                                                         |   |   | 4,996,500                                        |   |   | 23,782 |   |
| Holmen                      AB,                      Class B                                                                                                                                          |   |   | 650,000                                          |   |   | 18,987 |   |
| Temple-Inland                      Inc.                                                                                                                                                               |   |   | 472,860                                          |   |   | 17,415 |   |
| Hung                      Hing                      Printing Group Ltd.                                                                                                                               |   |   | 29,024,000                                       |   |   | 17,223 |   |
| Boral                      Ltd.                                                                                                                                                                       |   |   | 2,864,235                                        |   |   | 16,218 |   |
| Compass                      Minerals International, Inc.                                                                                                                                             |   |   | 550,300                                          |   |   | 12,321 |   |
| MeadWestvaco                      Corp.                                                                                                                                                               |   |   | 200,000                                          |   |   | 5,244 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 1,383,859 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| CONSUMER                      DISCRETIONARY — 2.22%                                                                                                                                             |   |   |                                             |   |   |   |   |
| Kingfisher                      PLC                                                                                                                                                                   |   |   | 37,845,000                                       |   |   | 141,865 |   |
| Dixons                      Group                      PLC                                                                                                                                            |   |   | 54,809,561                                       |   |   | 139,556 |   |
| General                      Motors                      Corp.                                                                                                                                        |   |   | 4,950,000                                        |   |   | 135,630 |   |
| Rank                      Group                      PLC                                                                                                                                              |   |   | 20,200,000                                       |   |   | 105,724 |   |
| Accor                      SA                                                                                                                                                                         |   |   | 2,050,000                                        |   |   | 102,390 |   |
| Kesa                      Electricals PLC                                                                                                                                                             |   |   | 21,750,000                                       |   |   | 92,300 |   |
| Shangri-La                      Asia Ltd.                                                                                                                                                             |   |   | 60,472,000                                       |   |   | 84,640 |   |
| Hilton                      Group                      PLC                                                                                                                                            |   |   | 11,900,000                                       |   |   | 71,384 |   |
| Schibsted                      ASA                                                                                                                                                                    |   |   | 1,907,400                                        |   |   | 55,021 |   |
| Hyatt                      Regency                      SA                                                                                                                                            |   |   | 3,949,380                                        |   |   | 48,391 |   |
| Greene                      King                      PLC                                                                                                                                             |   |   | 3,927,110                                        |   |   | 43,920 |   |
| Harrah’s                      Entertainment, Inc.                                                                                                                                               |   |   | 725,000                                          |   |   | 43,848 |   |
| Intercontinental                      Hotels Group PLC                                                                                                                                                |   |   | 3,284,906                                        |   |   | 41,007 |   |
| Hyundai                      Motor                      Co., nonvoting preferred, Series 2                                                                                                            |   |   | 750,000                                          |   |   | 38,021 |   |
| ServiceMaster                      Co.                                                                                                                                                                |   |   | 2,729,200                                        |   |   | 34,333 |   |
| Ekornes                      ASA                                                                                                                                                                      |   |   | 1,455,425                                        |   |   | 26,422 |   |
| Fisher&                      Paykel Appliances Holdings Ltd.                                                                                                                                      |   |   | 10,600,000                                       |   |   | 23,868 |   |
| Pacifica                      Group                      Ltd.                                                                                                                                         |   |   | 887,670                                          |   |   | 1,247 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 1,229,567 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| HEALTH                      CARE —                      1.98%                                                                                                                                   |   |   |                                             |   |   |   |   |
| Bristol-Myers                      Squibb Co.                                                                                                                                                         |   |   | 16,500,000                                       |   |   | 349,305 |   |
| Merck&                      Co., Inc.                                                                                                                                                             |   |   | 10,500,000                                       |   |   | 296,310 |   |
| Sanofi-Aventis                                                                                                                                                                                        |   |   | 1,900,000                                        |   |   | 152,165 |   |
| Sonic                      Healthcare Ltd.                                                                                                                                                            |   |   | 13,348,349                                       |   |   | 145,380 |   |
| Fisher&                      Paykel Healthcare Corp. Ltd.1                                                                                                                                        |   |   | 33,061,000                                       |   |   | 80,225 |   |
| Cochlear                      Ltd.                                                                                                                                                                    |   |   | 2,480,600                                        |   |   | 70,377 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 1,093,762 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| INFORMATION                      TECHNOLOGY — 0.92%                                                                                                                                             |   |   |                                             |   |   |   |   |
| Microsoft                      Corp.                                                                                                                                                                  |   |   | 13,185,000                                       |   |   | 338,854 |   |
| Delta                      Electronics, Inc.                                                                                                                                                          |   |   | 57,181,382                                       |   |   | 96,414 |   |
| Taiwan                      Semiconductor Manufacturing Co. Ltd.                                                                                                                                      |   |   | 23,704,736                                       |   |   | 36,786 |   |
| Taiwan                      Semiconductor Manufacturing Co. Ltd. (ADR)                                                                                                                                |   |   | 1,910,396                                        |   |   | 15,436 |   |
| Rotork                      PLC                                                                                                                                                                       |   |   | 2,400,000                                        |   |   | 24,274 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 511,764 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MISCELLANEOUS                      — 4.20%                                                                                                                                                      |   |   |                                             |   |   |   |   |
| Other                      common                      stocks in initial period of acquisition                                                                                                        |   |   |                                             |   |   | 2,323,387 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Total                      common                      stocks (cost: $30,338,669,000)                                                                                                                 |   |   |                                             |   |   | 36,788,413 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | Market                      value  |   |
| Preferred                      stocks — 0.17%                                                                                                                                                   |   |   | Shares                                           |   |   | (000 | ) |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| FINANCIALS—                      0.10%                                                                                                                                                          |   |   |                                             |   |   |   |   |
| BNP                      Paribas                      Capital Trust 9.003% noncumulative trust preferred3,4                                                                                           |   |   | 22,500,000                                       |   | $      | 26,148 |   |
| Fannie                      Mae,                      Series O, 7.00% preferred3                                                                                                                      |   |   | 245,000                                          |   |   | 13,475 |   |
| iStar                      Financial, Inc., Series F, 7.80% cumulative redeemable                      preferred1                                                                                     |   |   | 400,000                                          |   |   | 10,160 |   |
| HSBC                      Capital                      Funding LP, Series 1, 9.547% noncumulative step-up perpetual                      preferred3,4                                                 |   |   | 4,000,000                                        |   |   | 4,694 |   |
| ING                      Capital                      Funding Trust III 8.439% noncumulative preferred4                                                                                               |   |   | 2,500,000                                        |   |   | 2,845 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 57,322 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MISCELLANEOUS                      — 0.07%                                                                                                                                                      |   |   |                                             |   |   |   |   |
| Other                      preferred stocks in initial period of acquisition                                                                                                                          |   |   |                                             |   |   | 37,198 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Total                      preferred stocks (cost: $94,986,000)                                                                                                                                       |   |   |                                             |   |   | 94,520 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Convertible                      securities — 0.93%                                                                                                                                             |   |   | Shares                        orprincipal amount |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| FINANCIALS—                      0.27%                                                                                                                                                          |   |   |                                             |   |   |   |   |
| Fannie                      Mae                      5.375% convertible preferred                                                                                                                     |   |   | 965                                              |   |   | 88,177 |   |
| UnumProvident                      Corp. 8.25% ACES convertible 2006                                                                                                                                  |   |   | 1,000,000                      units             |   |   | 39,300 |   |
| Chubb                      Corp.                      7.00% convertible preferred 2006                                                                                                                |   |   | 600,000                      units               |   |   | 20,178 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 147,655 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| CONSUMER                      DISCRETIONARY — 0.16%                                                                                                                                             |   |   |                                             |   |   |   |   |
| Ford                      Motor Co.                      Capital Trust II 6.50% cumulative convertible trust preferred                      2032                                                      |   |   | 2,473,600                                        |   |   | 78,883 |   |
| General                      Motors                      Corp., Series B, 5.25% convertible senior debentures 2032                                                                                    |   | $      | 17,500,000                                       |   |   | 11,550 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 90,433 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| UTILITIES—                      0.14%                                                                                                                                                           |   |   |                                             |   |   |   |   |
| PG&E                      Corp.                      9.50% convertible note 2010                                                                                                                  |   | $      | 28,000,000                                       |   |   | 76,300 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| HEALTH                      CARE —                      0.13%                                                                                                                                   |   |   |                                             |   |   |   |   |
| Schering-Plough                      Corp. 6.00% convertible preferred 2007                                                                                                                           |   |   | 1,000,000                                        |   |   | 52,720 |   |
| Baxter                      International Inc. 7.00% convertible preferred 2006                                                                                                                       |   |   | 400,000                      units               |   |   | 21,668 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 74,388 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MATERIALS—                      0.07%                                                                                                                                                           |   |   |                                             |   |   |   |   |
| Freeport-McMoRan                      Copper & Gold Inc. 5.50% convertible preferred3                                                                                                             |   |   | 35,000                                           |   |   | 38,771 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| CONSUMER                      STAPLES — 0.05%                                                                                                                                                   |   |   |                                             |   |   |   |   |
| Albertson’s,                      Inc. 7.25% convertible preferred 2007                                                                                                                         |   |   | 1,200,000                      units             |   |   | 29,040 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| TELECOMMUNICATION                      SERVICES — 0.03%                                                                                                                                         |   |   |                                             |   |   |   |   |
| Deutsche                      Telekom International Finance BV 6.50% convertible bonds                      2006                                                                                      |   |   | €12,000,000                                |   |   | 15,736 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| INDUSTRIALS—                      0.02%                                                                                                                                                         |   |   |                                             |   |   |   |   |
| Cummins                      Capital Trust I 7.00% QUIPS convertible preferred 20313                                                                                                                  |   |   | 100,000                                          |   |   | 9,069 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MISCELLANEOUS                      — 0.06%                                                                                                                                                      |   |   |                                             |   |   |   |   |
| Other                      convertible securities in initial period of acquisition                                                                                                                    |   |   |                                             |   |   | 30,855 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Total                      convertible securities (cost: $533,200,000)                                                                                                                                |   |   |                                             |   |   | 512,247 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   | Principal amount                            |   |   | Market                      value |   |
| Bonds&                      notes — 21.85%                                                                                                                                                  |   |   | (000                                             | )      |   | (000 | ) |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MORTGAGE-BACKED                      OBLIGATIONS5—                      5.47%                                                                                                                   |   |   |                                             |   |   |   |   |
| Fannie                      Mae                      4.89% 2012                                                                                                                                       |   | $      | 25,000                                           |   | $      | 24,624 |   |
| Fannie                      Mae                      4.00% 2015                                                                                                                                       |   |   | 75,108                                           |   |   | 71,936 |   |
| Fannie                      Mae                      11.00% 2015                                                                                                                                      |   |   | 705                                              |   |   | 804 |   |
| Fannie                      Mae                      6.00% 2016                                                                                                                                       |   |   | 1,062                                            |   |   | 1,087 |   |
| Fannie                      Mae                      7.00% 2016                                                                                                                                       |   |   | 141                                              |   |   | 147 |   |
| Fannie                      Mae                      11.00% 2016                                                                                                                                      |   |   | 361                                              |   |   | 414 |   |
| Fannie                      Mae                      5.00% 2017                                                                                                                                       |   |   | 260                                              |   |   | 257 |   |
| Fannie                      Mae                      6.00% 2017                                                                                                                                       |   |   | 14,309                                           |   |   | 14,644 |   |
| Fannie                      Mae                      6.00% 2017                                                                                                                                       |   |   | 3,499                                            |   |   | 3,580 |   |
| Fannie                      Mae                      6.00% 2017                                                                                                                                       |   |   | 2,266                                            |   |   | 2,319 |   |
| Fannie                      Mae                      6.00% 2017                                                                                                                                       |   |   | 1,769                                            |   |   | 1,810 |   |
| Fannie                      Mae                      6.00% 2017                                                                                                                                       |   |   | 683                                              |   |   | 699 |   |
| Fannie                      Mae                      6.00% 2017                                                                                                                                       |   |   | 410                                              |   |   | 420 |   |
| Fannie                      Mae                      5.00% 2018                                                                                                                                       |   |   | 42,730                                           |   |   | 42,226 |   |
| Fannie                      Mae                      5.00% 2018                                                                                                                                       |   |   | 2,725                                            |   |   | 2,693 |   |
| Fannie                      Mae                      11.00% 2018                                                                                                                                      |   |   | 818                                              |   |   | 943 |   |
| Fannie                      Mae                      5.50% 2019                                                                                                                                       |   |   | 37,222                                           |   |   | 37,502 |   |
| Fannie                      Mae                      11.00% 2020                                                                                                                                      |   |   | 351                                              |   |   | 393 |   |
| Fannie                      Mae                      10.50% 2022                                                                                                                                      |   |   | 735                                              |   |   | 824 |   |
| Fannie                      Mae,                      Series 2002-W3, Class A-5, 7.50% 2028                                                                                                           |   |   | 620                                              |   |   | 649 |   |
| Fannie                      Mae                      7.50% 2029                                                                                                                                       |   |   | 122                                              |   |   | 129 |   |
| Fannie                      Mae                      7.00% 2030                                                                                                                                       |   |   | 469                                              |   |   | 491 |   |
| Fannie                      Mae                      6.50% 2031                                                                                                                                       |   |   | 1,070                                            |   |   | 1,101 |   |
| Fannie                      Mae                      6.50% 2031                                                                                                                                       |   |   | 970                                              |   |   | 1,000 |   |
| Fannie                      Mae                      6.50% 2031                                                                                                                                       |   |   | 447                                              |   |   | 460 |   |
| Fannie                      Mae                      7.00% 2031                                                                                                                                       |   |   | 452                                              |   |   | 473 |   |
| Fannie                      Mae                      7.50% 2031                                                                                                                                       |   |   | 464                                              |   |   | 491 |   |
| Fannie                      Mae                      7.50% 2031                                                                                                                                       |   |   | 87                                               |   |   | 92 |   |
| Fannie                      Mae                      6.50% 2032                                                                                                                                       |   |   | 518                                              |   |   | 533 |   |
| Fannie                      Mae                      6.50% 2032                                                                                                                                       |   |   | 307                                              |   |   | 316 |   |
| Fannie                      Mae                      7.00% 2032                                                                                                                                       |   |   | 625                                              |   |   | 654 |   |
| Fannie                      Mae                      3.749% 20334                                                                                                                                     |   |   | 17,457                                           |   |   | 17,073 |   |
| Fannie                      Mae                      4.028% 20334                                                                                                                                     |   |   | 3,224                                            |   |   | 3,173 |   |
| Fannie                      Mae                      4.179% 20334                                                                                                                                     |   |   | 3,906                                            |   |   | 3,857 |   |
| Fannie                      Mae                      6.00% 2033                                                                                                                                       |   |   | 391                                              |   |   | 394 |   |
| Fannie                      Mae                      6.50% 2033                                                                                                                                       |   |   | 6,706                                            |   |   | 6,899 |   |
| Fannie                      Mae                      5.50% 2034                                                                                                                                       |   |   | 26,915                                           |   |   | 26,562 |   |
| Fannie                      Mae                      5.50% 2034                                                                                                                                       |   |   | 25,018                                           |   |   | 24,702 |   |
| Fannie                      Mae                      5.50% 2034                                                                                                                                       |   |   | 13,167                                           |   |   | 12,994 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 65,981                                           |   |   | 66,581 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 10,125                                           |   |   | 10,217 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 7,107                                            |   |   | 7,171 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 4,428                                            |   |   | 4,469 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 4,094                                            |   |   | 4,132 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 3,724                                            |   |   | 3,758 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 3,706                                            |   |   | 3,739 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 3,469                                            |   |   | 3,501 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 3,236                                            |   |   | 3,266 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 3,195                                            |   |   | 3,224 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 3,029                                            |   |   | 3,057 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 2,979                                            |   |   | 3,006 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 2,670                                            |   |   | 2,695 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 2,134                                            |   |   | 2,157 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 1,214                                            |   |   | 1,225 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 977                                              |   |   | 986 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 194                                              |   |   | 196 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   |   | 193                                              |   |   | 194 |   |
| Fannie                      Mae                      6.00% 2034                                                                                                                                       |   | $      | 83                                               |   | $      | 84 |   |
| Fannie                      Mae                      6.50% 2034                                                                                                                                       |   |   | 10,913                                           |   |   | 11,226 |   |
| Fannie                      Mae                      4.50% 20354                                                                                                                                      |   |   | 11,921                                           |   |   | 11,730 |   |
| Fannie                      Mae                      5.00% 2035                                                                                                                                       |   |   | 13,976                                           |   |   | 13,454 |   |
| Fannie                      Mae                      5.00% 2035                                                                                                                                       |   |   | 6,270                                            |   |   | 6,036 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 152,555                                          |   |   | 150,558 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 99,346                                           |   |   | 98,046 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 50,000                                           |   |   | 49,317 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 21,391                                           |   |   | 21,111 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 19,275                                           |   |   | 19,022 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 17,000                                           |   |   | 16,777 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 15,000                                           |   |   | 14,936 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 14,973                                           |   |   | 14,777 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 14,052                                           |   |   | 13,868 |   |
| Fannie                      Mae                      5.50% 2035                                                                                                                                       |   |   | 11,962                                           |   |   | 11,805 |   |
| Fannie                      Mae,                      Series 2003-W10, Class 1A-2B, 3.112% 2037                                                                                                       |   |   | 4,043                                            |   |   | 4,023 |   |
| Fannie                      Mae,                      Series 2001-50, Class BA, 7.00% 2041                                                                                                            |   |   | 723                                              |   |   | 761 |   |
| Countrywide                      Alternative Loan Trust, Series 2004-28CB, Class 7-A-1, 5.00%                      2020                                                                               |   |   | 9,184                                            |   |   | 8,960 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-9CB, Class 2-A-1, 6.00%                      2020                                                                                |   |   | 9,585                                            |   |   | 9,662 |   |
| Countrywide                      Alternative Loan Trust, Series 2004-14T2, Class A-6, 5.50%                      2034                                                                                 |   |   | 5,787                                            |   |   | 5,759 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-62, Class 2-A-1, 4.163%                      20354                                                                               |   |   | 50,000                                           |   |   | 50,000 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-46CB, Class A-8, 5.50%                      2035                                                                                 |   |   | 83,352                                           |   |   | 83,348 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-49CB, Class A-1, 5.50%                      2035                                                                                 |   |   | 39,945                                           |   |   | 39,845 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-13CB, Class A-3, 5.50%                      2035                                                                                 |   |   | 20,768                                           |   |   | 20,682 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50%                      2035                                                                               |   |   | 20,000                                           |   |   | 20,018 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-21CB, Class A-9, 5.50%                      2035                                                                                 |   |   | 9,538                                            |   |   | 9,530 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-54CB, Class 4-P-4, 5.50%                      2035                                                                               |   |   | 3,000                                            |   |   | 3,003 |   |
| Countrywide                      Alternative Loan Trust, Series 2004-28CB, Class 5-A-1, 5.75%                      2035                                                                               |   |   | 6,949                                            |   |   | 6,879 |   |
| Countrywide                      Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00%                      2035                                                                                |   |   | 42,148                                           |   |   | 42,290 |   |
| Countrywide                      Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00%                      2035                                                                               |   |   | 34,037                                           |   |   | 34,062 |   |
| Countrywide                      Alternative Loan Trust, Series 2004-28CB, Class 6-A-1, 6.00%                      2035                                                                               |   |   | 3,098                                            |   |   | 3,100 |   |
| Freddie                      Mac                      4.00% 2015                                                                                                                                      |   |   | 88,160                                           |   |   | 83,635 |   |
| Freddie                      Mac                      6.00% 2017                                                                                                                                      |   |   | 660                                              |   |   | 674 |   |
| Freddie                      Mac                      4.50% 2018                                                                                                                                      |   |   | 7,411                                            |   |   | 7,183 |   |
| Freddie                      Mac                      5.00% 2018                                                                                                                                      |   |   | 14,914                                           |   |   | 14,737 |   |
| Freddie                      Mac                      6.50% 2032                                                                                                                                      |   |   | 6,880                                            |   |   | 7,069 |   |
| Freddie                      Mac                      7.50% 2032                                                                                                                                      |   |   | 3,488                                            |   |   | 3,692 |   |
| Freddie                      Mac                      6.00% 2033                                                                                                                                      |   |   | 2,145                                            |   |   | 2,167 |   |
| Freddie                      Mac                      6.00% 2034                                                                                                                                      |   |   | 11,649                                           |   |   | 11,770 |   |
| Freddie                      Mac                      6.00% 2034                                                                                                                                      |   |   | 8,714                                            |   |   | 8,804 |   |
| Freddie                      Mac                      6.00% 2034                                                                                                                                      |   |   | 7,485                                            |   |   | 7,562 |   |
| Freddie                      Mac                      4.648% 20354                                                                                                                                    |   |   | 29,052                                           |   |   | 28,594 |   |
| Freddie                      Mac                      4.789% 20354                                                                                                                                    |   |   | 31,767                                           |   |   | 31,365 |   |
| Freddie                      Mac,                      Series 3061, Class PN, 5.50% 2035                                                                                                              |   |   | 30,000                                           |   |   | 29,916 |   |
| Freddie                      Mac                      6.00% 2035                                                                                                                                      |   |   | 19,945                                           |   |   | 20,152 |   |
| Freddie                      Mac                      6.00% 2035                                                                                                                                      |   |   | 9,078                                            |   |   | 9,172 |   |
| Freddie                      Mac                      6.00% 2035                                                                                                                                      |   |   | 1,272                                            |   |   | 1,286 |   |
| Freddie                      Mac,                      Series T-056, Class A-2A, 2.842% 2036                                                                                                          |   |   | 140                                              |   |   | 140 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2004-HC1, Class A-1,                      4.37%                      20213,4                              |   |   | 17,288                                           |   |   | 17,288 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1,                      7.50%                      2032                                |   |   | 5,048                                            |   |   | 5,088 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1,                      7.50%                      2032                                |   |   | 2,213                                            |   |   | 2,234 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1,                      6.50%                      2033                                |   |   | 2,585                                            |   |   | 2,638 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1,                      7.00%                      2033                                |   |   | 6,614                                            |   |   | 6,775 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2004-AR8, Class 2-A-1,                      4.637%                      20344                             |   |   | 11,086                                           |   |   | 10,808 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2003-AR30, Class II-A-1,                      4.691%                      20344                           |   |   | 27,072                                           |   |   | 26,731 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2004-AR1, Class II-A-1,                      4.705%                      20344                            |   |   | 12,604                                           |   |   | 12,442 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3,                      6.238%                      2034                                |   |   | 10,177                                           |   |   | 10,419 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2001-CK3, Class A-4,                      6.53%                      2034                                 |   | $      | 2,790                                            |   | $      | 2,969 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2005-6, Class VI-A-1,                      6.00%                      2035                                |   |   | 8,730                                            |   |   | 8,765 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3,                      6.38%                      2035                                 |   |   | 48,000                                           |   |   | 50,337 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2002-CKP1, Class G,                      7.165%                      20353                                |   |   | 1,435                                            |   |   | 1,558 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2002-CKS4, 4.485%                      2036                                                               |   |   | 5,361                                            |   |   | 5,264 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 2004-C4, Class A-1,                      3.466%                      2039                                 |   |   | 13,788                                           |   |   | 13,430 |   |
| CS                      First                      Boston Mortgage Securities Corp., Series 1998-C1, Class C,                      6.78%                      2040                                    |   |   | 6,550                                            |   |   | 6,891 |   |
| CHL                      Mortgage                      Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.842% 20334                                                                                  |   |   | 11,919                                           |   |   | 11,841 |   |
| CHL                      Mortgage                      Pass-Through Trust, Series 2004-7, Class 3-A-1, 4.072% 20344                                                                                   |   |   | 8,012                                            |   |   | 7,794 |   |
| CHL                      Mortgage                      Pass-Through Trust, Series 2004-12, Class 12-A-1, 4.823% 20344                                                                                 |   |   | 6,260                                            |   |   | 6,183 |   |
| CHL                      Mortgage                      Pass-Through Trust, Series 2004-HYB6, Class A-3, 5.206% 20344                                                                                  |   |   | 6,257                                            |   |   | 6,239 |   |
| CHL                      Mortgage                      Pass-Through Trust, Series 2005-12, Class 2-A-5, 5.50%                      2035                                                               |   |   | 13,684                                           |   |   | 13,539 |   |
| CHL                      Mortgage                      Pass-Through Trust, Series 2005-HYB8, Class II-A-4, 5.90%                      2036                                                            |   |   | 79,860                                           |   |   | 79,764 |   |
| Residential                      Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00%                      2019                                                                                    |   |   | 7,957                                            |   |   | 7,795 |   |
| Residential                      Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50%                      2034                                                                                 |   |   | 78,216                                           |   |   | 77,701 |   |
| Residential                      Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034                                                                                                           |   |   | 19,552                                           |   |   | 19,573 |   |
| Residential                      Accredit Loans, Inc., Series 2004-QS12, Class M-1, 6.00%                      2034                                                                                   |   |   | 1,480                                            |   |   | 1,476 |   |
| Bear                      Stearns                      ARM Trust, Series 2003-6, Class I-A-2, 4.004% 20334                                                                                            |   |   | 6,093                                            |   |   | 5,963 |   |
| Bear                      Stearns                      ARM Trust, Series 2004-1, Class I-2-A-5, 4.424% 20344                                                                                          |   |   | 9,555                                            |   |   | 9,382 |   |
| Bear                      Stearns                      ARM Trust, Series 2003-9, Class III-A-2, 4.993% 20344                                                                                          |   |   | 11,215                                           |   |   | 11,095 |   |
| Bear                      Stearns                      ARM Trust, Series 2003-8, Class III-A, 5.153% 20344                                                                                            |   |   | 15,062                                           |   |   | 14,978 |   |
| Bear                      Stearns                      ARM Trust, Series 2005-10, Class A-3, 4.65% 20354                                                                                              |   |   | 50,000                                           |   |   | 48,740 |   |
| Bear                      Stearns                      Commercial Mortgage Securities Inc., Series 1999-WF2, Class                      A-1, 6.80%                      2031                          |   |   | 9,362                                            |   |   | 9,532 |   |
| Bear                      Stearns                      Commercial Mortgage Securities Inc., Series 2002-PBW1, Class                      A-1, 3.97%                      2035                         |   |   | 56,351                                           |   |   | 54,882 |   |
| Bear                      Stearns                      Commercial Mortgage Securities Inc., Series 2005-PWR9, Class                      A-AB, 4.804%                      2042                       |   |   | 26,000                                           |   |   | 25,357 |   |
| WaMu                      Mortgage                      Pass-Through Certificates Trust, Series 2004-CB2, Class VII-A,                      5.50%                      2019                           |   |   | 12,229                                           |   |   | 12,121 |   |
| WaMu                      Mortgage                      Pass-Through Certificates Trust, Series 2003-AR7, Class A-7,                      3.842%                      20334                           |   |   | 5,644                                            |   |   | 5,519 |   |
| WaMu                      Mortgage                      Pass-Through Certificates Trust, Series 2003-AR8, Class A,                      4.03%                      20334                              |   |   | 4,976                                            |   |   | 4,952 |   |
| WaMu                      Mortgage                      Pass-Through Certificates Trust, Series 2003-AR6, Class A-1,                      4.35%                      20334                            |   |   | 4,359                                            |   |   | 4,284 |   |
| WaMu                      Mortgage                      Pass-Through Certificates Trust, Series 2004-AR11, Class A,                      4.60%                      20344                             |   |   | 5,804                                            |   |   | 5,695 |   |
| WaMu                      Mortgage                      Pass-Through Certificates Trust, Series 2005-AR15, Class A-1-A,                      4.34%                      2045                          |   |   | 35,456                                           |   |   | 35,456 |   |
| Crown                      Castle                      Towers LLC, Series 2005-1, Class A-FX, 4.643% 20353                                                                                            |   |   | 26,000                                           |   |   | 25,300 |   |
| Crown                      Castle                      Towers LLC, Series 2005-1, Class C, 5.074% 20353                                                                                               |   |   | 13,620                                           |   |   | 13,267 |   |
| Crown                      Castle                      Towers LLC, Series 2005-1, Class D, 5.612% 20353                                                                                               |   |   | 20,000                                           |   |   | 19,552 |   |
| Bear                      Stearns                      ALT-A Trust, Series 2005-9, Class II-6A-1, 5.903% 20354                                                                                        |   |   | 53,122                                           |   |   | 53,367 |   |
| GE                      Capital                      Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079%                      2033                                                            |   |   | 11,605                                           |   |   | 11,842 |   |
| GE                      Capital                      Commercial Mortgage Corp., Series 2001-1, Class A-2, 6.531%                      2033                                                            |   |   | 22,230                                           |   |   | 23,633 |   |
| GE                      Capital                      Commercial Mortgage Corp., Series 2001-3, Class A-2, 6.07%                      2038                                                             |   |   | 13,250                                           |   |   | 13,852 |   |
| Residential                      Asset Securitization Trust, Series 2005-A8CB, Class A-11, 6.00%                      2035                                                                            |   |   | 43,400                                           |   |   | 43,435 |   |
| Residential                      Asset Securitization Trust, Series 2005-A6CB, Class A-7, 6.00%                      2035                                                                             |   |   | 4,744                                            |   |   | 4,783 |   |
| Government                      National Mortgage Assn. 6.50% 2034                                                                                                                                    |   |   | 812                                              |   |   | 845 |   |
| Government                      National Mortgage Assn. 4.00% 20354                                                                                                                                   |   |   | 29,460                                           |   |   | 28,795 |   |
| Government                      National Mortgage Assn. 4.00% 20354                                                                                                                                   |   |   | 9,077                                            |   |   | 8,852 |   |
| Government                      National Mortgage Assn. 4.00% 20354                                                                                                                                   |   |   | 8,958                                            |   |   | 8,736 |   |
| Mastr                      Alternative Loan Trust, Series 2003-2, Class 6-A-1, 6.00%                      2033                                                                                        |   |   | 1,208                                            |   |   | 1,210 |   |
| Mastr                      Alternative Loan Trust, Series 2004-2, Class 2-A-1, 6.00%                      2034                                                                                        |   |   | 2,521                                            |   |   | 2,523 |   |
| Mastr                      Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50%                      2035                                                                                        |   |   | 10,087                                           |   |   | 10,006 |   |
| Mastr                      Alternative Loan Trust, Series 2005-1, Class 1-A-1, 5.50%                      2035                                                                                        |   |   | 5,244                                            |   |   | 5,239 |   |
| Mastr                      Alternative Loan Trust, Series 2005-3, Class 2-A-1, 6.00%                      2035                                                                                        |   |   | 11,219                                           |   |   | 11,288 |   |
| Mastr                      Alternative Loan Trust, Series 2005-3, Class 3-A-1, 6.50%                      2035                                                                                        |   |   | 13,211                                           |   |   | 13,481 |   |
| J.P.                      Morgan                      Mortgage Trust, Series 2005-A4, Class 3-A-1, 5.192% 20354                                                                                       |   |   | 44,031                                           |   |   | 43,547 |   |
| Citigroup                      Mortgage Loan Trust Inc., Series 2004-HYB1, Class A-3-1, 4.55%                      20344                                                                              |   |   | 38,923                                           |   |   | 38,226 |   |
| Morgan                      Stanley                      Mortgage Trust, Series 2004-3, Class 4-A, 5.702% 20344                                                                                       |   |   | 29,907                                           |   |   | 29,705 |   |
| Morgan                      Stanley                      Mortgage Trust, Series 2004-3, Class 3-A, 6.00% 2034                                                                                         |   |   | 8,405                                            |   |   | 8,412 |   |
| GMAC                      Commercial Mortgage Securities, Inc., Series 1998-C1, Class                      D, 6.974%                      2030                                                        |   |   | 15,595                                           |   |   | 16,215 |   |
| GMAC                      Commercial Mortgage Securities, Inc., Series 2001-C2, Class                      A-1, 6.25%                      2034                                                       |   |   | 16,187                                           |   |   | 16,552 |   |
| GMAC                      Commercial Mortgage Securities, Inc., Series 2001-C2, Class                      A-2, 6.70%                      2034                                                       |   |   | 4,614                                            |   |   | 4,936 |   |
| PNC                      Mortgage                      Acceptance Corp., Series 2001-C1, Class A-2, 6.36% 2034                                                                                        |   | $      | 28,625                                           |   | $      | 30,173 |   |
| Banc                      of                      America Commercial Mortgage Inc., Series 2002-PB2, Class A-2,                      5.676%                      2035                                 |   |   | 12,494                                           |   |   | 12,643 |   |
| Banc                      of                      America Commercial Mortgage Inc., Series 2004-5, Class A-1,                      3.812%                      2041                                   |   |   | 11,349                                           |   |   | 11,091 |   |
| Banc                      of                      America Commercial Mortgage Inc., Series 2002-2, Class A-1,                      3.366%                      2043                                   |   |   | 5,628                                            |   |   | 5,555 |   |
| Bank                      of                      America, NA and First Union National Bank Commercial Mortgage                      Trust,                      Series 2001-3, Class A-1, 4.89% 2037 |   |   | 25,062                                           |   |   | 25,041 |   |
| Meristar                      Commercial Mortgage Trust, Series 1999-C1, Class B, 7.90% 20163                                                                                                         |   |   | 7,750                                            |   |   | 8,462 |   |
| Meristar                      Commercial Mortgage Trust, Series 1999-C1, Class C, 8.29% 20163                                                                                                         |   |   | 13,900                                           |   |   | 15,583 |   |
| Structured                      Asset Securities Corp., Series 1998-RF2, Class A, 8.556% 20273,4                                                                                                      |   |   | 2,411                                            |   |   | 2,451 |   |
| Structured                      Asset Securities Corp., Series 2005-6, Class 5-A-4, 5.00%                      2035                                                                                   |   |   | 14,636                                           |   |   | 13,850 |   |
| Structured                      Asset Securities Corp., Series 2005-6, Class 5-A-9, 5.00%                      2035                                                                                   |   |   | 7,765                                            |   |   | 7,608 |   |
| Salomon                      Brothers Commercial Mortgage Trust, Series 2001-C2, Class A-1,                      4.482%                      2006                                                     |   |   | 4,027                                            |   |   | 4,022 |   |
| Salomon                      Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1,                      7.46%                      2008                                                      |   |   | 11,127                                           |   |   | 11,480 |   |
| Salomon                      Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-2,                      6.226%                      2035                                                     |   |   | 7,786                                            |   |   | 7,893 |   |
| Morgan                      Stanley                      Capital I, Inc., Series 2003-KIDS, Class B, 4.996% 20163,4                                                                                   |   |   | 23,000                                           |   |   | 23,089 |   |
| Banc                      of                      America Funding Corp., Series 2005-H, Class 9-A-1, 6.018% 20354                                                                                     |   |   | 20,000                                           |   |   | 20,106 |   |
| J.P.                      Morgan                      Chase Commercial Mortgage Securities Corp., Series 2001-C1,                      Class F,                      6.847% 20353,4                   |   |   | 2,000                                            |   |   | 2,138 |   |
| J.P.                      Morgan                      Chase Commercial Mortgage Securities Corp., Series 2003-ML1,                      Class A-1,                      3.972% 2039                   |   |   | 18,227                                           |   |   | 17,607 |   |
| Washington                      Mutual Securities Corp., WMALT Series 2005-1, Class 5-A-1,                      6.00%                      2020                                                       |   |   | 16,794                                           |   |   | 16,937 |   |
| Washington                      Mutual Securities Corp., WMALT Series 2005-1, Class 6-A-1,                      6.50%                      2020                                                       |   |   | 2,092                                            |   |   | 2,120 |   |
| Chase                      Commercial Mortgage Securities Corp., Series 2000-2, Class                      A-1, 7.543%                      2032                                                      |   |   | 9,935                                            |   |   | 10,442 |   |
| Chase                      Commercial Mortgage Securities Corp., Series 2000-1, Class                      A-2, 7.757%                      2032                                                      |   |   | 7,052                                            |   |   | 7,594 |   |
| Residential                      Asset Mortgage Products Trust, Series 2003-RZ3, Class A-6,                      3.40%                      2033                                                      |   |   | 2,000                                            |   |   | 1,898 |   |
| Residential                      Asset Mortgage Products Trust, Series 2004-RS12, Class A-I-6,                      4.547%                      2034                                                  |   |   | 9,000                                            |   |   | 8,686 |   |
| Residential                      Asset Mortgage Products Trust, Series 2004-RS12, Class M-I-1,                      5.186%                      2034                                                  |   |   | 6,000                                            |   |   | 5,878 |   |
| Morgan                      Stanley                      Dean Witter Capital I Trust, Series 2001-TOP5, Class A-1, 5.02%                      2035                                                    |   |   | 5,482                                            |   |   | 5,485 |   |
| Morgan                      Stanley                      Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98%                      2036                                                    |   |   | 10,724                                           |   |   | 10,339 |   |
| Structured                      Adjustable Rate Mortgage Loan Trust, Series 2005-22, Class                      5-A-1, 6.07%                      20354                                               |   |   | 15,000                                           |   |   | 15,127 |   |
| First                      Horizon                      Alternative Mortgage Securities Trust, Series 2005-FA8, Class                      I-A-14,                      5.50% 2035                    |   |   | 14,873                                           |   |   | 14,859 |   |
| Commercial                      Mortgage Trust, Series 2000-C1, Class A-1, 7.206% 2033                                                                                                                |   |   | 12,285                                           |   |   | 12,467 |   |
| Banc                      of                      America Alternative Loan Trust, Series 2005-6, Class 2-CB-2,                      6.00%                      2035                                   |   |   | 12,251                                           |   |   | 12,345 |   |
| GSR                      Mortgage                      Loan Trust, Series 2005-AR1, Class 2-A-1, 4.969% 20354                                                                                         |   |   | 12,086                                           |   |   | 11,961 |   |
| Banc                      of                      America Mortgage Securities Trust, Series 2003-G, Class 2-A-1,                      4.088%                      20334                               |   |   | 8,049                                            |   |   | 7,962 |   |
| Banc                      of                      America Mortgage Securities Trust, Series 2004-B, Class 1-A-1,                      3.405%                      20344                               |   |   | 3,577                                            |   |   | 3,518 |   |
| Hilton                      Hotel                      Pool Trust, Series 2000-HLTA, Class C, 7.458% 20153                                                                                            |   |   | 10,000                                           |   |   | 10,805 |   |
| LB-UBS                      Commercial Mortgage Trust, Series 2002-C1, Class A-3, 6.226%                      2026                                                                                    |   |   | 9,765                                            |   |   | 10,142 |   |
| Wells                      Fargo                      Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6,                      4.11%                      20354                         |   |   | 10,000                                           |   |   | 9,657 |   |
| Host                      Marriott                      Pool Trust, Series 1999-HMTA, Class A, 6.98% 20153                                                                                            |   |   | 7,815                                            |   |   | 8,112 |   |
| RAAC                      Mortgage                      Loan Asset-backed Trust, Series 2004-SP3, Class A-I-5, 4.8902%                      2032                                                      |   |   | 5,000                                            |   |   | 4,796 |   |
| First                      Union                      National Bank Commercial Mortgage Trust, Series 2002-C1, Class                      G, 7.188%                      20343,4                      |   |   | 2,000                                            |   |   | 2,163 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 3,028,708 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| FINANCIALS—                      3.61%                                                                                                                                                          |   |   |                                             |   |   |   |   |
| USA                      Education,                      Inc. 5.625% 2007                                                                                                                             |   |   | 40,000                                           |   |   | 40,436 |   |
| SLM                      Corp.,                      Series A, 3.625% 2008                                                                                                                            |   |   | 10,000                                           |   |   | 9,740 |   |
| SLM                      Corp.,                      Series A, 4.00% 2009                                                                                                                             |   |   | 10,000                                           |   |   | 9,712 |   |
| SLM                      Corp.,                      Series A, 4.34% 20094                                                                                                                            |   |   | 20,000                                           |   |   | 19,999 |   |
| SLM                      Corp.,                      Series A, 4.37% 2009                                                                                                                             |   |   | 10,000                                           |   |   | 9,793 |   |
| SLM                      Corp.,                      Series A, 4.50% 2010                                                                                                                             |   |   | 51,000                                           |   |   | 49,815 |   |
| SLM                      Corp.,                      Series A, 5.375% 2014                                                                                                                            |   |   | 10,000                                           |   |   | 10,094 |   |
| ASIF                      Global                      Financing XXVIII 3.75% 20073,4                                                                                                                  |   |   | 7,000                                            |   |   | 7,006 |   |
| ASIF                      Global                      Financing XXIII 3.90% 20083                                                                                                                     |   |   | 13,605                                           |   |   | 13,207 |   |
| ASIF                      Global                      Financing XIX 4.90% 20133                                                                                                                       |   |   | 4,000                                            |   |   | 3,945 |   |
| AIG                      SunAmerica                      Global Financing VII 5.85% 20083                                                                                                             |   |   | 7,500                                            |   |   | 7,676 |   |
| International                      Lease Finance Corp., Series P, 3.125% 2007                                                                                                                         |   |   | 5,000                                            |   |   | 4,872 |   |
| International                      Lease Finance Corp. 4.35% 2008                                                                                                                                     |   |   | 28,500                                           |   |   | 27,956 |   |
| International                      Lease Finance Corp. 4.50% 2008                                                                                                                                     |   |   | 17,000                                           |   |   | 16,770 |   |
| International                      Lease Finance Corp. 3.50% 2009                                                                                                                                     |   |   | 2,000                                            |   |   | 1,896 |   |
| International                      Lease Finance Corp., Series O, 4.55% 2009                                                                                                                          |   | $      | 4,600                                            |   | $      | 4,541 |   |
| International                      Lease Finance Corp. 4.75% 2009                                                                                                                                     |   |   | 3,000                                            |   |   | 2,949 |   |
| International                      Lease Finance Corp. 6.375% 2009                                                                                                                                    |   |   | 15,000                                           |   |   | 15,589 |   |
| International                      Lease Finance Corp. 5.00% 2010                                                                                                                                     |   |   | 6,560                                            |   |   | 6,516 |   |
| International                      Lease Finance Corp. 5.00% 2012                                                                                                                                     |   |   | 10,000                                           |   |   | 9,760 |   |
| American                      International Group 4.70% 20103                                                                                                                                         |   |   | 5,000                                            |   |   | 4,916 |   |
| American                      International Group, Inc. 4.25% 2013                                                                                                                                    |   |   | 2,000                                            |   |   | 1,886 |   |
| American                      International Group 5.05% 20153                                                                                                                                         |   |   | 3,000                                            |   |   | 2,938 |   |
| Household                      Finance Corp. 6.50% 2006                                                                                                                                               |   |   | 20,000                                           |   |   | 20,096 |   |
| Household                      Finance Corp. 5.75% 2007                                                                                                                                               |   |   | 11,000                                           |   |   | 11,128 |   |
| Household                      Finance Corp. 4.125% 2008                                                                                                                                              |   |   | 6,000                                            |   |   | 5,856 |   |
| Household                      Finance Corp. 6.40% 2008                                                                                                                                               |   |   | 60,000                                           |   |   | 62,149 |   |
| HSBC                      Bank USA                      4.625% 20143                                                                                                                                  |   |   | 6,000                                            |   |   | 5,738 |   |
