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                          CAPITAL INCOME BUILDER, INC.

                                     Part B
                      Statement of Additional Information

                                January 1, 2007

                    (as supplemented November 19, 2007)

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, 2007. 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

Certain privileges and/or services described below may not be available to all
shareholders (including shareholders who purchase shares at net asset value
through eligible retirement plans) depending on the shareholder's investment
dealer or retirement plan recordkeeper. Please see your financial adviser,
investment dealer, plan recordkeeper or employer for more information.

                               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. . . . . . . . . . . . . . . . . .       36
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . .       37
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . .       39
Purchase and exchange of shares . . . . . . . . . . . . . . . . . .       44
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . .       48
Sales charge reductions and waivers . . . . . . . . . . . . . . . .       51
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . .       55
Shareholder account services and privileges . . . . . . . . . . . .       56
General information . . . . . . . . . . . . . . . . . . . . . . . .       58
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       64
Financial statements

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                 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

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

INCOME PRODUCING SECURITIES

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

EQUITY SECURITIES

..    The fund will invest at least 50% of its assets in 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 50% of its assets in securities of issuers
     domiciled outside the United States.

                        *     *     *     *     *     *

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

          DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

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

EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. Equity securities held by the fund typically consist of common stocks.
The prices of equity securities fluctuate based on, among other things, events
specific to their issuers and market, economic and other conditions. For
example, prices of these securities can be affected by financial contracts held
by the issuer or third parties (such as derivatives) relating to the security or
other assets or indices.

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 $3.5 billion at the time of purchase). The
investment adviser believes that the issuers of smaller

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capitalization stocks often provide attractive investment opportunities.
However, investing in smaller capitalization stocks can involve greater risk
than is customarily associated with investing in stocks of larger, more
established companies. For example, smaller companies often have limited product
lines, 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. For example, the prices of these securities can be affected by
     financial contracts held by the issuer or third parties (such as
     derivatives) relating to the security or other assets or indices.

     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

                        Capital Income Builder -- Page 3
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     not based on fundamental analysis, may decrease the value and/or liquidity
     of debt securities.

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.

Credit ratings for debt securities provided by rating agencies evaluate the
safety of principal and interest payments, not market value risk. The rating of
an issuer is a rating agency's view of past and future potential developments
related to the issuer and may not necessarily reflect actual outcomes. There can
be a lag between the time of developments relating to an issuer and the time a
rating is assigned and updated.

Bond rating agencies may assign modifiers (such as +/-) to ratings categories to
signify the relative position of a credit within the rating category. Investment
policies that are based on ratings categories should be read to include any
security within that category, without giving consideration to the modifier. See
the Appendix for more information about credit ratings.

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 securities automatically convert into
common stocks and some may be subject to redemption at the option of the issuer
at a predetermined price. The prices and yields of nonconvertible preferred
securities generally move with changes in interest rates and the issuer's credit
quality, similar to the factors affecting debt securities. Nonconvertible
preferred 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

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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. 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

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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, net of any fees paid to
any insurer or any guarantor of the securities. Pass-through securities may have
either fixed or adjustable coupons. These securities include:

     MORTGAGE-BACKED SECURITIES -- These securities may be issued by U.S.
     government agencies and government-sponsored entities, such as Ginnie Mae,
     Fannie Mae and Freddie Mac, and by private entities. The payment of
     interest and principal on mortgage-backed obligations issued by U.S.
     government agencies may be guaranteed by the full 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 enhancements such as insurance or letters of credit
     issued by private companies. 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. CMOs may be less liquid or may exhibit
     greater price volatility than other types of mortgage or asset-backed
     securities.

     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

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     make rental payments and the ability of a property to attract and retain
     tenants. Commercial mortgage-backed securities may be less liquid or
     exhibit greater price volatility than other types of mortgage or
     asset-backed securities.

     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, tax laws 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 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 -- The fund may hold cash or invest in cash
equivalents. Cash equivalents 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

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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 COMMITMENT, WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- 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. If the other party to
such a transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could experience a loss.

The fund will not use these transactions for the purpose of leveraging and will
segregate liquid assets that will be marked to market daily in an amount
sufficient to meet its payment obligations in these transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent the
fund's aggregate commitments in connection with these transactions exceed its
segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while the
fund is in a leveraged position, greater depreciation of its net assets would
likely occur than if it were not in such a position. The fund will not borrow
money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations. After a transaction is entered into,
the fund may still dispose of or renegotiate the transaction. Additionally,
prior to receiving delivery of securities as part of a transaction, the fund may
sell such securities.

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 may only be sold 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

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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 to the fund or cause it to incur additional administrative
costs.

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.

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, 2006 and 2005 were 26% and 20%, 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
shareholder 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

                        Capital Income Builder -- Page 9
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securities issued or guaranteed as to payment of interest and principal by a
foreign government or its agencies or instrumentalities or by a multinational
agency;

2.   Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry;

3.   Invest in companies for the purpose of exercising control or management;

4.   Knowingly purchase securities of other management investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;

5.   Buy or sell real estate or commodities or commodity contracts; however, the
fund may invest in debt securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein,
including real estate investment trusts, and may purchase or sell currencies
(including forward currency contracts);

6.   Acquire securities subject to restrictions on disposition or securities for
which there is no readily available market, or enter into repurchase agreements
or purchase time deposits maturing in more than seven days, if, immediately
after and as a result, the value of such securities would exceed, in the
aggregate, 10% of the fund's total assets;