| HSBC                      Finance                      Corp. 5.00% 2015                                                                                                                               |   |   | 4,535                                            |   |   | 4,377 |   |
| HSBC                      Holdings                      PLC 4.61% (undated)3,4                                                                                                                        |   |   | 6,000                                            |   |   | 5,610 |   |
| Prudential                      Financial, Inc. 4.104% 2006                                                                                                                                           |   |   | 15,000                                           |   |   | 14,851 |   |
| Prudential                      Insurance Co. of America 6.375% 20063                                                                                                                                 |   |   | 35,445                                           |   |   | 35,845 |   |
| PRICOA                      Global                      Funding I 3.97% 20073,4                                                                                                                       |   |   | 2,000                                            |   |   | 2,003 |   |
| PRICOA                      Global                      Funding I, Series 2003-2, 3.90% 20083                                                                                                         |   |   | 4,500                                            |   |   | 4,368 |   |
| Prudential                      Funding LLC 6.60% 20083                                                                                                                                               |   |   | 12,412                                           |   |   | 12,930 |   |
| Prudential                      Holdings, LLC, Series C, 8.695% 20233,5                                                                                                                               |   |   | 15,000                                           |   |   | 18,839 |   |
| EOP                      Operating                      LP 8.375% 2006                                                                                                                                |   |   | 600                                              |   |   | 608 |   |
| EOP                      Operating                      LP 7.75% 2007                                                                                                                                 |   |   | 45,000                                           |   |   | 47,433 |   |
| EOP                      Operating                      LP 6.75% 2008                                                                                                                                 |   |   | 9,195                                            |   |   | 9,534 |   |
| EOP                      Operating                      LP 4.65% 2010                                                                                                                                 |   |   | 19,500                                           |   |   | 18,994 |   |
| Spieker                      Properties, LP 6.75% 2008                                                                                                                                                |   |   | 3,500                                            |   |   | 3,617 |   |
| Spieker                      Properties, LP 7.125% 2009                                                                                                                                               |   |   | 2,000                                            |   |   | 2,120 |   |
| Monumental                      Global Funding Trust II, Series 2001-B, 6.05% 20063                                                                                                                   |   |   | 25,000                                           |   |   | 25,084 |   |
| Monumental                      Global Funding Trust II, Series 2003-F, 3.45% 20073                                                                                                                   |   |   | 10,000                                           |   |   | 9,786 |   |
| Monumental                      Global Funding Trust II, Series 2004-E, 4.10% 20073,4                                                                                                                 |   |   | 2,000                                            |   |   | 2,002 |   |
| Monumental                      Global Funding Trust II, Series 2002-A, 5.20% 20073                                                                                                                   |   |   | 42,000                                           |   |   | 42,071 |   |
| Bank                      One,                      National Association 5.50% 2007                                                                                                                   |   |   | 20,000                                           |   |   | 20,204 |   |
| J.P.                      Morgan                      Chase & Co. 3.50% 2009                                                                                                                      |   |   | 10,000                                           |   |   | 9,563 |   |
| J.P.                      Morgan                      Chase & Co. 4.50% 2010                                                                                                                      |   |   | 20,000                                           |   |   | 19,502 |   |
| J.P.                      Morgan                      Chase & Co. 4.891% 2015                                                                                                                     |   |   | 20,000                                           |   |   | 19,761 |   |
| Washington                      Mutual, Inc. 7.50% 2006                                                                                                                                               |   |   | 26,500                                           |   |   | 27,000 |   |
| Washington                      Mutual, Inc. 5.625% 2007                                                                                                                                              |   |   | 7,000                                            |   |   | 7,059 |   |
| Washington                      Mutual, Inc. 4.20% 2010                                                                                                                                               |   |   | 22,500                                           |   |   | 21,732 |   |
| Washington                      Mutual, Inc. 4.361% 20124                                                                                                                                             |   |   | 10,000                                           |   |   | 10,011 |   |
| BankAmerica                      Corp. 7.125% 2006                                                                                                                                                    |   |   | 1,000                                            |   |   | 1,011 |   |
| BankAmerica                      Corp. 5.875% 2009                                                                                                                                                    |   |   | 7,500                                            |   |   | 7,716 |   |
| BankAmerica                      Corp. 7.125% 2011                                                                                                                                                    |   |   | 1,750                                            |   |   | 1,914 |   |
| BankBoston                      NA                      7.00% 2007                                                                                                                                    |   |   | 7,500                                            |   |   | 7,793 |   |
| Bank                      of                      America Corp. 3.875% 2008                                                                                                                           |   |   | 4,400                                            |   |   | 4,319 |   |
| Bank                      of                      America Corp. 5.25% 2007                                                                                                                            |   |   | 20,000                                           |   |   | 20,121 |   |
| Bank                      of                      America Corp. 4.50% 2010                                                                                                                            |   |   | 18,000                                           |   |   | 17,628 |   |
| Bank                      of                      America Corp. 4.875% 2012                                                                                                                           |   |   | 2,000                                            |   |   | 1,976 |   |
| Developers                      Diversified Realty Corp. 3.875% 2009                                                                                                                                  |   |   | 15,000                                           |   |   | 14,398 |   |
| Developers                      Diversified Realty Corp. 4.625% 2010                                                                                                                                  |   |   | 19,750                                           |   |   | 19,097 |   |
| Developers                      Diversified Realty Corp. 5.00% 2010                                                                                                                                   |   |   | 22,500                                           |   |   | 22,153 |   |
| Capital                      One                      Bank 6.875% 2006                                                                                                                                |   |   | 10,000                                           |   |   | 10,057 |   |
| Capital                      One                      Bank 5.75% 2010                                                                                                                                 |   |   | 3,000                                            |   |   | 3,059 |   |
| Capital                      One                      Bank 6.50% 2013                                                                                                                                 |   |   | 13,477                                           |   |   | 14,140 |   |
| Capital                      One                      Financial Corp. 7.125% 2008                                                                                                                     |   |   | 5,750                                            |   |   | 6,034 |   |
| Capital                      One                      Financial Corp. 6.25% 2013                                                                                                                      |   |   | 5,000                                            |   |   | 5,182 |   |
| Capital                      One                      Financial Corp. 5.50% 2015                                                                                                                      |   |   | 12,000                                           |   |   | 11,768 |   |
| Allstate                      Corp.                      5.375% 2006                                                                                                                                  |   | $      | 20,000                                           |   | $      | 20,097 |   |
| Allstate                      Financial Global Funding LLC 5.25% 20073                                                                                                                                |   |   | 15,000                                           |   |   | 15,041 |   |
| Allstate                      Life                      Global Funding Trust, Series 2004-1, 4.50% 2009                                                                                               |   |   | 15,000                                           |   |   | 14,772 |   |
| MBNA                      Corp.                      5.625% 2007                                                                                                                                      |   |   | 26,000                                           |   |   | 26,382 |   |
| MBNA                      Corp.,                      Series F, 4.163% 20084                                                                                                                          |   |   | 7,500                                            |   |   | 7,569 |   |
| MBNA                      America                      Bank, National Association 5.375% 2008                                                                                                         |   |   | 15,500                                           |   |   | 15,651 |   |
| United                      Dominion Realty Trust, Inc., Series E, 4.50% 2008                                                                                                                         |   |   | 19,500                                           |   |   | 19,294 |   |
| United                      Dominion Realty Trust, Inc. 6.50% 2009                                                                                                                                    |   |   | 28,925                                           |   |   | 30,133 |   |
| Liberty                      Mutual                      Group Inc. 5.75% 20143                                                                                                                       |   |   | 20,000                                           |   |   | 19,285 |   |
| Liberty                      Mutual                      Group Inc. 6.50% 20353                                                                                                                       |   |   | 28,500                                           |   |   | 26,548 |   |
| Resona                      Bank,                      Ltd. 5.85% (undated)3,4                                                                                                                        |   |   | 15,000                                           |   |   | 14,506 |   |
| Resona                      Preferred Global Securities (Cayman), Ltd. 7.191% (undated)3,4                                                                                                            |   |   | 28,250                                           |   |   | 28,831 |   |
| Wells                      Fargo                      & Co. 5.125% 2007                                                                                                                           |   |   | 27,500                                           |   |   | 27,561 |   |
| Wells                      Fargo                      & Co. 4.125% 2008                                                                                                                           |   |   | 15,000                                           |   |   | 14,809 |   |
| CIT                      Group Inc.                      3.65% 2007                                                                                                                                   |   |   | 11,000                                           |   |   | 10,742 |   |
| CIT                      Group Inc.                      3.375% 2009                                                                                                                                  |   |   | 5,000                                            |   |   | 4,744 |   |
| CIT                      Group Inc.                      6.875% 2009                                                                                                                                  |   |   | 16,000                                           |   |   | 17,065 |   |
| CIT                      Group Inc.                      4.25% 2010                                                                                                                                   |   |   | 10,000                                           |   |   | 9,688 |   |
| Westfield                      Capital Corp. Ltd. and WT Finance (Australia) Pty Ltd. and                      WEA Finance LLC                      4.375% 20103                                      |   |   | 38,500                                           |   |   | 37,204 |   |
| Westfield                      Capital Corp. Ltd. and WT Finance (Australia) Pty Ltd. and                      WEA Finance LLC                      5.125% 20143                                      |   |   | 5,000                                            |   |   | 4,891 |   |
| CNA                      Financial                      Corp. 6.75% 2006                                                                                                                              |   |   | 2,500                                            |   |   | 2,541 |   |
| CNA                      Financial                      Corp. 6.60% 2008                                                                                                                              |   |   | 4,000                                            |   |   | 4,151 |   |
| CNA                      Financial                      Corp. 5.85% 2014                                                                                                                              |   |   | 33,000                                           |   |   | 32,284 |   |
| iStar                      Financial, Inc., Series B, 4.875% 20091                                                                                                                                    |   |   | 2,000                                            |   |   | 1,967 |   |
| iStar                      Financial, Inc. 5.375% 20101                                                                                                                                               |   |   | 25,675                                           |   |   | 25,423 |   |
| iStar                      Financial, Inc., Series B, 5.125% 20111                                                                                                                                    |   |   | 10,000                                           |   |   | 9,700 |   |
| Lazard                      LLC                      7.125% 20153                                                                                                                                     |   |   | 35,000                                           |   |   | 34,138 |   |
| XL                      Capital                      Ltd. 5.25% 2014                                                                                                                                  |   |   | 10,000                                           |   |   | 9,599 |   |
| Mangrove                      Bay                      Pass Through Trust 6.102% 20333,4                                                                                                              |   |   | 24,070                                           |   |   | 23,743 |   |
| Commercial                      Credit Co. 6.625% 2006                                                                                                                                                |   |   | 1,975                                            |   |   | 2,013 |   |
| Citigroup                      Inc.                      4.125% 2010                                                                                                                                  |   |   | 11,000                                           |   |   | 10,642 |   |
| Citigroup                      Inc.                      4.625% 2010                                                                                                                                  |   |   | 10,000                                           |   |   | 9,842 |   |
| Citigroup                      Inc.                      5.125% 2014                                                                                                                                  |   |   | 10,000                                           |   |   | 9,979 |   |
| Willis                      North                      America, Inc. 5.125% 2010                                                                                                                      |   |   | 20,950                                           |   |   | 20,741 |   |
| Willis                      North                      America, Inc. 5.625% 2015                                                                                                                      |   |   | 10,000                                           |   |   | 9,830 |   |
| Hospitality                      Properties Trust 7.00% 2008                                                                                                                                          |   |   | 5,500                                            |   |   | 5,705 |   |
| Hospitality                      Properties Trust 6.75% 2013                                                                                                                                          |   |   | 18,925                                           |   |   | 20,023 |   |
| Hospitality                      Properties Trust 5.125% 2015                                                                                                                                         |   |   | 5,000                                            |   |   | 4,748 |   |
| Nationwide                      Life Insurance Co. 5.35% 20073                                                                                                                                        |   |   | 27,500                                           |   |   | 27,618 |   |
| HBOS                      PLC 5.92%                      (undated)3,4                                                                                                                                 |   |   | 25,000                                           |   |   | 24,681 |   |
| American                      Express Credit Corp. 3.00% 2008                                                                                                                                         |   |   | 10,000                                           |   |   | 9,566 |   |
| American                      Express Co. 4.75% 2009                                                                                                                                                  |   |   | 15,000                                           |   |   | 14,902 |   |
| Metropolitan                      Life Global Funding I, Series 2004-10, 3.375% 20073                                                                                                                 |   |   | 20,000                                           |   |   | 19,470 |   |
| MetLife,                      Inc.                      5.00% 2015                                                                                                                                    |   |   | 2,500                                            |   |   | 2,434 |   |
| ING                      Security                      Life Institutional Funding 2.70% 20073                                                                                                         |   |   | 15,000                                           |   |   | 14,532 |   |
| ING                      Security                      Life Institutional Funding 4.34% 20103,4                                                                                                       |   |   | 4,000                                            |   |   | 4,006 |   |
| Rouse                      Co.                      3.625% 2009                                                                                                                                       |   |   | 5,000                                            |   |   | 4,650 |   |
| Rouse                      Co.                      7.20% 2012                                                                                                                                        |   |   | 9,446                                            |   |   | 9,854 |   |
| Rouse                      Co.                      5.375% 2013                                                                                                                                       |   |   | 4,000                                            |   |   | 3,760 |   |
| Simon                      Property                      Group, LP 6.375% 2007                                                                                                                        |   |   | 5,000                                            |   |   | 5,127 |   |
| Simon                      Property                      Group, LP 5.375% 2008                                                                                                                        |   |   | 2,000                                            |   |   | 2,019 |   |
| Simon                      Property                      Group, LP 3.75% 2009                                                                                                                         |   |   | 3,000                                            |   |   | 2,882 |   |
| Simon                      Property                      Group, LP 4.875% 2010                                                                                                                        |   |   | 5,000                                            |   |   | 4,945 |   |
| Simon                      Property                      Group, LP 4.875% 2010                                                                                                                        |   |   | 2,500                                            |   |   | 2,466 |   |
| PNC                      Funding                      Corp. 5.75% 2006                                                                                                                                |   |   | 7,500                                            |   |   | 7,556 |   |
| PNC                      Funding                      Corp. 4.20% 2008                                                                                                                                |   |   | 10,000                                           |   |   | 9,864 |   |
| Archstone-Smith                      Operating Trust 5.00% 2007                                                                                                                                       |   | $      | 5,000                                            |   | $      | 5,003 |   |
| Archstone-Smith                      Operating Trust 5.625% 2014                                                                                                                                      |   |   | 11,750                                           |   |   | 11,912 |   |
| ERP                      Operating                      LP 4.75% 2009                                                                                                                                 |   |   | 6,360                                            |   |   | 6,300 |   |
| ERP                      Operating                      LP 6.95% 2011                                                                                                                                 |   |   | 8,200                                            |   |   | 8,832 |   |
| ERP                      Operating                      LP 6.625% 2012                                                                                                                                |   |   | 1,250                                            |   |   | 1,339 |   |
| ACE                      Capital                      Trust II 9.70% 2030                                                                                                                             |   |   | 12,210                                           |   |   | 16,164 |   |
| Marsh&                      McLennan Companies, Inc. 5.15% 2010                                                                                                                                   |   |   | 15,000                                           |   |   | 14,762 |   |
| Berkshire                      Hathaway Finance Corp. 4.75% 2012                                                                                                                                      |   |   | 15,000                                           |   |   | 14,722 |   |
| BNP                      Paribas                      4.80% 20153                                                                                                                                     |   |   | 5,000                                            |   |   | 4,826 |   |
| BNP                      Paribas                      5.186% noncumulative (undated)3,4                                                                                                               |   |   | 10,000                                           |   |   | 9,633 |   |
| Chuo                      Mitsui                      Trust and Banking Co., Ltd. 5.506% (undated)3,4                                                                                                 |   |   | 14,520                                           |   |   | 13,773 |   |
| Genworth                      Financial, Inc. 4.75% 2009                                                                                                                                              |   |   | 13,795                                           |   |   | 13,666 |   |
| World                      Savings                      Bank, FSB, Bank Notes, Series 2008-FXR, 4.125% 2008                                                                                           |   |   | 13,000                                           |   |   | 12,769 |   |
| Zions                      Bancorporation 6.00% 2015                                                                                                                                                  |   |   | 11,585                                           |   |   | 12,098 |   |
| Price                      REIT,                      Inc. 7.50% 2006                                                                                                                                 |   |   | 4,900                                            |   |   | 5,028 |   |
| Kimco                      Realty                      Corp., Series C, 3.95% 2008                                                                                                                    |   |   | 5,000                                            |   |   | 4,894 |   |
| Kimco                      Realty                      Corp. 6.00% 2012                                                                                                                               |   |   | 2,000                                            |   |   | 2,076 |   |
| ProLogis                      Trust                      5.25% 20103                                                                                                                                  |   |   | 10,000                                           |   |   | 9,971 |   |
| Sumitomo                      Mitsui Banking Corp. 5.625% (undated)3,4                                                                                                                                |   |   | 10,000                                           |   |   | 9,799 |   |
| Principal                      Life                      Global Funding I 4.40% 20103                                                                                                                 |   |   | 10,000                                           |   |   | 9,709 |   |
| Popular                      North                      America, Inc., Series E, 3.875% 2008                                                                                                          |   |   | 10,000                                           |   |   | 9,702 |   |
| Barclays                      Bank                      PLC 8.55% (undated)3,4                                                                                                                        |   |   | 8,080                                            |   |   | 9,352 |   |
| Deutsche                      Bank                      Financial LLC 5.375% 2015                                                                                                                     |   |   | 4,000                                            |   |   | 4,035 |   |
| Deutsche                      Bank                      Capital Funding Trust I, 7.872% (undated)3,4                                                                                                  |   |   | 3,950                                            |   |   | 4,295 |   |
| National                      Westminster Bank PLC 7.375% 2009                                                                                                                                        |   |   | 3,000                                            |   |   | 3,261 |   |
| National                      Westminster Bank PLC 7.75% (undated)4                                                                                                                                   |   |   | 4,588                                            |   |   | 4,817 |   |
| Signet                      Bank                      7.80% 2006                                                                                                                                      |   |   | 7,760                                            |   |   | 7,965 |   |
| Boston                      Properties LP 6.25% 2013                                                                                                                                                  |   |   | 6,500                                            |   |   | 6,787 |   |
| Lincoln                      National Corp. 5.25% 2007                                                                                                                                                |   |   | 6,145                                            |   |   | 6,178 |   |
| Federal                      Realty                      Investment Trust 6.125% 2007                                                                                                                 |   |   | 4,500                                            |   |   | 4,583 |   |
| Federal                      Realty                      Investment Trust 8.75% 2009                                                                                                                  |   |   | 1,000                                            |   |   | 1,124 |   |
| Protective                      Life Insurance Co., Series 2005-C, 4.85% 2010                                                                                                                         |   |   | 5,000                                            |   |   | 4,971 |   |
| New                      York Life                      Global Funding 4.625% 20103                                                                                                                   |   |   | 5,000                                            |   |   | 4,929 |   |
| Independence                      Community Bank 3.75% 20144                                                                                                                                          |   |   | 4,000                                            |   |   | 3,816 |   |
| Assurant,                      Inc.                      5.625% 2014                                                                                                                                  |   |   | 3,000                                            |   |   | 3,005 |   |
| Skandinaviska                      Enskilda Banken AB 5.471% (undated)3,4                                                                                                                             |   |   | 3,000                                            |   |   | 2,943 |   |
| Abbey                      National                      PLC 6.70% (undated)4                                                                                                                         |   |   | 2,412                                            |   |   | 2,505 |   |
| Jackson                      National Life Global Funding, Series 2002-1, 5.25% 20073                                                                                                                 |   |   | 2,000                                            |   |   | 2,009 |   |
| Hartford                      Financial Services Group, Inc. 2.375% 2006                                                                                                                              |   |   | 2,000                                            |   |   | 1,974 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 1,997,990 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| U.S.                      GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES —                      3.41%                                                                                     |   |   |                                             |   |   |   |   |
| U.S.                      Treasury                      5.75% 2005                                                                                                                                    |   |   | 15,000                                           |   |   | 15,010 |   |
| U.S.                      Treasury                      6.50% 2006                                                                                                                                    |   |   | 45,000                                           |   |   | 45,868 |   |
| U.S.                      Treasury                      6.875% 2006                                                                                                                                   |   |   | 100,000                                          |   |   | 101,383 |   |
| U.S.                      Treasury                      7.00% 2006                                                                                                                                    |   |   | 20,000                                           |   |   | 20,362 |   |
| U.S.                      Treasury                      9.375% 2006                                                                                                                                   |   |   | 2,000                                            |   |   | 2,031 |   |
| U.S.                      Treasury                      3.25% 2007                                                                                                                                    |   |   | 43,188                                           |   |   | 42,344 |   |
| U.S.                      Treasury                      6.125% 2007                                                                                                                                   |   |   | 100,000                                          |   |   | 102,961 |   |
| U.S.                      Treasury                      6.25% 2007                                                                                                                                    |   |   | 100,000                                          |   |   | 102,406 |   |
| U.S.                      Treasury                      3.625% 2009                                                                                                                                   |   |   | 130,000                                          |   |   | 126,395 |   |
| U.S.                      Treasury                      3.875% 20096                                                                                                                                  |   |   | 59,868                                           |   |   | 64,095 |   |
| U.S.                      Treasury                      6.00% 2009                                                                                                                                    |   |   | 100,000                                          |   |   | 105,367 |   |
| U.S.                      Treasury                      5.75% 2010                                                                                                                                    |   |   | 100,000                                          |   |   | 105,492 |   |
| U.S.                      Treasury                      6.50% 2010                                                                                                                                    |   |   | 10,000                                           |   |   | 10,784 |   |
| U.S.                      Treasury                      13.875% 2011                                                                                                                                  |   |   | 126,489                                          |   |   | 132,873 |   |
| U.S.                      Treasury                      10.375% 2012                                                                                                                                  |   |   | 25,000                                           |   |   | 27,883 |   |
| U.S.                      Treasury                      12.00% 2013                                                                                                                                   |   | $      | 64,000                                           |   | $      | 76,660 |   |
| U.S.                      Treasury                      13.25% 2014                                                                                                                                   |   |   | 20,000                                           |   |   | 25,728 |   |
| U.S.                      Treasury                      Principal Strip 0% 2015                                                                                                                       |   |   | 36,970                                           |   |   | 23,446 |   |
| U.S.                      Treasury                      Principal Strip 0% 2018                                                                                                                       |   |   | 11,460                                           |   |   | 6,299 |   |
| U.S.                      Treasury                      7.875% 2021                                                                                                                                   |   |   | 33,300                                           |   |   | 44,279 |   |
| U.S.                      Treasury                      Principal Strip 0% 2029                                                                                                                       |   |   | 16,950                                           |   |   | 5,573 |   |
| Freddie                      Mac                      5.25% 2006                                                                                                                                      |   |   | 80,000                                           |   |   | 80,154 |   |
| Freddie                      Mac                      3.375% 2007                                                                                                                                     |   |   | 15,284                                           |   |   | 14,932 |   |
| Freddie                      Mac                      5.125% 2008                                                                                                                                     |   |   | 75,000                                           |   |   | 75,860 |   |
| Freddie                      Mac                      5.75% 2009                                                                                                                                      |   |   | 75,000                                           |   |   | 77,355 |   |
| Freddie                      Mac                      6.625% 2009                                                                                                                                     |   |   | 75,000                                           |   |   | 79,902 |   |
| Freddie                      Mac                      4.125% 2010                                                                                                                                     |   |   | 35,000                                           |   |   | 34,023 |   |
| Freddie                      Mac                      5.875% 2011                                                                                                                                     |   |   | 75,000                                           |   |   | 77,974 |   |
| Freddie                      Mac                      4.50% 2014                                                                                                                                      |   |   | 10,000                                           |   |   | 9,741 |   |
| Fannie                      Mae                      6.34% 2007                                                                                                                                       |   |   | 20,000                                           |   |   | 20,594 |   |
| Fannie                      Mae                      7.125% 2007                                                                                                                                      |   |   | 50,000                                           |   |   | 51,645 |   |
| Fannie                      Mae                      5.75% 2008                                                                                                                                       |   |   | 40,000                                           |   |   | 40,934 |   |
| Federal                      Home                      Loan Bank 3.375% 2007                                                                                                                          |   |   | 93,295                                           |   |   | 91,020 |   |
| Federal                      Agricultural Mortgage Corp. 4.25% 2008                                                                                                                                   |   |   | 45,000                                           |   |   | 44,406 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 1,885,779 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| ASSET-BACKED                      OBLIGATIONS5—                      2.18%                                                                                                                      |   |   |                                             |   |   |   |   |
| CWABS,                      Inc.,                      Series 2004-15, Class AF-3, 4.025% 2031                                                                                                        |   |   | 20,000                                           |   |   | 19,569 |   |
| CWABS,                      Inc.,                      Series 2004-10, Class 2-AV-2, 4.388% 20334                                                                                                     |   |   | 28,274                                           |   |   | 28,301 |   |
| CWABS,                      Inc.,                      Series 2005-BC1, Class 2-A-1, 4.128% 20354                                                                                                     |   |   | 11,933                                           |   |   | 11,941 |   |
| CWABS,                      Inc.,                      Series 2005-3, Class 3-AV-1, 4.138% 20354                                                                                                      |   |   | 19,531                                           |   |   | 19,509 |   |
| CWABS,                      Inc.,                      Series 2004-15, Class AF-6, 4.613% 2035                                                                                                        |   |   | 15,000                                           |   |   | 14,388 |   |
| CWABS,                      Inc.,                      Series 2004-12, Class AF-6, 4.634% 2035                                                                                                        |   |   | 8,000                                            |   |   | 7,703 |   |
| CWABS,                      Inc.,                      Series 2005-11, Class AF-6, 5.05% 2036                                                                                                         |   |   | 5,000                                            |   |   | 4,838 |   |
| CPS                      Auto                      Receivables Trust, Series 2003-A, Class A-2, XLCA insured,                      2.89%                      20093                                   |   |   | 2,049                                            |   |   | 2,003 |   |
| CPS                      Auto                      Receivables Trust, Series 2002-B, Class A-2, XLCA insured,                      3.50%                      20093                                   |   |   | 3,884                                            |   |   | 3,858 |   |
| CPS                      Auto                      Receivables Trust, Series 2002-C, Class A-2, XLCA insured,                      3.52%                      20093                                   |   |   | 1,265                                            |   |   | 1,261 |   |
| CPS                      Auto                      Receivables Trust, Series 2004-A, Class A-2, FSA insured, 3.87%                      20103                                                         |   |   | 10,000                                           |   |   | 9,852 |   |
| CPS                      Auto                      Receivables Trust, Series 2004-B, Class A-2, XLCA insured,                      3.56%                      20113                                   |   |   | 24,232                                           |   |   | 23,933 |   |
| CPS                      Auto                      Receivables Trust, Series 2004-D, Class A-2, XLCA insured,                      3.86%                      20113                                   |   |   | 28,616                                           |   |   | 28,240 |   |
| CPS                      Auto                      Receivables Trust, Series 2005-B, Class A-2, FSA insured, 4.36%                      20123                                                         |   |   | 12,000                                           |   |   | 11,833 |   |
| CPS                      Auto                      Receivables Trust, Series 2005-C, Class A-2, FSA insured, 4.79%                      20123                                                         |   |   | 12,500                                           |   |   | 12,375 |   |
| Drivetime                      Auto                      Owner Trust, Series 2004-A, Class A-3, XLCA insured, 2.419%                      20083                                                       |   |   | 6,300                                            |   |   | 6,208 |   |
| Drivetime                      Auto                      Owner Trust, Series 2005-A, Class A-2, MBIA insured, 3.799%                      20083                                                       |   |   | 17,744                                           |   |   | 17,667 |   |
| Drivetime                      Auto                      Owner Trust, Series 2004-B, Class A-3, MBIA insured, 3.475%                      20093                                                       |   |   | 16,656                                           |   |   | 16,463 |   |
| Drivetime                      Auto                      Owner Trust, Series 2005-A, Class A-3, MBIA insured, 4.302%                      20093                                                       |   |   | 18,579                                           |   |   | 18,434 |   |
| Residential                      Funding Mortgage Securities II, Inc., Series 2005-HI1, Class                      A-5, FGIC                      insured, 5.45% 2035                                 |   |   | 16,000                                           |   |   | 15,812 |   |
| Residential                      Funding Mortgage Securities II, Inc., Series 2005-HS1, Class                      A-1-5, FGIC                      insured, 4.95% 2035                               |   |   | 40,500                                           |   |   | 39,171 |   |
| Drive                      Auto                      Receivables Trust, Series 2003-1, Class A-3, MBIA insured,                      2.41%                      20073                                 |   |   | 1,398                                            |   |   | 1,396 |   |
| Drive                      Auto                      Receivables Trust, Series 2005-2, Class A-2, MBIA insured,                      4.12%                      20103                                 |   |   | 21,400                                           |   |   | 21,186 |   |
| Drive                      Auto                      Receivables Trust, Series 2004-1, Class A-4, MBIA insured,                      4.14%                      20103                                 |   |   | 14,000                                           |   |   | 13,895 |   |
| Drive                      Auto                      Receivables Trust, Series 2005-1, Class A-4, MBIA insured,                      4.01%                      2012                                  |   |   | 18,750                                           |   |   | 18,344 |   |
| AmeriCredit                      Automobile Receivables Trust, Series 2002-C, Class A-4, FSA                      insured, 3.55%                      2009                                            |   |   | 29,838                                           |   |   | 29,617 |   |
| AmeriCredit                      Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA                      insured,                      3.48% 2010                                          |   |   | 20,000                                           |   |   | 19,764 |   |
| AmeriCredit                      Automobile Receivables Trust, Series 2004-B-M, Class A-4, MBIA                      insured,                      2.67% 2011                                         |   |   | 5,000                                            |   |   | 4,851 |   |
| Rental                      Car                      Finance Corp., Series 2005-1, Class A-2, XLCA insured, 4.59%                      20113                                                          |   |   | 48,860                                           |   |   | 48,035 |   |
| Advanta                      Business Card Master Trust, Series 2005-A1, Class A-1, 4.07%                      20114                                                                                  |   |   | 17,000                                           |   |   | 16,966 |   |
| Advanta                      Business Card Master Trust, Series 2005-A2, Class A-1, 4.13%                      20134                                                                                  |   |   | 29,000                                           |   |   | 28,941 |   |
| New                      Century                      Home Equity Loan Trust, Series 2004-A, Class A-II-3, FGIC insured,                      4.45%                      2034                         |   |   | 25,881                                           |   |   | 25,650 |   |
| New                      Century                      Home Equity Loan Trust, Series 2005-A, Class A-1A, 4.158% 20354                                                                                 |   |   | 13,828                                           |   |   | 13,828 |   |
| Triad                      Automobile Receivables Trust, Series 2002-1, Class A-3, AMBAC                      insured,                      3.00% 20093                                               |   |   | 3,295                                            |   |   | 3,268 |   |
| Triad                      Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC                      insured,                      4.22% 2012                                                |   |   | 33,475                                           |   |   | 32,862 |   |
| Consumer                      Credit Reference Index Securities Program Trust, Series 2002-1A,                      Class A,                      5.924% 20073,4                                      |   | $      | 35,000                                           |   | $      | 35,469 |   |
| Residential                      Asset Securities Corp. Trust, Series 2004-KS10, Class A-I-2,                      4.358%                      20294                                                  |   |   | 18,656                                           |   |   | 18,706 |   |
| Residential                      Asset Securities Corp. Trust, Series 2004-KS12, Class A-1-2,                      4.268%                      20354                                                  |   |   | 15,075                                           |   |   | 15,094 |   |
| UPFC                      Auto                      Receivables Trust, Series 2004-A, Class A-3, AMBAC insured,                      3.27%                      2010                                  |   |   | 19,850                                           |   |   | 19,577 |   |
| UPFC                      Auto                      Receivables Trust, Series 2005-A, Class A-3, AMBAC insured,                      4.34%                      2010                                  |   |   | 14,000                                           |   |   | 13,901 |   |
| DT                      Auto Owner                      Trust, Series 2005-B, Class A-3, XLCA insured, 4.429% 20103                                                                                   |   |   | 31,488                                           |   |   | 31,286 |   |
| Long                      Beach                      Acceptance Auto Receivables Trust, Series 2004-C, Class A-4,                      FSA insured,                      3.777% 2011                  |   |   | 8,500                                            |   |   | 8,354 |   |
| Long                      Beach                      Acceptance Auto Receivables Trust, Series 2005-B, Class A-4,                      FSA insured,                      4.522% 2012                  |   |   | 22,000                                           |   |   | 21,666 |   |
| Bear                      Stearns                      Asset-backed Securities I Trust, Series 2004-FR3, Class I-A-I,                      4.288%                      20304                          |   |   | 4,465                                            |   |   | 4,467 |   |
| Bear                      Stearns                      Asset-backed Securities I Trust, Series 2004-HE11, Class I-A-2,                      4.338%                      20334                         |   |   | 2,375                                            |   |   | 2,381 |   |
| Bear                      Stearns                      Asset-backed Securities I Trust, Series 2005-CL1, Class A-1,                      4.531%                      20344                            |   |   | 23,006                                           |   |   | 23,013 |   |
| PP&L                      Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05%                      2009                                                                                      |   |   | 10,000                                           |   |   | 10,227 |   |
| PP&L                      Transition Bond Co. LLC, Series 1999-1, Class A-8, 7.15%                      2009                                                                                      |   |   | 16,190                                           |   |   | 17,052 |   |
| Capital                      One                      Prime Auto Receivables Trust, Series 2004-2, Class A-3, 3.06%                      2008                                                         |   |   | 26,895                                           |   |   | 26,685 |   |
| Credit-Based                      Asset Servicing and Securitization LLC, Series 2004-CB8, Class                      AF-3, 5.09%                      2032                                           |   |   | 16,798                                           |   |   | 16,497 |   |
| Credit-Based                      Asset Servicing and Securitization LLC, Series 2005-CB4, Class                      AF-4,                      5.028% 20354                                         |   |   | 8,653                                            |   |   | 8,473 |   |
| PG&E                      Energy Recovery Funding LLC, Series 2005-1, Class A-2, 3.87%                      2011                                                                                  |   |   | 23,530                                           |   |   | 23,144 |   |
| First                      Investors Auto Owners Trust, Series 2003-A, Class A, MBIA insured,                      2.58%                      20113                                                   |   |   | 3,300                                            |   |   | 3,229 |   |
| First                      Investors Auto Owners Trust, Series 2005-A, Class A-2, MBIA                      insured, 4.23%                      20123                                                 |   |   | 20,000                                           |   |   | 19,841 |   |
| Home                      Equity                      Asset Trust, Series 2004-7, Class M-2, 4.698% 20354                                                                                             |   |   | 20,000                                           |   |   | 20,146 |   |
| Fremont                      Home                      Loan Trust, Series 2004-4, Class II-A2, 4.318% 20354                                                                                           |   |   | 20,000                                           |   |   | 20,046 |   |
| Structured                      Asset Investment Loan Trust, Series 2004-BNC2, Class A-4, 4.358%                      20344                                                                           |   |   | 19,950                                           |   |   | 19,994 |   |
| Providian                      Master Note Trust, Series 2005-A1A, Class A, 4.03% 20123,4                                                                                                             |   |   | 20,000                                           |   |   | 19,975 |   |
| Cendant                      Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1,                      FGIC                      insured, 4.67% 20173                                        |   |   | 17,444                                           |   |   | 17,442 |   |
| SLM                      Private                      Credit Student Loan Trust, Series 2002-A, Class A-2, 4.42%                      20304                                                           |   |   | 15,000                                           |   |   | 15,395 |   |
| World                      Financial Network Credit Card Master Note Trust, Series 2004-A,                      Class C,                      4.97% 20134                                             |   |   | 15,000                                           |   |   | 15,225 |   |
| Providian                      Gateway Master Trust, Series 2004-DA, Class A, 3.35% 20113                                                                                                             |   |   | 15,000                                           |   |   | 14,597 |   |
| ARG                      Funding                      Corp., Series 2005-1, Class A-3, MBIA insured, 4.29% 20103                                                                                      |   |   | 15,000                                           |   |   | 14,588 |   |
| Impac                      CMB                      Grantor Trust, Series 2004-6, Class 1-A-1, 4.438% 20344                                                                                           |   |   | 8,596                                            |   |   | 8,660 |   |
| Impac                      CMB                      Grantor Trust, Series 2004-6, Class M-2, 4.638% 20344                                                                                             |   |   | 5,511                                            |   |   | 5,532 |   |
| Prestige                      Auto                      Receivables Trust, Series 2004-1, Class A-2, FSA insured, 3.69%                      20113                                                    |   |   | 13,078                                           |   |   | 12,916 |   |
| MMCA                      Auto                      Owner Trust, Series 2001-3, Class B, 4.92% 20084                                                                                                  |   |   | 428                                              |   |   | 428 |   |
| MMCA                      Auto                      Owner Trust, Series 2002-4, Class A-4, 3.05% 2009                                                                                                 |   |   | 2,613                                            |   |   | 2,590 |   |
| MMCA                      Auto                      Owner Trust, Series 2002-3, Class A-4, 3.57% 2009                                                                                                 |   |   | 4,043                                            |   |   | 4,032 |   |
| MMCA                      Auto                      Owner Trust, Series 2002-2, Class A-4, 4.30% 2010                                                                                                 |   |   | 4,260                                            |   |   | 4,250 |   |
| Vanderbilt                      Mortgage and Finance, Inc., Series 2000-D, Class A-4, 7.715%                      2027                                                                                |   |   | 10,083                                           |   |   | 10,576 |   |
| USAA                      Auto                      Owner Trust, Series 2004-3, Class A-3, 3.16% 2009                                                                                                 |   |   | 10,000                                           |   |   | 9,849 |   |
| PSE&G                      Transition Funding II LLC, Series 2005-1, Class A-3, 4.49%                      2015                                                                                   |   |   | 10,000                                           |   |   | 9,617 |   |
| Long                      Beach                      Mortgage Loan Trust, Series 2000-1, Class AF-3, 7.434%                      2031                                                                 |   |   | 1,559                                            |   |   | 1,556 |   |
| Long                      Beach                      Mortgage Loan Trust, Series 2005-WL2, Class III-A2, 4.148%                      20354                                                            |   |   | 7,377                                            |   |   | 7,375 |   |
| GMACM                      Home                      Equity Loan Trust, Series 2004-HE5, Class A-6, 4.388% 2034                                                                                       |   |   | 8,000                                            |   |   | 7,741 |   |
| Vanderbilt                      Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70%                      2023                                                                                     |   |   | 7,500                                            |   |   | 7,524 |   |
| Saxon                      Asset                      Securities Trust, Series 2005-3, Class A-2B, 4.218% 20364                                                                                       |   |   | 7,500                                            |   |   | 7,496 |   |
| GE                      SeaCo                      Finance SRL, Series 2004-1, Class A, AMBAC insured, 4.27% 20193,4                                                                                  |   |   | 7,097                                            |   |   | 7,098 |   |
| Popular                      ABS                      Mortgage Pass-Through Trust, Series 2004-5, Class AF-6, 4.747%                      2034                                                        |   |   | 5,800                                            |   |   | 5,596 |   |
| MBNA                      Master                      Credit Card Trust II, Series 2000-H, Class B, 4.57% 20134                                                                                       |   |   | 5,000                                            |   |   | 5,091 |   |
| IndyMac                      Home                      Equity Mortgage Loan Asset-backed Trust, Series SPMD 2004-C,                      Class A-II-2,                      4.308% 20354              |   |   | 4,000                                            |   |   | 4,006 |   |
| Impac                      CMB                      Trust, Series 2004-10, Class 1-A-2, FGIC insured, 4.388% 20354                                                                                    |   |   | 3,835                                            |   |   | 3,839 |   |
| Navistar                      Financial Owner Trust, Series 2004-A, Class B, 2.56% 2011                                                                                                               |   |   | 3,173                                            |   |   | 3,068 |   |
| ACE                      Securities                      Corp. Home Equity Loan Trust, Series 2003-NC1, Class A-2A,                      4.458%                      20334                            |   |   | 2,699                                            |   |   | 2,703 |   |
| SeaWest                      Securitization, LLC, Series 2002-A, Class A-3, XLCA insured,                      3.58%                      20083                                                       |   |   | 171                                              |   |   | 171 |   |
| SeaWest                      Securitization, LLC, Series 2003-A, Class A-2, XLCA insured,                      2.84%                      20093                                                       |   |   | 2,523                                            |   |   | 2,494 |   |
| New                      South                      Motor Vehicle Trust, Series 2002-A, Class A-3, AMBAC insured,                      3.03%                      2010                                |   |   | 2,215                                            |   |   | 2,210 |   |
| NPF                      XII, Inc.,                      Series 2001-1A, Class A, 1.99% 20043,4,7                                                                                                     |   |   | 3,000                                            |   |   | 135 |   |
| NPF                      XII, Inc.,                      Series 2001-3, Class A, 5.52% 20073,7                                                                                                        |   |   | 5,000                                            |   |   | 225 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 1,205,210 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| CONSUMER                      DISCRETIONARY — 1.98%                                                                                                                                             |   |   |                                             |   |   |   |   |
| Residential                      Capital Corp. 6.375% 20103                                                                                                                                           |   | $      | 18,990                                           |   | $      | 19,308 |   |
| General                      Motors                      Acceptance Corp. 7.75% 2010                                                                                                                  |   |   | 5,985                                            |   |   | 6,028 |   |
| General                      Motors                      Acceptance Corp. 6.875% 2011                                                                                                                 |   |   | 33,274                                           |   |   | 32,301 |   |
| General                      Motors                      Acceptance Corp. 7.25% 2011                                                                                                                  |   |   | 121,940                                          |   |   | 120,071 |   |
| General                      Motors                      Acceptance Corp. 6.875% 2012                                                                                                                 |   |   | 2,617                                            |   |   | 2,524 |   |
| General                      Motors                      Acceptance Corp. 7.00% 2012                                                                                                                  |   |   | 26,672                                           |   |   | 25,906 |   |
| Ford                      Motor                      Credit Co. 6.50% 2007                                                                                                                            |   |   | 6,000                                            |   |   | 5,931 |   |
| Ford                      Motor                      Credit Co. 7.20% 2007                                                                                                                            |   |   | 5,000                                            |   |   | 4,992 |   |
| Ford                      Motor                      Credit Co. 5.80% 2009                                                                                                                            |   |   | 17,000                                           |   |   | 15,580 |   |
| Ford                      Motor                      Credit Co. 5.70% 2010                                                                                                                            |   |   | 15,000                                           |   |   | 13,510 |   |
| Ford                      Motor                      Credit Co. 7.875% 2010                                                                                                                           |   |   | 36,000                                           |   |   | 34,686 |   |
| Ford                      Motor                      Credit Co. 7.375% 2011                                                                                                                           |   |   | 15,000                                           |   |   | 14,103 |   |
| DaimlerChrysler                      North America Holding Corp. 6.40% 2006                                                                                                                           |   |   | 20,540                                           |   |   | 20,714 |   |
| DaimlerChrysler                      North America Holding Corp. 4.05% 2008                                                                                                                           |   |   | 6,480                                            |   |   | 6,295 |   |
| DaimlerChrysler                      North America Holding Corp. 4.75% 2008                                                                                                                           |   |   | 21,520                                           |   |   | 21,308 |   |
| DaimlerChrysler                      North America Holding Corp. 7.20% 2009                                                                                                                           |   |   | 3,000                                            |   |   | 3,169 |   |
| DaimlerChrysler                      North America Holding Corp. 8.00% 2010                                                                                                                           |   |   | 17,500                                           |   |   | 19,131 |   |
| Comcast                      Cable                      Communications, Inc. 8.375% 2007                                                                                                              |   |   | 26,000                                           |   |   | 27,271 |   |
| Comcast                      Cable                      Communications, Inc. 6.875% 2009                                                                                                              |   |   | 18,000                                           |   |   | 18,956 |   |
| Tele-Communications,                      Inc. 7.875% 2013                                                                                                                                            |   |   | 10,000                                           |   |   | 11,285 |   |
| Clear                      Channel                      Communications, Inc. 6.00% 2006                                                                                                               |   |   | 7,000                                            |   |   | 7,075 |   |
| Clear                      Channel                      Communications, Inc. 6.625% 2008                                                                                                              |   |   | 8,245                                            |   |   | 8,457 |   |
| Clear                      Channel                      Communications, Inc. 7.65% 2010                                                                                                               |   |   | 3,660                                            |   |   | 3,920 |   |
| Chancellor                      Media Corp. of Los Angeles 8.00% 2008                                                                                                                                 |   |   | 34,000                                           |   |   | 36,246 |   |
| Viacom                      Inc.                      5.625% 2007                                                                                                                                     |   |   | 25,000                                           |   |   | 25,227 |   |
| Viacom                      Inc.                      7.70% 2010                                                                                                                                      |   |   | 25,000                                           |   |   | 27,260 |   |
| Time                      Warner                      Inc. 8.18% 2007                                                                                                                                 |   |   | 10,000                                           |   |   | 10,531 |   |
| AOL                      Time                      Warner Inc. 6.875% 2012                                                                                                                            |   |   | 10,000                                           |   |   | 10,718 |   |
| AOL                      Time                      Warner Inc. 6.15% 2007                                                                                                                             |   |   | 15,000                                           |   |   | 15,265 |   |
| Time                      Warner                      Companies, Inc. 9.125% 2013                                                                                                                     |   |   | 10,000                                           |   |   | 11,956 |   |
| May                      Department                      Stores Co. 4.80% 2009                                                                                                                        |   |   | 38,750                                           |   |   | 38,238 |   |
| May                      Department                      Stores Co. 5.75% 2014                                                                                                                        |   |   | 3,785                                            |   |   | 3,788 |   |
| May                      Department                      Stores Co. 6.65% 2024                                                                                                                        |   |   | 3,465                                            |   |   | 3,511 |   |
| Harrah’s                      Operating Co., Inc. 7.125% 2007                                                                                                                                   |   |   | 6,000                                            |   |   | 6,182 |   |
| Harrah’s                      Operating Co., Inc. 7.50% 2009                                                                                                                                    |   |   | 15,000                                           |   |   | 15,961 |   |
| Harrah’s                      Operating Co., Inc. 5.50% 2010                                                                                                                                    |   |   | 4,325                                            |   |   | 4,299 |   |
| Harrah’s                      Operating Co., Inc. 5.625% 20153                                                                                                                                  |   |   | 18,600                                           |   |   | 17,880 |   |
| Liberty                      Media                      Corp. 8.50% 2029                                                                                                                              |   |   | 9,160                                            |   |   | 8,779 |   |
| Liberty                      Media                      Corp. 8.25% 2030                                                                                                                              |   |   | 37,195                                           |   |   | 35,072 |   |
| Pulte                      Homes,                      Inc. 4.875% 2009                                                                                                                               |   |   | 15,000                                           |   |   | 14,727 |   |
| Pulte                      Homes,                      Inc. 7.875% 2011                                                                                                                               |   |   | 14,000                                           |   |   | 15,350 |   |
| Pulte                      Homes,                      Inc. 8.125% 2011                                                                                                                               |   |   | 7,500                                            |   |   | 8,286 |   |
| Cox                      Radio,                      Inc. 6.625% 2006                                                                                                                                 |   |   | 37,567                                           |   |   | 37,749 |   |
| Univision                      Communications Inc. 2.875% 2006                                                                                                                                        |   |   | 13,000                                           |   |   | 12,732 |   |
| Univision                      Communications Inc. 3.875% 2008                                                                                                                                        |   |   | 4,100                                            |   |   | 3,935 |   |
| Univision                      Communications Inc. 7.85% 2011                                                                                                                                         |   |   | 13,900                                           |   |   | 15,262 |   |
| Kohl’s                      Corp.                      6.30% 2011                                                                                                                               |   |   | 27,690                                           |   |   | 29,091 |   |
| Kohl’s                      Corp.                      7.375% 2011                                                                                                                              |   |   | 1,000                                            |   |   | 1,100 |   |
| Marriott                      International, Inc., Series C, 7.875% 2009                                                                                                                              |   |   | 16,323                                           |   |   | 17,881 |   |
| Marriott                      International, Inc., Series F, 4.625% 2012                                                                                                                              |   |   | 7,000                                            |   |   | 6,708 |   |
| Toll                      Brothers,                      Inc. 6.875% 2012                                                                                                                             |   |   | 2,000                                            |   |   | 2,120 |   |
| Toll                      Brothers                      Finance Corp. 5.15% 20153                                                                                                                     |   |   | 22,500                                           |   |   | 20,872 |   |
| Cox                      Communications, Inc. 7.75% 2006                                                                                                                                              |   |   | 22,351                                           |   |   | 22,827 |   |
| Target                      Corp.                      7.50% 2010                                                                                                                                     |   |   | 20,000                                           |   |   | 22,173 |   |
| News                      America                      Inc. 5.30% 2014                                                                                                                                |   |   | 22,585                                           |   |   | 22,158 |   |
| Carnival                      Corp.                      3.75% 2007                                                                                                                                   |   |   | 6,000                                            |   |   | 5,871 |   |
| Carnival                      Corp.                      6.15% 2008                                                                                                                                   |   |   | 15,725                                           |   |   | 16,161 |   |
| Lowe’s                      Companies, Inc. 7.50% 2005                                                                                                                                          |   | $      | 10,096                                           |   | $      | 10,128 |   |
| Lowe’s                      Companies, Inc., Series B, 6.70% 2007                                                                                                                               |   |   | 5,455                                            |   |   | 5,622 |   |
| Lowe’s                      Companies, Inc. 8.25% 2010                                                                                                                                          |   |   | 5,455                                            |   |   | 6,183 |   |
| Centex                      Corp.                      5.70% 2014                                                                                                                                     |   |   | 10,000                                           |   |   | 9,792 |   |
| Centex                      Corp.                      5.25% 2015                                                                                                                                     |   |   | 12,000                                           |   |   | 11,269 |   |
| Hyatt                      Equities, LLC 6.875% 20073                                                                                                                                                 |   |   | 17,040                                           |   |   | 17,305 |   |
| Ryland                      Group,                      Inc. 5.375% 2012                                                                                                                              |   |   | 12,000                                           |   |   | 11,515 |   |
| Ryland                      Group,                      Inc. 5.375% 2015                                                                                                                              |   |   | 2,000                                            |   |   | 1,868 |   |
| Hilton                      Hotels                      Corp. 7.625% 2008                                                                                                                             |   |   | 4,000                                            |   |   | 4,166 |   |
| Hilton                      Hotels                      Corp. 7.20% 2009                                                                                                                              |   |   | 8,412                                            |   |   | 8,773 |   |
| NVR,                      Inc.                      5.00% 2010                                                                                                                                        |   |   | 8,000                                            |   |   | 7,783 |   |
| Gap,                      Inc.                      10.55% 20084                                                                                                                                      |   |   | 6,250                                            |   |   | 6,978 |   |
| Toys“R”Us,                      Inc. 7.875% 2013                                                                                                                                          |   |   | 7,520                                            |   |   | 6,091 |   |
| Starwood                      Hotels & Resorts Worldwide, Inc. 7.375% 2007                                                                                                                        |   |   | 1,500                                            |   |   | 1,543 |   |
| Delphi                      Automotive Systems Corp. 6.50% 20097                                                                                                                                      |   |   | 1,200                                            |   |   | 855 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 1,098,308 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| TELECOMMUNICATION                      SERVICES — 1.40%                                                                                                                                         |   |   |                                             |   |   |   |   |
| Verizon                      Wireless Capital LLC and Cellco Partnership 5.375% 2006                                                                                                                  |   |   | 128,200                                          |   |   | 128,942 |   |
| Cingular                      Wireless LLC 5.625% 2006                                                                                                                                                |   |   | 12,000                                           |   |   | 12,111 |   |
| AT&T                      Wireless Services, Inc. 7.35% 2006                                                                                                                                      |   |   | 3,000                                            |   |   | 3,026 |   |
| AT&T                      Wireless Services, Inc. 7.50% 2007                                                                                                                                      |   |   | 33,575                                           |   |   | 34,877 |   |
| AT&T                      Wireless Services, Inc. 7.875% 2011                                                                                                                                     |   |   | 50,700                                           |   |   | 56,830 |   |
| Sprint                      Capital                      Corp. 6.00% 2007                                                                                                                             |   |   | 15,000                                           |   |   | 15,195 |   |
| US                      Unwired                      Inc., Series B, 10.00% 2012                                                                                                                      |   |   | 3,000                                            |   |   | 3,427 |   |
| Nextel                      Communications, Inc. 6.875% 2013                                                                                                                                          |   |   | 37,125                                           |   |   | 38,869 |   |
| Nextel                      Communications, Inc. 7.375% 2015                                                                                                                                          |   |   | 43,015                                           |   |   | 45,567 |   |
| France                      Télécom                      7.405% 20064                                                                                                                       |   |   | 12,000                                           |   |   | 12,104 |   |
| France                      Télécom                      7.75% 20114                                                                                                                        |   |   | 76,250                                           |   |   | 85,024 |   |
| France                      Télécom                      10.00% 20314                                                                                                                       |   |   | 4,250                                            |   |   | 5,570 |   |
| Telecom                      Italia                      Capital SA, Series A, 4.00% 2008                                                                                                             |   |   | 8,000                                            |   |   | 7,746 |   |
| Telecom                      Italia                      Capital SA 4.00% 2010                                                                                                                        |   |   | 12,000                                           |   |   | 11,418 |   |
| Telecom                      Italia                      Capital SA 4.875% 2010                                                                                                                       |   |   | 30,000                                           |   |   | 29,413 |   |
| Telecom                      Italia                      Capital SA, Series B, 5.25% 2013                                                                                                             |   |   | 43,400                                           |   |   | 42,498 |   |
| SBC                      Communications Inc. 5.75% 2006                                                                                                                                               |   |   | 19,900                                           |   |   | 20,007 |   |
| SBC                      Communications Inc. 4.125% 2009                                                                                                                                              |   |   | 10,000                                           |   |   | 9,637 |   |
| SBC                      Communications Inc. 6.25% 2011                                                                                                                                               |   |   | 10,000                                           |   |   | 10,423 |   |
| SBC                      Communications Inc. 5.875% 2012                                                                                                                                              |   |   | 27,000                                           |   |   | 27,664 |   |
| Singapore                      Telecommunications Ltd. 6.375% 20113                                                                                                                                   |   |   | 27,925                                           |   |   | 29,664 |   |
| Singapore                      Telecommunications Ltd. 6.375% 2011                                                                                                                                    |   |   | 9,825                                            |   |   | 10,437 |   |
| Koninklijke                      KPN NV 8.00% 2010                                                                                                                                                    |   |   | 33,750                                           |   |   | 37,670 |   |
| Deutsche                      Telekom International Finance BV 3.875% 2008                                                                                                                            |   |   | 10,375                                           |   |   | 10,121 |   |
| Deutsche                      Telekom International Finance BV 8.50% 20104                                                                                                                            |   |   | 8,500                                            |   |   | 9,495 |   |
| Deutsche                      Telekom International Finance BV 8.75% 20304                                                                                                                            |   |   | 13,900                                           |   |   | 17,287 |   |
| BellSouth                      Corp. 4.75% 2012                                                                                                                                                       |   |   | 20,000                                           |   |   | 19,345 |   |
| ALLTEL                      Corp.                      4.656% 2007                                                                                                                                    |   |   | 17,000                                           |   |   | 16,923 |   |
| Teléfonos                      de                      México, SA de CV 8.25% 2006                                                                                                          |   |   | 15,000                                           |   |   | 15,172 |   |
| Vodafone                      Group                      PLC 5.375% 2015                                                                                                                              |   |   | 5,750                                            |   |   | 5,771 |   |
| PCCW-HKT                      Capital Ltd. 8.00% 20113,4                                                                                                                                              |   |   | 2,450                                            |   |   | 2,708 |   |
| PCCW-HKT                      Capital Ltd. 7.75% 2011                                                                                                                                                 |   |   | 1,800                                            |   |   | 1,989 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 776,930 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| UTILITIES—                      0.96%                                                                                                                                                           |   |   |                                             |   |   |   |   |
| Virginia                      Electric and Power Co., Series 2002-A, 5.375% 2007                                                                                                                      |   |   | 6,000                                            |   |   | 6,036 |   |
| Dominion                      Resources, Inc., Series A, 3.66% 2006                                                                                                                                   |   |   | 6,000                                            |   |   | 5,928 |   |
| Dominion                      Resources, Inc., Series B, 4.125% 2008                                                                                                                                  |   |   | 10,000                                           |   |   | 9,827 |   |
| Dominion                      Resources, Inc., Series 2002-D, 5.125% 2009                                                                                                                             |   |   | 18,561                                           |   |   | 18,528 |   |
| Dominion                      Resources, Inc., Series 2000-A, 8.125% 2010                                                                                                                             |   |   | 35,000                                           |   |   | 39,042 |   |
| Dominion                      Resources, Inc., Series 2002-C, 5.70% 20124                                                                                                                             |   | $      | 4,250                                            |   | $      | 4,326 |   |
| Commonwealth                      Edison Co., Series 99, 3.70% 2008                                                                                                                                   |   |   | 2,750                                            |   |   | 2,662 |   |
| Exelon                      Corp.                      4.45% 2010                                                                                                                                     |   |   | 15,000                                           |   |   | 14,440 |   |
| Exelon                      Corp.                      6.75% 2011                                                                                                                                     |   |   | 17,000                                           |   |   | 17,993 |   |
| Exelon                      Corp.                      4.90% 2015                                                                                                                                     |   |   | 5,000                                            |   |   | 4,705 |   |
| Exelon                      Generation Co., LLC 6.95% 2011                                                                                                                                            |   |   | 21,600                                           |   |   | 23,241 |   |
| NiSource                      Finance Corp. 7.625% 2005                                                                                                                                               |   |   | 32,285                                           |   |   | 32,319 |   |
| NiSource                      Finance Corp. 6.15% 2013                                                                                                                                                |   |   | 3,000                                            |   |   | 3,120 |   |
| NiSource                      Finance Corp. 5.40% 2014                                                                                                                                                |   |   | 24,500                                           |   |   | 24,242 |   |
| Duke                      Energy                      Corp. First and Ref. Mortgage Bonds, Series A, 3.75% 2008                                                                                       |   |   | 10,000                                           |   |   | 9,747 |   |
| Duke                      Capital                      Corp. 7.50% 2009                                                                                                                               |   |   | 37,000                                           |   |   | 39,851 |   |
| Duke                      Capital                      LLC 5.668% 2014                                                                                                                                |   |   | 2,000                                            |   |   | 1,995 |   |
| Scottish                      Power                      PLC 4.91% 2010                                                                                                                               |   |   | 30,000                                           |   |   | 29,717 |   |
| Scottish                      Power                      PLC 5.375% 2015                                                                                                                              |   |   | 20,000                                           |   |   | 19,697 |   |
| PSEG                      Power LLC                      3.75% 2009                                                                                                                                   |   |   | 10,000                                           |   |   | 9,545 |   |
| PSEG                      Power LLC                      7.75% 2011                                                                                                                                   |   |   | 32,500                                           |   |   | 35,879 |   |
| Ameren                      Corp.                      4.263% 2007                                                                                                                                    |   |   | 2,500                                            |   |   | 2,467 |   |
| Cilcorp                      Inc.                      8.70% 2009                                                                                                                                     |   |   | 17,025                                           |   |   | 18,953 |   |
| AmerenEnergy                      Generating Co., Series D, 8.35% 2010                                                                                                                                |   |   | 5,000                                            |   |   | 5,610 |   |
| Union                      Electric                      Co. 4.65% 2013                                                                                                                               |   |   | 4,250                                            |   |   | 4,083 |   |
| Cilcorp                      Inc.                      9.375% 2029                                                                                                                                    |   |   | 5,000                                            |   |   | 6,903 |   |
| American                      Electric Power Co., Inc. 4.709% 20074                                                                                                                                   |   |   | 12,500                                           |   |   | 12,436 |   |
| Appalachian                      Power Co., Series J, 4.40% 2010                                                                                                                                      |   |   | 10,000                                           |   |   | 9,681 |   |
| Appalachian                      Power Co., Series I, 4.95% 2015                                                                                                                                      |   |   | 15,000                                           |   |   | 14,424 |   |
| Centerpoint                      Energy Resources Corp., Series B, 7.875% 2013                                                                                                                        |   |   | 18,000                                           |   |   | 20,357 |   |
| Centerpoint                      Energy, Inc., Series B, 6.85% 2015                                                                                                                                   |   |   | 5,000                                            |   |   | 5,368 |   |
| Alabama                      Power                      Co., Series Y, 2.80% 2006                                                                                                                     |   |   | 5,000                                            |   |   | 4,901 |   |
| Alabama                      Power                      Co., Series X, 3.125% 2008                                                                                                                    |   |   | 1,800                                            |   |   | 1,726 |   |
| Alabama                      Power                      Co., Series R, 4.70% 2010                                                                                                                     |   |   | 1,750                                            |   |   | 1,721 |   |
| Alabama                      Power                      Co., Series Q, 5.50% 2017                                                                                                                     |   |   | 4,000                                            |   |   | 4,040 |   |
| Southern                      Power                      Co., Series B, 6.25% 2012                                                                                                                    |   |   | 6,000                                            |   |   | 6,295 |   |
| Oncor                      Electric                      Delivery Co. 6.375% 2012                                                                                                                     |   |   | 13,725                                           |   |   | 14,409 |   |
| Progress                      Energy, Inc. 6.85% 2012                                                                                                                                                 |   |   | 4,000                                            |   |   | 4,255 |   |
| Progress                      Energy Florida, Inc., First Mortgage Bonds, 4.80% 2013                                                                                                                  |   |   | 5,000                                            |   |   | 4,854 |   |
| Carolina                      Power                      & Light Co. d/b/a Progress Energy Carolinas, Inc., First Mortgage                      Bonds, 5.15% 2015                                 |   |   | 5,000                                            |   |   | 4,918 |   |
| Constellation                      Energy Group, Inc. 6.125% 2009                                                                                                                                     |   |   | 11,000                                           |   |   | 11,320 |   |
| Equitable                      Resources, Inc. 5.15% 2012                                                                                                                                             |   |   | 2,500                                            |   |   | 2,510 |   |
| Equitable                      Resources, Inc. 5.15% 2018                                                                                                                                             |   |   | 3,125                                            |   |   | 3,059 |   |
| Southern                      California Gas Co., First Mortgage Bonds, Series II, 4.375%                      2011                                                                                   |   |   | 5,500                                            |   |   | 5,351 |   |
| Public                      Service                      Co. of Colorado, First Collateral Trust Bonds, Series No. 12,                      4.875%                      2013                          |   |   | 5,000                                            |   |   | 4,921 |   |
| MidAmerican                      Energy Co. 5.125% 2013                                                                                                                                               |   |   | 1,500                                            |   |   | 1,492 |   |
| Pacific                      Gas                      and Electric Co., First Mortgage Bonds, 4.20% 2011                                                                                              |   |   | 1,000                                            |   |   | 953 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 529,847 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| INDUSTRIALS—                      0.71%                                                                                                                                                         |   |   |                                             |   |   |   |   |
| Cendant                      Corp.                      6.875% 2006                                                                                                                                   |   |   | 17,588                                           |   |   | 17,819 |   |
| Cendant                      Corp.                      6.25% 2008                                                                                                                                    |   |   | 21,500                                           |   |   | 21,882 |   |
| Cendant                      Corp.                      7.375% 2013                                                                                                                                   |   |   | 24,355                                           |   |   | 26,654 |   |
| General                      Electric Capital Corp., Series A, 5.00% 2007                                                                                                                             |   |   | 47,500                                           |   |   | 47,706 |   |
| General                      Electric Capital Corp. 4.25% 2008                                                                                                                                        |   |   | 10,000                                           |   |   | 9,887 |   |
| BAE                      SYSTEMS                      2001 Asset Trust, Series 2001, Class B, 7.156% 20113,5                                                                                          |   |   | 42,756                                           |   |   | 44,761 |   |
| Waste                      Management, Inc. 6.50% 2008                                                                                                                                                |   |   | 6,180                                            |   |   | 6,421 |   |
| Waste                      Management, Inc. 6.875% 2009                                                                                                                                               |   |   | 15,000                                           |   |   | 15,838 |   |
| Waste                      Management, Inc. 7.375% 2010                                                                                                                                               |   |   | 15,000                                           |   |   | 16,325 |   |
| Waste                      Management, Inc. 5.00% 2014                                                                                                                                                |   |   | 890                                              |   |   | 864 |   |
| American                      Airlines, Inc., Series 2001-2, Class B, 8.608% 2012                                                                                                                     |   |   | 10,000                                           |   |   | 9,487 |   |
| American                      Airlines, Inc., Series 2001-2, Class A-2, 7.858% 2013                                                                                                                   |   |   | 15,530                                           |   |   | 15,932 |   |
| Continental                      Airlines, Inc., Series 1997-4, Class A, 6.90% 20195                                                                                                                  |   | $      | 4,818                                            |   | $      | 4,665 |   |
| Continental                      Airlines, Inc., Series 1999-1, Class A, 6.545% 20205                                                                                                                 |   |   | 4,033                                            |   |   | 3,904 |   |
| Continental                      Airlines, Inc., Series 2000-1, Class A-1, 8.048% 20225                                                                                                               |   |   | 14,904                                           |   |   | 14,790 |   |
| Tyco                      International Group SA 6.125% 2008                                                                                                                                          |   |   | 13,000                                           |   |   | 13,411 |   |
| Tyco                      International Group SA 6.125% 2009                                                                                                                                          |   |   | 7,000                                            |   |   | 7,221 |   |
| Caterpillar                      Financial Services Corp., Series F, 4.30% 20084                                                                                                                      |   |   | 2,000                                            |   |   | 2,001 |   |
| Caterpillar                      Inc. 4.50% 2009                                                                                                                                                      |   |   | 2,500                                            |   |   | 2,470 |   |
| Caterpillar                      Financial Services Corp. 4.30% 2010                                                                                                                                  |   |   | 14,300                                           |   |   | 13,949 |   |
| Bombardier                      Inc. 6.30% 20143                                                                                                                                                      |   |   | 21,000                                           |   |   | 18,270 |   |
| Raytheon                      Co.                      4.85% 2011                                                                                                                                     |   |   | 16,000                                           |   |   | 15,801 |   |
| Hutchison                      Whampoa International Ltd. 6.50% 20133                                                                                                                                 |   |   | 11,800                                           |   |   | 12,391 |   |
| Northwest                      Airlines, Inc., Series 1999-2, Class A, 7.575% 20205                                                                                                                   |   |   | 10,853                                           |   |   | 10,795 |   |
| Northwest                      Airlines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.264%                      20235                                                                              |   |   | 841                                              |   |   | 829 |   |
| Delta                      Air                      Lines, Inc., Series 2001-1, Class A-2, 7.111% 2013                                                                                                |   |   | 5,000                                            |   |   | 4,867 |   |
| Delta                      Air                      Lines, Inc., Series 2002-1, Class C, 7.779% 20135                                                                                                 |   |   | 7,450                                            |   |   | 5,070 |   |
| Delta                      Air                      Lines, Inc., 1991 Equipment Certificates Trust, Series K, 10.00%                      20143,5,7                                                   |   |   | 2,000                                            |   |   | 460 |   |
| Southwest                      Airlines Co., Series 2001-1, Class A-2, 5.496% 20065                                                                                                                   |   |   | 1,400                                            |   |   | 1,410 |   |
| Southwest                      Airlines Co., Series 2001-1, Class B, 6.126% 20065                                                                                                                     |   |   | 8,500                                            |   |   | 8,549 |   |
| American                      Standard Inc. 7.625% 2010                                                                                                                                               |   |   | 7,000                                            |   |   | 7,606 |   |
| Northrop                      Grumman Systems Corp. 7.125% 2011                                                                                                                                       |   |   | 5,000                                            |   |   | 5,466 |   |
| John                      Deere                      Capital Corp. 3.90% 2008                                                                                                                         |   |   | 3,000                                            |   |   | 2,942 |   |
| Deere&                      Co. 8.95% 2019                                                                                                                                                        |   |   | 2,000                                            |   |   | 2,246 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 392,689 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| HEALTH                      CARE —                      0.61%                                                                                                                                   |   |   |                                             |   |   |   |   |
| Allegiance                      Corp. 7.30% 2006                                                                                                                                                      |   |   | 7,385                                            |   |   | 7,537 |   |
| Cardinal                      Health, Inc. 6.25% 2008                                                                                                                                                 |   |   | 13,155                                           |   |   | 13,517 |   |
| Cardinal                      Health, Inc. 6.75% 2011                                                                                                                                                 |   |   | 100,250                                          |   |   | 106,783 |   |
| UnitedHealth                      Group Inc. 7.50% 2005                                                                                                                                               |   |   | 10,770                                           |   |   | 10,779 |   |
| UnitedHealth                      Group Inc. 3.30% 2008                                                                                                                                               |   |   | 7,500                                            |   |   | 7,257 |   |
| UnitedHealth                      Group Inc. 3.75% 2009                                                                                                                                               |   |   | 10,000                                           |   |   | 9,654 |   |
| UnitedHealth                      Group Inc. 4.125% 2009                                                                                                                                              |   |   | 22,000                                           |   |   | 21,398 |   |
| Hospira,                      Inc.                      4.95% 2009                                                                                                                                    |   |   | 48,950                                           |   |   | 48,588 |   |
| Wyeth                      4.375%                      20084                                                                                                                                          |   |   | 45,250                                           |   |   | 44,765 |   |
| Aetna                      Inc.                      7.375% 2006                                                                                                                                      |   |   | 17,250                                           |   |   | 17,404 |   |
| Schering-Plough                      Corp. 5.55% 20134                                                                                                                                                |   |   | 14,000                                           |   |   | 14,196 |   |
| Humana                      Inc.                      7.25% 2006                                                                                                                                      |   |   | 12,850                                           |   |   | 13,023 |   |
| Health                      Net,                      Inc. 9.875% 20114                                                                                                                               |   |   | 9,000                                            |   |   | 10,483 |   |
| Amgen                      Inc.                      4.00% 2009                                                                                                                                       |   |   | 10,000                                           |   |   | 9,690 |   |
| Columbia/HCA                      Healthcare Corp. 7.25% 2008                                                                                                                                         |   |   | 5,000                                            |   |   | 5,187 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 340,261 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MATERIALS—                      0.49%                                                                                                                                                           |   |   |                                             |   |   |   |   |
| Norske                      Skogindustrier ASA 7.625% 20113                                                                                                                                           |   |   | 58,490                                           |   |   | 62,702 |   |
| Norske                      Skogindustrier ASA 6.125% 20153                                                                                                                                           |   |   | 1,250                                            |   |   | 1,209 |   |
| Weyerhaeuser                      Co. 5.95% 2008                                                                                                                                                      |   |   | 13,941                                           |   |   | 14,278 |   |
| Weyerhaeuser                      Co. 5.25% 2009                                                                                                                                                      |   |   | 20,024                                           |   |   | 19,987 |   |
| Weyerhaeuser                      Co. 6.75% 2012                                                                                                                                                      |   |   | 19,330                                           |   |   | 20,495 |   |
| Weyerhaeuser                      Co. 6.875% 2033                                                                                                                                                     |   |   | 4,000                                            |   |   | 4,084 |   |
| UPM-Kymmene                      Corp. 5.625% 20143                                                                                                                                                   |   |   | 29,500                                           |   |   | 29,069 |   |
| International                      Paper Co. 4.00% 2010                                                                                                                                               |   |   | 10,915                                           |   |   | 10,226 |   |
| International                      Paper Co. 6.75% 2011                                                                                                                                               |   |   | 8,500                                            |   |   | 8,950 |   |
| International                      Paper Co. 5.85% 2012                                                                                                                                               |   |   | 9,085                                            |   |   | 9,113 |   |
| Packaging                      Corp. of America 4.375% 2008                                                                                                                                           |   |   | 25,000                                           |   |   | 24,226 |   |
| Dow                      Chemical                      Co. 5.00% 2007                                                                                                                                 |   |   | 10,500                                           |   |   | 10,547 |   |
| Dow                      Chemical                      Co. 5.75% 2008                                                                                                                                 |   |   | 10,500                                           |   |   | 10,792 |   |
| Teck                      Cominco                      Ltd. 5.375% 2015                                                                                                                               |   |   | 11,000                                           |   |   | 10,712 |   |
| Alcan                      Inc.                      6.45% 2011                                                                                                                                       |   | $      | 1,000                                            |   | $      | 1,052 |   |
| Alcan                      Inc.                      5.20% 2014                                                                                                                                       |   |   | 8,000                                            |   |   | 7,855 |   |
| ICI                      Wilmington, Inc. 4.375% 2008                                                                                                                                                 |   |   | 4,000                                            |   |   | 3,913 |   |
| ICI                      Wilmington, Inc. 5.625% 2013                                                                                                                                                 |   |   | 3,000                                            |   |   | 2,979 |   |
| Yara                      International ASA 5.25% 20143                                                                                                                                               |   |   | 6,000                                            |   |   | 5,796 |   |
| MeadWestvaco                      Corp. 2.75% 2005                                                                                                                                                    |   |   | 5,500                                            |   |   | 5,489 |   |
| Temple-Inland                      Inc., Series F, 6.75% 2009                                                                                                                                         |   |   | 500                                              |   |   | 515 |   |
| Temple-Inland                      Inc. 7.875% 2012                                                                                                                                                   |   |   | 3,500                                            |   |   | 3,821 |   |
| Praxair,                      Inc.                      3.95% 2013                                                                                                                                    |   |   | 4,000                                            |   |   | 3,722 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 271,532 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| ENERGY—                      0.49%                                                                                                                                                              |   |   |                                             |   |   |   |   |
| Devon                      Financing Corp., ULC 6.875% 2011                                                                                                                                           |   |   | 75,500                                           |   |   | 81,852 |   |
| Apache                      Corp.                      6.25% 2012                                                                                                                                     |   |   | 38,000                                           |   |   | 40,788 |   |
| Phillips                      Petroleum Co. 8.75% 2010                                                                                                                                                |   |   | 34,000                                           |   |   | 39,313 |   |
| Williams                      Companies, Inc. 7.125% 2011                                                                                                                                             |   |   | 10,000                                           |   |   | 10,362 |   |
| Williams                      Companies, Inc. 8.125% 2012                                                                                                                                             |   |   | 16,300                                           |   |   | 17,686 |   |
| Transcontinental                      Gas Pipe Line Corp., Series B, 8.875% 2012                                                                                                                      |   |   | 8,000                                            |   |   | 9,200 |   |
| Ras                      Laffan                      Liquefied Natural Gas Co. Ltd. 3.437% 20093,5                                                                                                    |   |   | 6,642                                            |   |   | 6,404 |   |
| Ras                      Laffan                      Liquefied Natural Gas Co. Ltd. 3.437% 20095                                                                                                      |   |   | 1,047                                            |   |   | 1,009 |   |
| Ras                      Laffan                      Liquefied Natural Gas II 5.298% 20203                                                                                                            |   |   | 24,650                                           |   |   | 24,158 |   |
| Sunoco,                      Inc.                      6.75% 2011                                                                                                                                     |   |   | 7,500                                            |   |   | 8,034 |   |
| Sunoco,                      Inc.                      4.875% 2014                                                                                                                                    |   |   | 9,250                                            |   |   | 8,937 |   |
| Pemex                      Finance                      Ltd. 8.875% 20105                                                                                                                             |   |   | 12,427                                           |   |   | 13,777 |   |
| El                      Paso Corp.                      7.875% 2012                                                                                                                                   |   |   | 8,000                                            |   |   | 8,200 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 269,720 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| CONSUMER                      STAPLES — 0.24%                                                                                                                                                   |   |   |                                             |   |   |   |   |
| Wal-Mart                      Stores, Inc. 8.00% 2006                                                                                                                                                 |   |   | 9,500                                            |   |   | 9,741 |   |
| Wal-Mart                      Stores, Inc. 6.875% 2009                                                                                                                                                |   |   | 13,650                                           |   |   | 14,577 |   |
| Wal-Mart                      Stores, Inc. 4.125% 2010                                                                                                                                                |   |   | 7,500                                            |   |   | 7,245 |   |
| Anheuser-Busch                      Companies, Inc. 9.00% 2009                                                                                                                                        |   |   | 12,000                                           |   |   | 13,819 |   |
| Anheuser-Busch                      Companies, Inc. 7.50% 2012                                                                                                                                        |   |   | 8,000                                            |   |   | 9,099 |   |
| Diageo                      Capital                      PLC 4.375% 2010                                                                                                                              |   |   | 12,000                                           |   |   | 11,718 |   |
| Diageo                      Finance                      BV 5.30% 2015                                                                                                                                |   |   | 2,300                                            |   |   | 2,294 |   |
| Kraft                      Foods                      Inc. 4.625% 2006                                                                                                                                |   |   | 1,000                                            |   |   | 997 |   |
| Kraft                      Foods                      Inc. 6.25% 2012                                                                                                                                 |   |   | 1,855                                            |   |   | 1,953 |   |
| Kraft                      Foods                      Inc. 6.50% 2031                                                                                                                                 |   |   | 500                                              |   |   | 541 |   |
| Nabisco,                      Inc.                      7.05% 2007                                                                                                                                    |   |   | 1,000                                            |   |   | 1,035 |   |
| Nabisco,                      Inc.                      7.55% 2015                                                                                                                                    |   |   | 6,645                                            |   |   | 7,741 |   |
| CVS                      Corp.                      4.00% 2009                                                                                                                                        |   |   | 10,000                                           |   |   | 9,626 |   |
| CVS                      Corp.                      6.117% 20133,5                                                                                                                                    |   |   | 2,231                                            |   |   | 2,306 |   |
| Pepsi                      Bottling                      Group, Inc. 5.625% 20093                                                                                                                     |   |   | 10,000                                           |   |   | 10,242 |   |
| Molson                      Coors                      Capital Finance ULC 4.85% 20103                                                                                                                |   |   | 7,500                                            |   |   | 7,373 |   |
| Kellogg                      Co.                      6.60% 2011                                                                                                                                      |   |   | 5,250                                            |   |   | 5,630 |   |
| Kellogg                      Co.                      7.45% 2031                                                                                                                                      |   |   | 500                                              |   |   | 614 |   |
| PepsiAmericas,                      Inc. 4.875% 2015                                                                                                                                                  |   |   | 6,000                                            |   |   | 5,844 |   |
| SUPERVALU                      INC.                      7.50% 2012                                                                                                                                   |   |   | 5,220                                            |   |   | 5,582 |   |
| Cadbury                      Schweppes US Finance LLC 5.125% 20133                                                                                                                                    |   |   | 5,500                                            |   |   | 5,427 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 133,404 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| INFORMATION                      TECHNOLOGY — 0.16%                                                                                                                                             |   |   |                                             |   |   |   |   |
| Electronic                      Data Systems Corp., Series B, 6.50% 20134                                                                                                                             |   |   | 53,000                                           |   |   | 53,522 |   |
| Motorola,                      Inc.                      4.608% 2007                                                                                                                                  |   |   | 12,500                                           |   |   | 12,444 |   |
| Motorola,                      Inc.                      7.625% 2010                                                                                                                                  |   |   | 2,385                                            |   |   | 2,664 |   |
| Motorola,                      Inc.                      8.00% 2011                                                                                                                                   |   |   | 10,000                                           |   |   | 11,548 |   |
| Jabil                      Circuit,                      Inc. 5.875% 2010                                                                                                                             |   |   | 7,500                                            |   |   | 7,610 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 87,788 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| MUNICIPALS—                      0.10%                                                                                                                                                          |   |   |                                             |   |   |   |   |
| State                      of                      California, Golden State Tobacco Securitization Corp., Tobacco                      Settlement                      Asset-backed Bonds,            |   |   |                                             |   |   |   |   |
| Series                      2003-A1, 6.25% 2033                                                                                                                                                       |   | $      | 15,580                                           |   | $      | 17,120 |   |
| State                      of                      Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco                      Settlement                      Asset-backed Bonds, 6.125% 2027 |   |   | 14,665                                           |   |   | 15,551 |   |
| State                      of South                      Dakota, Educational Enhancement Funding Corp., Tobacco Settlement                      Asset-backed Bonds,                                   |   |   |                                             |   |   |   |   |
| Series                      2002-A,                      Class A, 6.72% 20255                                                                                                                         |   |   | 10,195                                           |   |   | 10,091 |   |
| State                      of                      Louisiana, Tobacco Settlement Authority, Asset-backed Bonds,                      Series                      2001-B, 5.50% 2030                   |   |   | 6,020                                            |   |   | 6,174 |   |
| State                      of                      Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement                      Asset-backed Bonds,                                         |   |   |                                             |   |   |   |   |
| Series                      2001-A,                      Class A, 6.36% 20255                                                                                                                         |   |   | 6,007                                            |   |   | 5,991 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 54,927 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| NON-U.S.                      GOVERNMENT BONDS & NOTES — 0.04%                                                                                                                              |   |   |                                             |   |   |   |   |
| United                      Mexican                      States Government Global 4.625% 2008                                                                                                         |   |   | 12,200                                           |   |   | 12,069 |   |
| Corporación                      Andina de Fomento 6.875% 2012                                                                                                                                   |   |   | 10,000                                           |   |   | 10,825 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   | 22,894 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Total                      bonds                      & notes (cost: $12,245,739,000)                                                                                                             |   |   |                                             |   |   | 12,095,987 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Short-term                      securities — 11.35%                                                                                                                                             |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Federal                      Home                      Loan Bank 3.585%-3.93% due 11/9-12/28/20058                                                                                                    |   |   | 453,228                                          |   |   | 451,198 |   |
| Variable                      Funding Capital Corp. 3.67%-4.05% due 11/4/2005-1/12/20063                                                                                                              |   |   | 365,300                                          |   |   | 363,700 |   |
| CAFCO                      LLC                      3.68%-4.07% due 11/4/2005-1/17/20063                                                                                                              |   |   | 287,428                                          |   |   | 286,333 |   |
| Ciesco                      LLC                      4.14% due 1/24/20063                                                                                                                             |   |   | 50,000                                           |   |   | 49,514 |   |
| Wal-Mart                      Stores Inc. 3.63%-3.89% due 11/8-12/13/20053                                                                                                                            |   |   | 306,800                                          |   |   | 305,785 |   |
| Freddie                      Mac                      3.58%-3.99% due 11/1/2005-1/10/2006                                                                                                             |   |   | 292,100                                          |   |   | 290,580 |   |
| International                      Lease Finance Corp. 3.66%-4.05% due 11/14/2005-1/5/20068                                                                                                           |   |   | 290,100                                          |   |   | 289,056 |   |
| Wells                      Fargo                      & Co. 3.73%-4.01% due 11/2-12/14/2005                                                                                                       |   |   | 283,200                                          |   |   | 283,200 |   |
| Procter&                      Gamble Co. 3.62%-4.02% due 11/7/2005-1/19/20063                                                                                                                     |   |   | 283,228                                          |   |   | 282,055 |   |
| Bank                      of                      America Corp. 3.68%-3.97% due 11/1-12/13/2005                                                                                                       |   |   | 235,000                                          |   |   | 234,430 |   |
| Ranger                      Funding                      Co. LLC 3.90%-3.92% due 11/15-11/22/20053                                                                                                    |   |   | 44,700                                           |   |   | 44,616 |   |
| JP                      Morgan                      Chase & Co. 3.74%-3.95% due 11/1-12/9/2005                                                                                                    |   |   | 85,000                                           |   |   | 84,782 |   |
| Preferred                      Receivables Funding Corp. 3.84% due 11/9/20053                                                                                                                         |   |   | 35,000                                           |   |   | 34,966 |   |
| Park                      Avenue                      Receivables Co. LLC 3.71%-4.00% due 11/9-11/29/20053                                                                                            |   |   | 158,500                                          |   |   | 158,229 |   |
| U.S.                      Treasury                      Bills 3.365%-3.826% due 12/1/2005-1/26/20068                                                                                                  |   |   | 273,700                                          |   |   | 272,439 |   |
| International                      Bank for Reconstruction and Development 3.54%-3.80% due                      12/7-12/20/20058                                                                      |   |   | 237,800                                          |   |   | 236,618 |   |
| DuPont                      (E.I.)                      de Nemours & Co. 3.72%-3.85% due 11/3-12/6/2005                                                                                           |   |   | 220,600                                          |   |   | 220,064 |   |
| Pfizer                      Inc                      3.71%-3.955% due 11/17-12/5/20053                                                                                                                |   |   | 220,500                                          |   |   | 219,889 |   |
| Clipper                      Receivables Co. LLC 3.67%-3.95% due 11/7/2005-1/9/20063                                                                                                                  |   |   | 212,500                                          |   |   | 211,877 |   |
| Gannett                      Co.                      3.73%-3.94% due 11/2-12/7/20053                                                                                                                 |   |   | 209,100                                          |   |   | 208,559 |   |
| Tennessee                      Valley Authority 3.63%-3.795% due 11/17-12/15/2005                                                                                                                     |   |   | 198,840                                          |   |   | 197,990 |   |
| General                      Electric Capital Corp. 3.65% due 11/2/2005                                                                                                                               |   |   | 50,000                                           |   |   | 49,991 |   |
| General                      Electric Capital Services Inc. 3.64%-3.67% due                      11/3/2005-1/11/2006                                                                                  |   |   | 78,500                                           |   |   | 78,256 |   |
| Edison                      Asset                      Securitization LLC 3.97% due 12/14-12/19/20053,8                                                                                               |   |   | 52,200                                           |   |   | 51,935 |   |
| Federal                      Farm                      Credit Banks 3.58%-3.70% due 11/1-12/23/2005                                                                                                   |   |   | 166,000                                          |   |   | 165,341 |   |
| HSBC                      Finance                      Corp. 3.94%-4.06% due 12/12/2005-1/18/2006                                                                                                     |   |   | 160,000                                          |   |   | 158,839 |   |
| Coca-Cola                      Co.                      3.57%-4.04% due 11/2/2005-1/20/2006                                                                                                           |   |   | 150,300                                          |   |   | 149,594 |   |
| SBC                      Communications Inc. 3.75%-3.97% due 11/8-11/29/20053                                                                                                                         |   |   | 132,600                                          |   |   | 132,247 |   |
| BellSouth                      Corp. 3.74%-3.85% due 11/16-11/29/20053                                                                                                                                |   |   | 97,500                                           |   |   | 97,241 |   |
| Private                      Export                      Funding Corp. 3.66%-3.80% due 11/15-12/20/20053                                                                                              |   |   | 71,500                                           |   |   | 71,234 |   |
| American                      Express Credit Corp. 3.73%-4.12% due 11/21/2005-1/9/2006                                                                                                                |   |   | 65,000                                           |   |   | 64,630 |   |
| Netjets                      Inc.                      3.68%-3.97% due 11/10-12/27/20053                                                                                                              |   |   | 60,000                                           |   |   | 59,835 |   |
| FCAR                      Owner                      Trust 4.10% due 12/9/2005                                                                                                                        |   |   | 50,000                                           |   |   | 49,783 |   |
| Hershey                      Co.                      3.60%-3.64% due 11/7-11/10/20053                                                                                                                |   |   | 49,000                                           |   |   | 48,955 |   |
| Triple-A                      One                      Funding Corp. 3.85% due 11/14/20053                                                                                                            |   |   | 48,500                                           |   |   | 48,427 |   |
| PepsiCo                      Inc.                      3.73% due 11/4/20053                                                                                                                           |   |   | 42,900                                           |   |   | 42,882 |   |
| The                      Concentrate Manufacturing Co. of Ireland 3.96% due                      11/28/2005                                                                                           |   | $      | 3,300                                            |   | $      | 3,290 |   |
| Colgate-Palmolive                      Co. 3.72% due 11/1/20053                                                                                                                                       |   |   | 43,400                                           |   |   | 43,396 |   |
| Kimberly-Clark                      Worldwide Inc. 3.86% due 11/18/20053                                                                                                                              |   |   | 36,500                                           |   |   | 36,430 |   |
| Illinois                      Tool                      Works Inc. 3.92% due 11/21/2005                                                                                                               |   |   | 36,500                                           |   |   | 36,416 |   |
| United                      Parcel                      Service Inc. 3.72% due 12/2/2005                                                                                                              |   |   | 36,500                                           |   |   | 36,381 |   |
| 3M                      Co. 3.86%                      due 11/23/2005                                                                                                                                 |   |   | 30,000                                           |   |   | 29,926 |   |
| USAA                      Capital                      Corp. 3.64% due 11/15/2005                                                                                                                     |   |   | 26,000                                           |   |   | 25,960 |   |
| Medtronic                      Inc.                      3.73% due 11/2/20053                                                                                                                         |   |   | 25,000                                           |   |   | 24,995 |   |
| Bank                      of New                      York Co., Inc. 3.93% due 11/30/2005                                                                                                             |   |   | 25,000                                           |   |   | 24,918 |   |
| Anheuser-Busch                      Companies, Inc. 3.70% due 12/12/20053                                                                                                                             |   |   | 25,000                                           |   |   | 24,887 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Total                      short-term securities (cost: $6,281,915,000)                                                                                                                               |   |   |                                             |   |   | 6,281,669 |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Total                      investment securities (cost: $49,494,509,000)                                                                                                                              |   |   |                                             |   |   | 55,772,836 |   |
| Other                      assets                      less liabilities                                                                                                                               |   |   |                                             |   |   | (422,243 | ) |
|                                                                                                                                                                                                  |   |   |                                             |   |   |   |   |
| Net                      assets                                                                                                                                                                       |   |   |                                             |   | $      | 55,350,593 |   |

| Financial                    statements                                                                                                                     |   |   |        |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|
|                                                                                                                                                        |   |   |        |   |   |
| **Statement                    of assets and liabilities**                                                                                                  |   |   |        |   |   |
| at                    October 31,                    2005 (dollars                    and                    shares in thousands, except per-share amounts) |   |   |        |   |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |
| **Assets:**                                                                                                                                                 |   |   |        |   |   |   |   |
| Investment                    securities at market:                                                                                                         |   |   |        |   |   |   |   |
| Unaffiliated                    issuers (cost:$ 48,364,863)                                                                                                 |   |   | $54,400,107 |   |   |   |   |
| Affiliated                    issuers (cost:$1,129,647)                                                                                                     |   |   | 1,372,729   |   |   | $55,772,836 |   |
| Cash                    denominated in non-U.S. currencies                                                                                                  |   |   |        |   |   |   |   |
| (cost:                    $2,979)                                                                                                                           |   |   |        |   |   | 2,951 |   |
| Cash                                                                                                                                                        |   |   |        |   |   | 50,686 |   |
| Receivables                    for:                                                                                                                         |   |   |        |   |   |   |   |
| Sales                    of                    investments                                                                                                  |   |   | 22,525      |   |   |   |   |
| Sales                    of                    fund's shares                                                                                                |   |   | 177,217     |   |   |   |   |
| Dividends                    and                    interest                                                                                                |   |   | 214,789     |   |   | 414,531 |   |
|                                                                                                                                                        |   |   |        |   |   | 56,241,004 |   |
| **Liabilities:**                                                                                                                                            |   |   |        |   |   |   |   |
| Payables                    for:                                                                                                                            |   |   |        |   |   |   |   |
| Purchases                    of                    investments                                                                                              |   |   | 606,652     |   |   |   |   |
| Repurchases                    of                    fund's shares                                                                                          |   |   | 33,923      |   |   |   |   |
| Dividends                    on                    fund's shares                                                                                            |   |   | 212,235     |   |   |   |   |
| Investment                    advisory services                                                                                                             |   |   | 9,771       |   |   |   |   |
| Services                    provided by affiliates                                                                                                          |   |   | 26,145      |   |   |   |   |
| Deferred                    Directors' compensation                                                                                                         |   |   | 865         |   |   |   |   |
| Other                    fees and                    expenses                                                                                               |   |   | 820         |   |   | 890,411 |   |
| **Net                    assets at October 31, 2005**                                                                                                       |   |   |        |   |   | $55,350,593 |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |
| **Net                    assets consist of:**                                                                                                               |   |   |        |   |   |   |   |
| Capital                    paid                    in on shares of capital stock                                                                            |   |   |        |   |   | $48,394,641 |   |
| Undistributed                    net investment income                                                                                                      |   |   |        |   |   | 317,444 |   |
| Undistributed                    net realized gain                                                                                                          |   |   |        |   |   | 360,543 |   |
| Net                    unrealized                    appreciation                                                                                           |   |   |        |   |   | 6,277,965 |   |
| **Net                    assets at October 31, 2005**                                                                                                       |   |   |        |   |   | $55,350,593 |   |

| Total                    authorized capital stock - 2,000,000 shares, $.01 par value (1,052,664                    total shares outstanding)                                                                                                                                                                                                     |   |                          |        |                                  |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|-------------|---------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                             |   | Net                    assets |        | Shares                    outstanding |   | Net                    asset                    value per                    share(1) |   |
|                                                                                                                                                                                                                                                                                                                                             |   |                          |        |                                  |   |   |   |   |   |   |
| Class                    A                                                                                                                                                                                                                                                                                                                       |   |                          | $42,303,428 |                                  |   | 804,531 |   |   | $52.58 |   |
| Class                    B                                                                                                                                                                                                                                                                                                                       |   |                          | 3,371,112   |                                  |   | 64,112 |   |   | 52.58 |   |
| Class                    C                                                                                                                                                                                                                                                                                                                       |   |                          | 5,867,181   |                                  |   | 111,583 |   |   | 52.58 |   |
| Class                    F                                                                                                                                                                                                                                                                                                                       |   |                          | 2,140,548   |                                  |   | 40,709 |   |   | 52.58 |   |
| Class                    529-A                                                                                                                                                                                                                                                                                                                   |   |                          | 457,534     |                                  |   | 8,702 |   |   | 52.58 |   |
| Class                    529-B                                                                                                                                                                                                                                                                                                                   |   |                          | 83,114      |                                  |   | 1,581 |   |   | 52.58 |   |
| Class                    529-C                                                                                                                                                                                                                                                                                                                   |   |                          | 191,782     |                                  |   | 3,647 |   |   | 52.58 |   |
| Class                    529-E                                                                                                                                                                                                                                                                                                                   |   |                          | 25,085      |                                  |   | 477 |   |   | 52.58 |   |
| Class                    529-F                                                                                                                                                                                                                                                                                                                   |   |                          | 6,340       |                                  |   | 121 |   |   | 52.58 |   |
| Class                    R-1                                                                                                                                                                                                                                                                                                                     |   |                          | 33,675      |                                  |   | 641 |   |   | 52.58 |   |
| Class                    R-2                                                                                                                                                                                                                                                                                                                     |   |                          | 240,726     |                                  |   | 4,578 |   |   | 52.58 |   |
| Class                    R-3                                                                                                                                                                                                                                                                                                                     |   |                          | 268,069     |                                  |   | 5,098 |   |   | 52.58 |   |
| Class                    R-4                                                                                                                                                                                                                                                                                                                     |   |                          | 70,051      |                                  |   | 1,332 |   |   | 52.58 |   |
| Class                    R-5                                                                                                                                                                                                                                                                                                                     |   |                          | 291,948     |                                  |   | 5,552 |   |   | 52.58 |   |
| (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 prices per share were $55.79 each. |

| See                      Notes to                      Financial Statements |   |   |   |
|-----------------------------------------------------------------------------|--------|--------|--------|

|                                                                                                                                                                                    |   |                                                                  |       |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|------------|--------|--------|
| **Statement                      of operations**                                                                                                                                        |   |                                                                  |       |   |   |
| for                      the year                      ended October 31, 2005                                                                                                           |   |  (dollars                      in thousands)                     |
| **Investment                      income:**                                                                                                                                             |   |                                                                  |       |   |   |   |   |
| Income:                                                                                                                                                                                 |   |                                                                  |            |   |   |   |   |
| Dividends                      (net of non-U.S. withholding                                                                                                                             |   |                                                                  |       |   |   |   |   |
| tax                      of                      $84,169; also includes                                                                                                                 |   |                                                                  |       |   |   |   |   |
| $65,982                      from                      affiliates)                                                                                                                      |   | $                                                                     | 1,469,211  |   |   |   |   |
| Interest                      (net                      of non-U.S. withholding                                                                                                         |   |                                                                  |       |   |   |   |   |
| tax                      of $44;                      also includes                                                                                                                     |   |                                                                  |       |   |   |   |   |
| $1,122                      from                      affiliates)                                                                                                                       |   |                                                                  | 597,182    |   | $      | 2,066,393 |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| Fees                      and                      expenses:(1)                                                                                                                         |   |                                                                  |       |   |   |   |   |
| Investment                      advisory services                                                                                                                                       |   |                                                                  | 124,219    |   |   |   |   |
| Distribution                      services                                                                                                                                              |   |                                                                  | 171,247    |   |   |   |   |
| Transfer                      agent services                                                                                                                                            |   |                                                                  | 28,582     |   |   |   |   |
| Administrative                      services                                                                                                                                            |   |                                                                  | 12,976     |   |   |   |   |
| Reports                      to                      shareholders                                                                                                                       |   |                                                                  | 1,087      |   |   |   |   |
| Registration                      statement and prospectus                                                                                                                              |   |                                                                  | 3,187      |   |   |   |   |
| Postage,                      stationery and supplies                                                                                                                                   |   |                                                                  | 3,459      |   |   |   |   |
| Directors'                      compensation                                                                                                                                            |   |                                                                  | 465        |   |   |   |   |
| Auditing                      and                      legal                                                                                                                            |   |                                                                  | 244        |   |   |   |   |
| Custodian                                                                                                                                                                               |   |                                                                  | 6,016      |   |   |   |   |
| State                      and                      local taxes                                                                                                                         |   |                                                                  | 333        |   |   |   |   |
| Other                                                                                                                                                                                   |   |                                                                  | 181        |   |   |   |   |
| Total                      fees                      and expenses before reimbursements/waivers                                                                                         |   |                                                                  | 351,996    |   |   |   |   |
| Less                      reimbursement/waiver of fees and expenses:                                                                                                                    |   |                                                                  |       |   |   |   |   |
| Investment                      advisory services                                                                                                                                       |   |                                                                  | 10,169     |   |   |   |   |
| Administrative                      services                                                                                                                                            |   |                                                                  | 283        |   |   |   |   |
| Total                      fees                      and expenses after reimbursements/waivers                                                                                          |   |                                                                  |       |   |   | 341,544 |   |
| Net                      investment income                                                                                                                                              |   |                                                                  |       |   |   | 1,724,849 |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| **Net                      realized gain and change in unrealized**                                                                                                                     |   |                                                                  |       |   |   |   |   |
| **appreciation                      on investments**                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| **and                      non-U.S. currency:**                                                                                                                                         |   |                                                                  |       |   |   |   |   |
| Net                      realized                      gain (loss) on:                                                                                                                  |   |                                                                  |       |   |   |   |   |
| Investments                      (including $44,128 net gain from affiliates)                                                                                                           |   |                                                                  | 805,443    |   |   |   |   |
| Non-U.S.                      currency transactions                                                                                                                                     |   |                                                                  | (5,482     | )      |   | 799,961 |   |
| Net                      change in                      unrealized appreciation (depreciation) on:                                                                                      |   |                                                                  |       |   |   |   |   |
| Investments                                                                                                                                                                             |   |                                                                  | 1,044,467  |   |   |   |   |
| Non-U.S.                      currency translations                                                                                                                                     |   |                                                                  | (681       | )      |   | 1,043,786 |   |
| Net                      realized                      gain and change in                                                                                                               |   |                                                                  |       |   |   |   |   |
| unrealized                      appreciation                                                                                                                                            |   |                                                                  |       |   |   |   |   |
| on                      investments and non-U.S. currency                                                                                                                               |   |                                                                  |       |   |   | 1,843,747 |   |
| **Net                      increase in net assets resulting**                                                                                                                           |   |                                                                  |       |   |   |   |   |
| **from                      operations**                                                                                                                                                |   |                                                                  |       |   | $      | 3,568,596 |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| (1)                      Additional information related to class-specific fees and expenses                      is                      included in the Notes to Financial Statements. |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| See                      Notes to                      Financial Statements                                                                                                             |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| **Statements                      of changes in net assets**                                                                                                                            |   | (dollars                      in thousands)                           |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
|                                                                                                                                                                                    |   | Year                      ended                      October 31  |
|                                                                                                                                                                                    |   |                                                                  | 2005       |   |   | 2004 |   |
| **Operations:**                                                                                                                                                                         |   |                                                                  |       |   |   |   |   |
| Net                      investment income                                                                                                                                              |   | $                                                                     | 1,724,849  |   | $      | 1,025,334 |   |
| Net                      realized                      gain on investments and                                                                                                          |   |                                                                  |       |   |   |   |   |
| non-U.S.                      currency transactions                                                                                                                                     |   |                                                                  | 799,961    |   |   | 611,081 |   |
| Net                      change in                      unrealized appreciation                                                                                                         |   |                                                                  |       |   |   |   |   |
| on                      investments and non-U.S. currency translations                                                                                                                  |   |                                                                  | 1,043,786  |   |   | 2,797,697 |   |
| Net                      increase                      in net assets                                                                                                                    |   |                                                                  |       |   |   |   |   |
| resulting                      from operations                                                                                                                                          |   |                                                                  | 3,568,596  |   |   | 4,434,112 |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| **Dividends                      and distributions paid or accrued to**                                                                                                                 |   |                                                                  |       |   |   |   |   |
| **shareholders:**                                                                                                                                                                       |   |                                                                  |       |   |   |   |   |
| Dividends                      from net investment income and non-U.S. currency gains                                                                                                   |   |                                                                  | (1,578,505 | )      |   | (1,061,748 | ) |
| Distributions                      from net realized gain                                                                                                                               |   |                                                                  |       |   |   |   |   |
| on                      investments                                                                                                                                                     |   |                                                                  | (675,038   | )      |   | (89,806 | ) |
| Total                      dividends and distributions paid or accrued                                                                                                                  |   |                                                                  |       |   |   |   |   |
| to                      shareholders                                                                                                                                                    |   |                                                                  | (2,253,543 | )      |   | (1,151,554 | ) |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| **Capital                      share transactions**                                                                                                                                     |   |                                                                  | 17,572,318 |   |   | 10,692,160 |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| **Total                      increase in net assets**                                                                                                                                   |   |                                                                  | 18,887,371 |   |   | 13,974,718 |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| **Net                      assets:**                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| Beginning                      of                      year                                                                                                                             |   |                                                                  | 36,463,222 |   |   | 22,488,504 |   |
| End                      of year                      (including undistributed                                                                                                          |   |                                                                  |       |   |   |   |   |
| net                      investment income: $317,444 and $32,399,                                                                                                                       |   |                                                                  |       |   |   |   |   |
| respectively)                                                                                                                                                                           |   | $                                                                     | 55,350,593 |   | $      | 36,463,222 |   |
|                                                                                                                                                                                    |   |                                                                  |       |   |   |   |   |
| See                      Notes to                      Financial Statements                                                                                                             |   |                                                                  |       |   |   |   |   |

**Organization and significant accounting policies**

**Organization**

| **Share                    class**                                       | **Initial                    sales charge**       | **Contingent                    deferred sales charge upon redemption**                                                                                                          | **Conversion                    feature**                                                                                                    |
|--------------------------------------------------------------------------|---------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| Classes                    A and                    529-A                | Up                    to                    5.75% | None                    (except                    1% for certain redemptions within one year of purchase without                    an initial                    sales charge) | None                                                                                                                                         |
| Classes                    B and                    529-B                | None                                              | Declines                    from                    5% to 0% for redemptions within six years of purchase                                                                        | Classes                    B and                    529-B convert to classes A and 529-A, respectively, after eight                    years |
| Class                    C                                               | None                                              | 1%                    for                    redemptions within one year of purchase                                                                                             | Class                    C                    converts to Class F after 10 years                                                             |
| Class                    529-C                                           | None                                              | 1%                    for                    redemptions within one year of purchase                                                                                             | None                                                                                                                                         |
| Class                    529-E                                           | None                                              | None                                                                                                                                                                             | None                                                                                                                                         |
| Classes                    F and                    529-F                | None                                              | None                                                                                                                                                                             | None                                                                                                                                         |
| Classes                    R-1,                    R-2, R-3, R-4 and R-5 | None                                              | None                                                                                                                                                                             | None                                                                                                                                    |

**Significant          accounting policies**

**Security          valuation**

**Security          transactions and related investment income**

**Class          allocations **

**Dividends          and distributions to shareholders**

**Non-U.S.          currency translation**

**Mortgage          dollar rolls – **

**Non-U.S.          investments**

**Investment          risk **

**Taxation**

**Federal          income taxation and          distributions**

**Distributions**
deferred expenses; 

|                                                                               |                  |
|------------------------------------------------------------------------------------|-----------------------|
| Undistributed                    net investment income and non-U.S. currency gains | $788,715    |
| Undistributed                    long-term capital gains                           | 373,293     |
| Gross                    unrealized appreciation on investment securities          | 7,176,059   |
| Gross                    unrealized depreciation on investment securities          | (1,168,653)           |
| Net                    unrealized appreciation on investment securities            | 6,007,406             |

|                             |   | Year                      ended                      October 31, 2005 |                                                          | Year                      ended                      October 31, 2004 |   |
|----------------------------------|--------|-----------------------------------------------------------------------|---------------------------------------------------------------|-----------------------------------------------------------------------|--------|
|                             |   |                                                                  | Distributions                      from ordinary income  |                                                                  |   | Distributions                      from long-term capital gains |   |   | Total                      distributions paid or accrued |   |   | Distributions                      from ordinary income |   |   | Distributions                      from long-term capital gains |   |   | Total                      distributions paid or accrued |   |
| Share                      class |   |                                                                  |                                                          |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Class                      A     |   |                                                                  | 1,269,069                                                     |                                                                  |   | 524,577 |   | $ | 1,793,646 |   | $ | 874,799 |   | $ | 72,464 |   | $ | 947,263 |   |
| Class                      B     |   |                                                                  | 81,617                                                        |                                                                  |   | 45,419 |   |   | 127,036 |   |   | 59,472 |   |   | 6,167 |   |   | 65,639 |   |
| Class                      C     |   |                                                                  | 127,857                                                       |                                                                  |   | 65,805 |   |   | 193,662 |   |   | 74,753 |   |   | 7,105 |   |   | 81,858 |   |
| Class                      F     |   |                                                                  | 58,914                                                        |                                                                  |   | 22,306 |   |   | 81,220 |   |   | 30,229 |   |   | 2,233 |   |   | 32,462 |   |
| Class                      529-A |   |                                                                  | 12,159                                                        |                                                                  |   | 4,587 |   |   | 16,746 |   |   | 6,677 |   |   | 500 |   |   | 7,177 |   |
| Class                      529-B |   |                                                                  | 1,802                                                         |                                                                  |   | 1,013 |   |   | 2,815 |   |   | 1,199 |   |   | 127 |   |   | 1,326 |   |
| Class                      529-C |   |                                                                  | 3,993                                                         |                                                                  |   | 2,113 |   |   | 6,106 |   |   | 2,352 |   |   | 224 |   |   | 2,576 |   |
| Class                      529-E |   |                                                                  | 632                                                           |                                                                  |   | 274 |   |   | 906 |   |   | 365 |   |   | 30 |   |   | 395 |   |
| Class                      529-F |   |                                                                  | 157                                                           |                                                                  |   | 52 |   |   | 209 |   |   | 69 |   |   | 5 |   |   | 74 |   |
| Class                      R-1   |   |                                                                  | 582                                                           |                                                                  |   | 222 |   |   | 804 |   |   | 222 |   |   | 21 |   |   | 243 |   |
| Class                      R-2   |   |                                                                  | 4,972                                                         |                                                                  |   | 2,421 |   |   | 7,393 |   |   | 2,708 |   |   | 238 |   |   | 2,946 |   |
| Class                      R-3   |   |                                                                  | 6,057                                                         |                                                                  |   | 2,337 |   |   | 8,394 |   |   | 2,646 |   |   | 202 |   |   | 2,848 |   |
| Class                      R-4   |   |                                                                  | 1,588                                                         |                                                                  |   | 353 |   |   | 1,941 |   |   | 320 |   |   | 23 |   |   | 343 |   |
| Class                      R-5   |   |                                                                  | 9,106                                                         |                                                                  |   | 3,559 |   |   | 12,665 |   |   | 5,937 |   |   | 467 |   |   | 6,404 |   |
| Total                            |   | $                                                                     | 1,578,505                                                     |                                                                  | $      | 675,038 |   | $ | 2,253,543 |   | $ | 1,061,748 |   | $ | 89,806 |   | $ | 1,151,554 |   |

**Fees          and          transactions with related parties**

**.**

**Investment          advisory services**

**Distribution          services **

| **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                               |

**Transfer          agent services**

**Administrative          services **

| **Share                    class**                  | **Distribution                    services**   | **Transfer                    agent services**                                                                                   | **Administrative                    services** |
|-----------------------------------------------------|------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------|
| **CRMC                    administrative services** | **Transfer                    agent services** | **Commonwealth                    of Virginia administrative services**                                                          |
| Class                    A                          | $82,450                                        | $26,024                                                                                                                          | Not                    applicable              | Not                    applicable | Not                    applicable |
| Class                    B                          |  30,223                                   |  2,558                                                                                                                      | Not                    applicable              | Not                    applicable | Not                    applicable |
| Class                    C                          |  48,483                                   |       Included                    in                    administrative                    services | $6,525                                         | $804 | Not                    applicable |
| Class                    F                          |  4,332                                    |  2,106                                                                                                                      |  258                                      | Not                    applicable |
| Class                    529-A                      |  658                                      |  419                                                                                                                        |  40                                       | $359 |
| Class                    529-B                      |  709                                      |  84                                                                                                                         |  26                                       |  71 |
| Class                    529-C                      |  1,556                                    |  184                                                                                                                        |  42                                       |  156 |
| Class                    529-E                      |  103                                      |  24                                                                                                                         |  2                                        |  4 |
| Class                    529-F                      |  5                                        |  5                                                                                                                          |  1                                        |  21 |
| Class                    R-1                        |  222                                      |  32                                                                                                                         |  14                                       | Not                    applicable |
| Class                    R-2                        |  1,413                                    |  282                                                                                                                        |  784                                      | Not                    applicable |
| Class                    R-3                        |  978                                      |  292                                                                                                                        |  115                                      | Not                    applicable |
| Class                    R-4                        |  115                                      |  68                                                                                                                         |  6                                        | Not                    applicable |
| Class                    R-5                        | Not                    applicable              |  246                                                                                                                        |  6                                        | Not                    applicable |
| Total                                               | $171,247                                       | $28,582                                                                                                                          | $10,267                                        | $2,098 | $611 |

**Deferred          Directors’compensation**

**Affiliated          officers and Directors **

**Capital          share transactions**

| Share                      class                                                                    |   | Sales(1) |         | Reinvestments                      of dividends and distributions |   | Repurchases(1) |   | Net                      increase |      |
|-----------------------------------------------------------------------------------------------------|--------|----------|--------------|-------------------------------------------------------------------|--------|----------------|--------|-----------------------------------|-----------|
|                                                                                                |   |     | Amount  |                                                              |   | Shares         |   |                              | Amount    |   |   | Shares |   |   | Amount |   |   | Shares |   |   | Amount |   |   | Shares |   |
| Year                      ended                      October 31, 2005                               |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Class                      A                                                                        |   | $        | 14,031,892   |                                                              |   | 266,731        |   | $                                 | 1,602,608 |   |   | 30,537 |   | $ | (2,814,883 | ) |   | (53,447 | ) | $ | 12,819,617 |   |   | 243,821 |   |
| Class                      B                                                                        |   |     | 910,319      |                                                              |   | 17,321         |   |                              | 115,182   |   |   | 2,198 |   |   | (213,844 | ) |   | (4,062 | ) |   | 811,657 |   |   | 15,457 |   |
| Class                      C                                                                        |   |     | 2,549,781    |                                                              |   | 48,482         |   |                              | 167,793   |   |   | 3,200 |   |   | (452,488 | ) |   | (8,592 | ) |   | 2,265,086 |   |   | 43,090 |   |
| Class                      F                                                                        |   |     | 1,145,278    |                                                              |   | 21,767         |   |                              | 62,859    |   |   | 1,197 |   |   | (270,418 | ) |   | (5,128 | ) |   | 937,719 |   |   | 17,836 |   |
| Class                      529-A                                                                    |   |     | 205,690      |                                                              |   | 3,908          |   |                              | 15,977    |   |   | 304 |   |   | (16,390 | ) |   | (310 | ) |   | 205,277 |   |   | 3,902 |   |
| Class                      529-B                                                                    |   |     | 25,394       |                                                              |   | 482            |   |                              | 2,750     |   |   | 53 |   |   | (2,141 | ) |   | (40 | ) |   | 26,003 |   |   | 495 |   |
| Class                      529-C                                                                    |   |     | 78,964       |                                                              |   | 1,500          |   |                              | 5,904     |   |   | 112 |   |   | (10,111 | ) |   | (191 | ) |   | 74,757 |   |   | 1,421 |   |
| Class                      529-E                                                                    |   |     | 9,902        |                                                              |   | 188            |   |                              | 873       |   |   | 17 |   |   | (960 | ) |   | (18 | ) |   | 9,815 |   |   | 187 |   |
| Class                      529-F                                                                    |   |     | 3,531        |                                                              |   | 67             |   |                              | 194       |   |   | 4 |   |   | (159 | ) |   | (3 | ) |   | 3,566 |   |   | 68 |   |
| Class                      R-1                                                                      |   |     | 25,005       |                                                              |   | 476            |   |                              | 733       |   |   | 14 |   |   | (3,283 | ) |   | (62 | ) |   | 22,455 |   |   | 428 |   |
| Class                      R-2                                                                      |   |     | 137,881      |                                                              |   | 2,619          |   |                              | 7,062     |   |   | 134 |   |   | (38,144 | ) |   | (723 | ) |   | 106,799 |   |   | 2,030 |   |
| Class                      R-3                                                                      |   |     | 166,923      |                                                              |   | 3,171          |   |                              | 7,897     |   |   | 150 |   |   | (30,507 | ) |   | (578 | ) |   | 144,313 |   |   | 2,743 |   |
| Class                      R-4                                                                      |   |     | 61,900       |                                                              |   | 1,173          |   |                              | 1,723     |   |   | 32 |   |   | (9,195 | ) |   | (174 | ) |   | 54,428 |   |   | 1,031 |   |
| Class                      R-5                                                                      |   |     | 107,386      |                                                              |   | 2,038          |   |                              | 9,538     |   |   | 182 |   |   | (26,098 | ) |   | (496 | ) |   | 90,826 |   |   | 1,724 |   |
| Total                      net                      increase                                        |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (decrease)                                                                                          |   | $        | 19,459,846   |                                                              |   | 369,923        |   | $                                 | 2,001,093 |   |   | 38,134 |   | $ | (3,888,621 | ) |   | (73,824 | ) | $ | 17,572,318 |   |   | 334,233 |   |
|                                                                                                |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                      ended                      October 31, 2004                               |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Class                      A                                                                        |   | $        | 8,575,196    |                                                              |   | 177,997        |   | $                                 | 815,422   |   |   | 16,984 |   | $ | (1,813,363 | ) |   | (37,709 | ) | $ | 7,577,255 |   |   | 157,272 |   |
| Class                      B                                                                        |   |     | 798,922      |                                                              |   | 16,609         |   |                              | 56,724    |   |   | 1,182 |   |   | (142,576 | ) |   | (2,962 | ) |   | 713,070 |   |   | 14,829 |   |
| Class                      C                                                                        |   |     | 1,656,850    |                                                              |   | 34,412         |   |                              | 66,256    |   |   | 1,379 |   |   | (227,960 | ) |   | (4,738 | ) |   | 1,495,146 |   |   | 31,053 |   |
| Class                      F                                                                        |   |     | 624,829      |                                                              |   | 12,944         |   |                              | 23,499    |   |   | 489 |   |   | (117,839 | ) |   | (2,449 | ) |   | 530,489 |   |   | 10,984 |   |
| Class                      529-A                                                                    |   |     | 103,557      |                                                              |   | 2,154          |   |                              | 6,661     |   |   | 138 |   |   | (7,810 | ) |   | (162 | ) |   | 102,408 |   |   | 2,130 |   |
| Class                      529-B                                                                    |   |     | 19,180       |                                                              |   | 398            |   |                              | 1,248     |   |   | 26 |   |   | (1,532 | ) |   | (32 | ) |   | 18,896 |   |   | 392 |   |
| Class                      529-C                                                                    |   |     | 51,496       |                                                              |   | 1,070          |   |                              | 2,384     |   |   | 50 |   |   | (3,916 | ) |   | (81 | ) |   | 49,964 |   |   | 1,039 |   |
| Class                      529-E                                                                    |   |     | 6,390        |                                                              |   | 133            |   |                              | 368       |   |   | 7 |   |   | (447 | ) |   | (9 | ) |   | 6,311 |   |   | 131 |   |
| Class                      529-F                                                                    |   |     | 1,274        |                                                              |   | 27             |   |                              | 68        |   |   | 1 |   |   | (134 | ) |   | (3 | ) |   | 1,208 |   |   | 25 |   |
| Class                      R-1                                                                      |   |     | 5,903        |                                                              |   | 123            |   |                              | 222       |   |   | 5 |   |   | (1,056 | ) |   | (22 | ) |   | 5,069 |   |   | 106 |   |
| Class                      R-2                                                                      |   |     | 83,376       |                                                              |   | 1,731          |   |                              | 2,681     |   |   | 56 |   |   | (24,014 | ) |   | (500 | ) |   | 62,043 |   |   | 1,287 |   |
| Class                      R-3                                                                      |   |     | 75,618       |                                                              |   | 1,570          |   |                              | 2,554     |   |   | 53 |   |   | (13,447 | ) |   | (279 | ) |   | 64,725 |   |   | 1,344 |   |
| Class                      R-4                                                                      |   |     | 10,806       |                                                              |   | 222            |   |                              | 302       |   |   | 6 |   |   | (2,403 | ) |   | (49 | ) |   | 8,705 |   |   | 179 |   |
| Class                      R-5                                                                      |   |     | 101,596      |                                                              |   | 2,091          |   |                              | 4,270     |   |   | 89 |   |   | (48,995 | ) |   | (1,018 | ) |   | 56,871 |   |   | 1,162 |   |
| Total                      net                      increase                                        |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (decrease)                                                                                          |   | $        | 12,114,993   |                                                              |   | 251,481        |   | $                                 | 982,659   |   |   | 20,465 |   | $ | (2,405,492 | ) |   | (50,013 | ) | $ | 10,692,160 |   |   | 221,933 |   |
|                                                                                                |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)                      Includes                      exchanges between share classes of the fund. |   |     |         |                                                              |   |           |   |                              |      |   |   |   |   |   |   |   |   |   |   |

**Investment transactions **

----

CollegeAmerica              is a registered trademark of and              sponsored by the Virginia College Savings Plan.

| **Financial                          highlights**(1)                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |
|---------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-------------------------------------------------------------|--------|------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
|                                                                                  |   |                                                                                   |   | Income                          (loss)                          from investment operations(2)(3) |   | Dividends                          and                          distributions |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
|                                                                                  |   | Net                          asset                          value, beginning of period |   | Net                          investment                          income                          |   |                                                                          | Net                          gains                          (losses) on securities (both realized and unrealized) |   |   | Total                          from                          investment operations |   | Dividends                          (from net investment income) |   | Distributions                          (from capital gains) |   | Total                          dividends and distributions |   | Net                          asset                          value, end of period |   | Total                          return                          (4) |   | Net                          assets,                          end of period (in millions) |   | Ratio                          of                          expenses to average net assets before reimbursements/                          waivers |   | Ratio                          of                          expenses to average net assets after reimbursements/                          waivers | (5) | Ratio                          of net                          income to average net assets | (6) |
| **Class                          A:**                                                 |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | $50.75                                                                                 |   | $2.01                                                                                            |   |                                                                          | $2.56                                                                                                             |   |   | $4.57                                                                              |   | $(1.84)                                                         |   | $(.90)                                                      |   | $(2.74)                                                    |   | $52.58                                                                           |   | 9.11%                                                              |   | $42,303                                                                                   |   | .59%                                                                                                                                              |   | .57% |   | 3.79% |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.76                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.44                                                                               |   | (1.81)                                                          |   | (.17)                                                       |   | (1.98)                                                     |   | 50.75                                                                            |   | 16.73                                                              |   | 28,458                                                                                    |   | .60                                                                                                                                               |   | .59 |   | 3.65 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.72                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 7.08                                                                               |   | (2.00)                                                          |   | (.52)                                                       |   | (2.52)                                                     |   | 45.29                                                                            |   | 17.95                                                              |   | 18,273                                                                                    |   | .65                                                                                                                                               |   | .65 |   | 4.04 |   |
| Year                          ended                          10/31/2002               |   | 43.80                                                                                  |   | 1.82                                                                                             |   |                                                                          | (1.67)                                                                                                            |   |   | .15                                                                                |   | (2.05)                                                          |   | (1.17)                                                      |   | (3.22)                                                     |   | 40.73                                                                            |   | .16                                                                |   | 10,006                                                                                    |   | .67                                                                                                                                               |   | .67 |   | 4.19 |   |
| Year                          ended                          10/31/2001               |   | 43.69                                                                                  |   | 1.94                                                                                             |   |                                                                          | 1.19                                                                                                              |   |   | 3.13                                                                               |   | (2.08)                                                          |   | (.94)                                                       |   | (3.02)                                                     |   | 43.80                                                                            |   | 7.39                                                               |   | 8,057                                                                                     |   | .66                                                                                                                                               |   | .66 |   | 4.36 |   |
| **Class                          B:**                                                 |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.59                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.15                                                                               |   | (1.42)                                                          |   | (.90)                                                       |   | (2.32)                                                     |   | 52.58                                                                            |   | 8.26                                                               |   | 3,371                                                                                     |   | 1.38                                                                                                                                              |   | 1.36 |   | 3.01 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.38                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.06                                                                               |   | (1.43)                                                          |   | (.17)                                                       |   | (1.60)                                                     |   | 50.75                                                                            |   | 15.81                                                              |   | 2,469                                                                                     |   | 1.40                                                                                                                                              |   | 1.39 |   | 2.85 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.38                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.74                                                                               |   | (1.66)                                                          |   | (.52)                                                       |   | (2.18)                                                     |   | 45.29                                                                            |   | 17.03                                                              |   | 1,532                                                                                     |   | 1.44                                                                                                                                              |   | 1.44 |   | 3.19 |   |
| Year                          ended                          10/31/2002               |   | 43.80                                                                                  |   | 1.48                                                                                             |   |                                                                          | (1.67)                                                                                                            |   |   | (.19)                                                                              |   | (1.71)                                                          |   | (1.17)                                                      |   | (2.88)                                                     |   | 40.73                                                                            |   | (.61)                                                              |   | 450                                                                                       |   | 1.44                                                                                                                                              |   | 1.44 |   | 3.41 |   |
| Year                          ended                          10/31/2001               |   | 43.69                                                                                  |   | 1.60                                                                                             |   |                                                                          | 1.19                                                                                                              |   |   | 2.79                                                                               |   | (1.74)                                                          |   | (.94)                                                       |   | (2.68)                                                     |   | 43.80                                                                            |   | 6.56                                                               |   | 118                                                                                       |   | 1.41                                                                                                                                              |   | 1.41 |   | 3.35 |   |
| **Class                          C:**                                                 |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.56                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.12                                                                               |   | (1.39)                                                          |   | (.90)                                                       |   | (2.29)                                                     |   | 52.58                                                                            |   | 8.19                                                               |   | 5,867                                                                                     |   | 1.44                                                                                                                                              |   | 1.42 |   | 2.94 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.34                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.02                                                                               |   | (1.39)                                                          |   | (.17)                                                       |   | (1.56)                                                     |   | 50.75                                                                            |   | 15.72                                                              |   | 3,476                                                                                     |   | 1.47                                                                                                                                              |   | 1.47 |   | 2.76 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.35                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.71                                                                               |   | (1.63)                                                          |   | (.52)                                                       |   | (2.15)                                                     |   | 45.29                                                                            |   | 16.94                                                              |   | 1,696                                                                                     |   | 1.51                                                                                                                                              |   | 1.51 |   | 3.08 |   |
| Year                          ended                          10/31/2002               |   | 43.80                                                                                  |   | 1.45                                                                                             |   |                                                                          | (1.67)                                                                                                            |   |   | (.22)                                                                              |   | (1.68)                                                          |   | (1.17)                                                      |   | (2.85)                                                     |   | 40.73                                                                            |   | (.69)                                                              |   | 424                                                                                       |   | 1.52                                                                                                                                              |   | 1.52 |   | 3.31 |   |
| Period                          from                          3/15/2001 to 10/31/2001 |   | 44.15                                                                                  |   | .81                                                                                              |   |                                                                          | (.14)                                                                                                             |   |   | .67                                                                                |   | (1.02)                                                          |   | -                                                           |   | (1.02)                                                     |   | 43.80                                                                            |   | 1.52                                                               |   | 65                                                                                        |   | 1.51                                                                                                                                              | (7)    | 1.51 | (7) | 2.98 | (7) |
| **Class                          F:**                                                 |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.96                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.52                                                                               |   | (1.79)                                                          |   | (.90)                                                       |   | (2.69)                                                     |   | 52.58                                                                            |   | 9.01                                                               |   | 2,141                                                                                     |   | .68                                                                                                                                               |   | .65 |   | 3.71 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.70                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.38                                                                               |   | (1.75)                                                          |   | (.17)                                                       |   | (1.92)                                                     |   | 50.75                                                                            |   | 16.58                                                              |   | 1,161                                                                                     |   | .72                                                                                                                                               |   | .71 |   | 3.51 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.67                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 7.03                                                                               |   | (1.95)                                                          |   | (.52)                                                       |   | (2.47)                                                     |   | 45.29                                                                            |   | 17.82                                                              |   | 539                                                                                       |   | .76                                                                                                                                               |   | .76 |   | 3.86 |   |
| Year                          ended                          10/31/2002               |   | 43.80                                                                                  |   | 1.76                                                                                             |   |                                                                          | (1.67)                                                                                                            |   |   | .09                                                                                |   | (1.99)                                                          |   | (1.17)                                                      |   | (3.16)                                                     |   | 40.73                                                                            |   | .03                                                                |   | 155                                                                                       |   | .79                                                                                                                                               |   | .79 |   | 4.04 |   |
| Period                          from                          3/15/2001 to 10/31/2001 |   | 44.15                                                                                  |   | .99                                                                                              |   |                                                                          | (.14)                                                                                                             |   |   | .85                                                                                |   | (1.20)                                                          |   | -                                                           |   | (1.20)                                                     |   | 43.80                                                                            |   | 1.94                                                               |   | 17                                                                                        |   | .80                                                                                                                                               | (7)    | .80 | (7) | 3.70 | (7) |
| **Class                          529-A:**                                             |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.95                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.51                                                                               |   | (1.78)                                                          |   | (.90)                                                       |   | (2.68)                                                     |   | 52.58                                                                            |   | 8.99                                                               |   | 458                                                                                       |   | .71                                                                                                                                               |   | .68 |   | 3.70 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.70                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.38                                                                               |   | (1.75)                                                          |   | (.17)                                                       |   | (1.92)                                                     |   | 50.75                                                                            |   | 16.59                                                              |   | 244                                                                                       |   | .72                                                                                                                                               |   | .71 |   | 3.53 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.70                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 7.06                                                                               |   | (1.98)                                                          |   | (.52)                                                       |   | (2.50)                                                     |   | 45.29                                                                            |   | 17.89                                                              |   | 121                                                                                       |   | .70                                                                                                                                               |   | .70 |   | 3.99 |   |
| Period                          from                          2/19/2002 to 10/31/2002 |   | 43.06                                                                                  |   | 1.19                                                                                             |   |                                                                          | (2.13)                                                                                                            |   |   | (.94)                                                                              |   | (1.39)                                                          |   | -                                                           |   | (1.39)                                                     |   | 40.73                                                                            |   | (2.31)                                                             |   | 32                                                                                        |   | .91                                                                                                                                               | (7)    | .91 | (7) | 4.05 | (7) |
| **Class                          529-B:**                                             |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.50                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.06                                                                               |   | (1.33)                                                          |   | (.90)                                                       |   | (2.23)                                                     |   | 52.58                                                                            |   | 8.08                                                               |   | 83                                                                                        |   | 1.55                                                                                                                                              |   | 1.53 |   | 2.85 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.28                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 6.96                                                                               |   | (1.33)                                                          |   | (.17)                                                       |   | (1.50)                                                     |   | 50.75                                                                            |   | 15.58                                                              |   | 55                                                                                        |   | 1.60                                                                                                                                              |   | 1.60 |   | 2.66 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.30                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.66                                                                               |   | (1.58)                                                          |   | (.52)                                                       |   | (2.10)                                                     |   | 45.29                                                                            |   | 16.82                                                              |   | 31                                                                                        |   | 1.64                                                                                                                                              |   | 1.64 |   | 3.04 |   |
| Period                          from                          2/15/2002 to 10/31/2002 |   | 43.33                                                                                  |   | .98                                                                                              |   |                                                                          | (2.40)                                                                                                            |   |   | (1.42)                                                                             |   | (1.18)                                                          |   | -                                                           |   | (1.18)                                                     |   | 40.73                                                                            |   | (3.37)                                                             |   | 8                                                                                         |   | 1.66                                                                                                                                              | (7)    | 1.66 | (7) | 3.32 | (7) |
| **Class                          529-C:**                                             |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.51                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.07                                                                               |   | (1.34)                                                          |   | (.90)                                                       |   | (2.24)                                                     |   | 52.58                                                                            |   | 8.10                                                               |   | 192                                                                                       |   | 1.54                                                                                                                                              |   | 1.52 |   | 2.86 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.29                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 6.97                                                                               |   | (1.34)                                                          |   | (.17)                                                       |   | (1.51)                                                     |   | 50.75                                                                            |   | 15.60                                                              |   | 113                                                                                       |   | 1.59                                                                                                                                              |   | 1.58 |   | 2.67 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.31                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.67                                                                               |   | (1.59)                                                          |   | (.52)                                                       |   | (2.11)                                                     |   | 45.29                                                                            |   | 16.83                                                              |   | 54                                                                                        |   | 1.63                                                                                                                                              |   | 1.63 |   | 3.05 |   |
| Period                          from                          2/20/2002 to 10/31/2002 |   | 43.12                                                                                  |   | .97                                                                                              |   |                                                                          | (2.20)                                                                                                            |   |   | (1.23)                                                                             |   | (1.16)                                                          |   | -                                                           |   | (1.16)                                                     |   | 40.73                                                                            |   | (2.96)                                                             |   | 13                                                                                        |   | 1.65                                                                                                                                              | (7)    | 1.65 | (7) | 3.31 | (7) |
| **Class                          529-E:**                                             |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.78                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.34                                                                               |   | (1.61)                                                          |   | (.90)                                                       |   | (2.51)                                                     |   | 52.58                                                                            |   | 8.64                                                               |   | 25                                                                                        |   | 1.02                                                                                                                                              |   | 1.00 |   | 3.38 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.54                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.22                                                                               |   | (1.59)                                                          |   | (.17)                                                       |   | (1.76)                                                     |   | 50.75                                                                            |   | 16.19                                                              |   | 15                                                                                        |   | 1.07                                                                                                                                              |   | 1.07 |   | 3.18 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.53                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.89                                                                               |   | (1.81)                                                          |   | (.52)                                                       |   | (2.33)                                                     |   | 45.29                                                                            |   | 17.44                                                              |   | 7                                                                                         |   | 1.10                                                                                                                                              |   | 1.10 |   | 3.57 |   |
| Period                          from                          3/1/2002 to 10/31/2002  |   | 43.74                                                                                  |   | 1.08                                                                                             |   |                                                                          | (2.83)                                                                                                            |   |   | (1.75)                                                                             |   | (1.26)                                                          |   | -                                                           |   | (1.26)                                                     |   | 40.73                                                                            |   | (4.09)                                                             |   | 2                                                                                         |   | 1.11                                                                                                                                              | (7)    | 1.11 | (7) | 3.87 | (7) |
| **Class                          529-F:**                                             |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.97                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.53                                                                               |   | (1.80)                                                          |   | (.90)                                                       |   | (2.70)                                                     |   | 52.58                                                                            |   | 9.04                                                               |   | 6                                                                                         |   | .63                                                                                                                                               |   | .60 |   | 3.78 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.65                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.33                                                                               |   | (1.70)                                                          |   | (.17)                                                       |   | (1.87)                                                     |   | 50.75                                                                            |   | 16.47                                                              |   | 3                                                                                         |   | .82                                                                                                                                               |   | .82 |   | 3.44 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.64                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 7.00                                                                               |   | (1.92)                                                          |   | (.52)                                                       |   | (2.44)                                                     |   | 45.29                                                                            |   | 17.72                                                              |   | 1                                                                                         |   | .85                                                                                                                                               |   | .85 |   | 3.78 |   |
| Period                          from                          9/17/2002 to 10/31/2002 |   | 41.74                                                                                  |   | .14                                                                                              |   |                                                                          | (.89)                                                                                                             |   |   | (.75)                                                                              |   | (.26)                                                           |   | -                                                           |   | (.26)                                                      |   | 40.73                                                                            |   | (1.79)                                                             |   | -                                                                                         | (8)    | .10                                                                                                                                               |   | .10 |   | .35 |   |
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
|                                                                                  |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| **Class                          R-1:**                                               |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | $50.75                                                                                 |   | $1.54                                                                                            |   |                                                                          | $2.56                                                                                                             |   |   | $4.10                                                                              |   | $(1.37)                                                         |   | $(.90)                                                      |   | $(2.27)                                                    |   | $52.58                                                                           |   | 8.15%                                                              |   | $34                                                                                       |   | 1.50%                                                                                                                                             |   | 1.46% |   | 2.91% |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.32                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.00                                                                               |   | (1.37)                                                          |   | (.17)                                                       |   | (1.54)                                                     |   | 50.75                                                                            |   | 15.69                                                              |   | 11                                                                                        |   | 1.53                                                                                                                                              |   | 1.50 |   | 2.74 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.35                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.71                                                                               |   | (1.63)                                                          |   | (.52)                                                       |   | (2.15)                                                     |   | 45.29                                                                            |   | 16.94                                                              |   | 5                                                                                         |   | 1.66                                                                                                                                              |   | 1.53 |   | 3.12 |   |
| Period                          from                          6/11/2002 to 10/31/2002 |   | 45.41                                                                                  |   | .52                                                                                              |   |                                                                          | (4.53)                                                                                                            |   |   | (4.01)                                                                             |   | (.67)                                                           |   | -                                                           |   | (.67)                                                      |   | 40.73                                                                            |   | (8.84)                                                             |   | -                                                                                         | (8)    | .87                                                                                                                                               |   | .60 |   | 1.27 |   |
| **Class                          R-2:**                                               |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.55                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.11                                                                               |   | (1.38)                                                          |   | (.90)                                                       |   | (2.28)                                                     |   | 52.58                                                                            |   | 8.18                                                               |   | 241                                                                                       |   | 1.61                                                                                                                                              |   | 1.44 |   | 2.95 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.34                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.02                                                                               |   | (1.39)                                                          |   | (.17)                                                       |   | (1.56)                                                     |   | 50.75                                                                            |   | 15.73                                                              |   | 129                                                                                       |   | 1.75                                                                                                                                              |   | 1.47 |   | 2.78 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.36                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.72                                                                               |   | (1.64)                                                          |   | (.52)                                                       |   | (2.16)                                                     |   | 45.29                                                                            |   | 16.99                                                              |   | 57                                                                                        |   | 1.85                                                                                                                                              |   | 1.49 |   | 3.11 |   |
| Period                          from                          5/31/2002 to 10/31/2002 |   | 46.10                                                                                  |   | .51                                                                                              |   |                                                                          | (5.16)                                                                                                            |   |   | (4.65)                                                                             |   | (.72)                                                           |   | -                                                           |   | (.72)                                                      |   | 40.73                                                                            |   | (10.10)                                                            |   | 4                                                                                         |   | .77                                                                                                                                               |   | .63 |   | 1.29 |   |
| **Class                          R-3:**                                               |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.80                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.36                                                                               |   | (1.63)                                                          |   | (.90)                                                       |   | (2.53)                                                     |   | 52.58                                                                            |   | 8.68                                                               |   | 268                                                                                       |   | 1.00                                                                                                                                              |   | .98 |   | 3.41 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.53                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.21                                                                               |   | (1.58)                                                          |   | (.17)                                                       |   | (1.75)                                                     |   | 50.75                                                                            |   | 16.17                                                              |   | 120                                                                                       |   | 1.09                                                                                                                                              |   | 1.08 |   | 3.15 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.52                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 6.88                                                                               |   | (1.80)                                                          |   | (.52)                                                       |   | (2.32)                                                     |   | 45.29                                                                            |   | 17.42                                                              |   | 46                                                                                        |   | 1.15                                                                                                                                              |   | 1.11 |   | 3.46 |   |
| Period                          from                          6/4/2002 to 10/31/2002  |   | 45.74                                                                                  |   | .56                                                                                              |   |                                                                          | (4.80)                                                                                                            |   |   | (4.24)                                                                             |   | (.77)                                                           |   | -                                                           |   | (.77)                                                      |   | 40.73                                                                            |   | (9.27)                                                             |   | 2                                                                                         |   | .62                                                                                                                                               |   | .46 |   | 1.40 |   |
| **Class                          R-4:**                                               |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 1.95                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.51                                                                               |   | (1.78)                                                          |   | (.90)                                                       |   | (2.68)                                                     |   | 52.58                                                                            |   | 9.01                                                               |   | 70                                                                                        |   | .70                                                                                                                                               |   | .68 |   | 3.71 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.70                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.38                                                                               |   | (1.75)                                                          |   | (.17)                                                       |   | (1.92)                                                     |   | 50.75                                                                            |   | 16.57                                                              |   | 15                                                                                        |   | .74                                                                                                                                               |   | .73 |   | 3.49 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.68                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 7.04                                                                               |   | (1.96)                                                          |   | (.52)                                                       |   | (2.48)                                                     |   | 45.29                                                                            |   | 17.84                                                              |   | 6                                                                                         |   | .79                                                                                                                                               |   | .76 |   | 3.79 |   |
| Period                          from                          5/20/2002 to 10/31/2002 |   | 45.84                                                                                  |   | .65                                                                                              |   |                                                                          | (4.85)                                                                                                            |   |   | (4.20)                                                                             |   | (.91)                                                           |   | -                                                           |   | (.91)                                                      |   | 40.73                                                                            |   | (9.20)                                                             |   | -                                                                                         | (8)    | .76                                                                                                                                               |   | .34 |   | 1.59 |   |
| **Class                          R-5:**                                               |   |                                                                                   |   |                                                                                             |   |                                                                          |                                                                                                              |   |   |                                                                               |   |                                                            |   |                                                        |   |                                                       |   |                                                                             |   |                                                               |   |                                                                                      |   |                                                                                                                                              |   |   |   |   |   |
| Year                          ended                          10/31/2005               |   | 50.75                                                                                  |   | 2.11                                                                                             |   |                                                                          | 2.56                                                                                                              |   |   | 4.67                                                                               |   | (1.94)                                                          |   | (.90)                                                       |   | (2.84)                                                     |   | 52.58                                                                            |   | 9.33                                                               |   | 292                                                                                       |   | .39                                                                                                                                               |   | .37 |   | 4.00 |   |
| Year                          ended                          10/31/2004               |   | 45.29                                                                                  |   | 1.85                                                                                             |   |                                                                          | 5.68                                                                                                              |   |   | 7.53                                                                               |   | (1.90)                                                          |   | (.17)                                                       |   | (2.07)                                                     |   | 50.75                                                                            |   | 16.95                                                              |   | 194                                                                                       |   | .41                                                                                                                                               |   | .40 |   | 3.85 |   |
| Year                          ended                          10/31/2003               |   | 40.73                                                                                  |   | 1.81                                                                                             |   |                                                                          | 5.36                                                                                                              |   |   | 7.17                                                                               |   | (2.09)                                                          |   | (.52)                                                       |   | (2.61)                                                     |   | 45.29                                                                            |   | 18.20                                                              |   | 121                                                                                       |   | .44                                                                                                                                               |   | .44 |   | 4.28 |   |
| Period                          from                          5/15/2002 to 10/31/2002 |   | 45.87                                                                                  |   | .89                                                                                              |   |                                                                          | (5.02)                                                                                                            |   |   | (4.13)                                                                             |   | (1.01)                                                          |   | -                                                           |   | (1.01)                                                     |   | 40.73                                                                            |   | (9.04)                                                             |   | 75                                                                                        |   | .21                                                                                                                                               |   | .21 |   | 2.10 |   |

|                                                                       |   |  Year                          ended                          October 31 |   |
|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|
|                                                                       |   |                                                                          | 2005   |   |   | 2004 |   |   | 2003 |   |   | 2002 |   |   | 2001 |   |
|                                                                       |   |                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Portfolio                          turnover rate for all classes of shares |   |                                                                          | 20     | % |   | 24 | % |   | 27 | % |   | 36 | % |   | 37 | % |

| (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 0.34 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                                                                                                                                   |

**unaudited**

**Individual          shareholders should refer to their Form 1099-DIV or other tax information,          which          will be mailed in January 2006, to determine the **
***calendar          year***
**          amounts to          be included on their 2005 tax returns. Shareholders should consult their          tax          advisers**