7.   Engage in the business of underwriting securities of other issuers, except
to the extent that the disposal of an investment position may technically cause
it to be considered an underwriter as that term is defined under the Securities
Act of 1933;

8.   Make loans, except that the fund may purchase debt securities, enter into
repurchase agreements and make loans of portfolio securities;

9.   Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;

10.  Purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;

11.  Borrow money, except from banks for temporary or emergency purposes not in
excess of 5% of the value of the fund's total assets (in the event that the
asset coverage for such borrowings falls below 300%, the fund will reduce,
within three days, the amount of its borrowings in order to provide for 300%
asset coverage), and except that the fund may enter into reverse repurchase
agreements and engage in "roll" transactions, provided that reverse repurchase
agreements, "roll" transactions and any other transactions constituting
borrowing by the fund may not exceed one-third of the fund's total assets;

12.  Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in connection with any
permissible borrowing;

13.  Purchase or retain the securities of any issuer, if those individual
officers and directors of the fund, its investment adviser, or distributor, each
owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;

14.  Invest in interests in oil, gas, or other mineral exploration or
development programs;

                       Capital Income Builder -- Page 10
<PAGE>

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
its directors pursuant to an exemptive order granted by the Securities and
Exchange Commission.

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.
3.   The fund may not acquire securities of open-end investment companies or
unit investment trusts registered under the 1940 Act in reliance on Sections
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.

                       Capital Income Builder -- Page 11
<PAGE>

                             MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND OFFICERS

"INDEPENDENT" DIRECTORS/1/

 NAME, AGE AND                                                     NUMBER OF
 POSITION WITH FUND                                              PORTFOLIOS/3/
 (YEAR FIRST ELECTED               PRINCIPAL OCCUPATION(S)         OVERSEEN      OTHER DIRECTORSHIPS/4/ HELD
 AS A DIRECTOR/2/)                  DURING PAST FIVE YEARS        BY DIRECTOR            BY DIRECTOR
-------------------------------------------------------------------------------------------------------------

 Joseph C. Berenato, 61         Chairman of the Board,                 6         Ducommun Incorporated
 Director (2005)                President and CEO, Ducommun
                                Incorporated (aerospace
                                components manufacturer)

-------------------------------------------------------------------------------------------------------------
 H. Frederick Christie, 74      Private investor; former              21         AECOM Technology
 Director (1987)                President and CEO, The Mission                   Corporation;
                                Group (non-utility holding                       Ducommun Incorporated;
                                company, subsidiary of                           IHOP Corporation;
                                Southern California Edison                       Southwest Water Company
                                Company)
-------------------------------------------------------------------------------------------------------------
 Robert J. Denison, 66          Chair, First Security                  5         None
 Director (2005)                Management (private
                                investment)
-------------------------------------------------------------------------------------------------------------
 Koichi Itoh, 67                Executive Chairman of the              5         None
 Director (2005)                Board, Itoh Building Co., Ltd.
                                (building management); former
                                President, Autosplice KK
                                (electronics)
-------------------------------------------------------------------------------------------------------------
 Merit E. Janow, 49             Professor, Columbia                    4         The NASDAQ Stock Market,
 Director (2001)                University, School of                            Inc.
                                International and Public
                                Affairs; Member, WTO Appellate
                                Body
-------------------------------------------------------------------------------------------------------------
 Mary Myers Kauppila, 53        Private investor; Chairman of          6         None
 Chairman of the Board          the Board and CEO, Ladera
 (Independent and               Management Company (venture
 Non-Executive) (1992)          capital and agriculture);
                                former owner and President,
                                Energy Investment, Inc.

-------------------------------------------------------------------------------------------------------------
 Gail L. Neale, 72              President, The Lovejoy                 4         None
 Director (1987)                Consulting Group, Inc. (a pro
                                bono consulting group advising
                                nonprofit organizations)

-------------------------------------------------------------------------------------------------------------
 Robert J. O'Neill, 71          Planning Director and acting           3         None
 Director (1992)                CEO of the United States
                                Studies Centre, University of
                                Sydney, Australia; Member of
                                the Board of Directors, The
                                Lowy Institute for
                                International Policy Studies,
                                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 Chichele Professor of
                                the History of War and Fellow,
                                All Souls College, University
                                of Oxford; former Chairman of
                                the Council, International
                                Institute for Strategic
                                Studies
-------------------------------------------------------------------------------------------------------------
 Donald E. Petersen, 81         Retired; former Chairman of            2         None
 Director (1992)                the Board and CEO, Ford Motor
                                Company
-------------------------------------------------------------------------------------------------------------
 Stefanie Powers, 65            Actor, Producer; Co-founder            2         None
 Director (1989 - 1996;         and President, The William
 1997)                          Holden Wildlife Foundation;
                                conservation consultant to
                                Land Rover and Jaguar North
                                America; author of The Jaguar
                                Conservation Trust
-------------------------------------------------------------------------------------------------------------
 Steadman Upham, 58             President and Professor of            14         None
 Director (2001)                Anthropology, The University
                                of Tulsa; former President and
                                Professor of Archaeology,
                                Claremont Graduate University

-------------------------------------------------------------------------------------------------------------
 Charles Wolf, Jr., 83          Senior Economic Adviser and            2         None
 Director (1987)                Corporate Fellow in
                                International Economics, The
                                RAND Corporation; former Dean,
                                The RAND Graduate School

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

                       Capital Income Builder -- Page 12
<PAGE>

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

                       Capital Income Builder -- Page 13
<PAGE>

"INTERESTED" DIRECTORS/5/

                                 PRINCIPAL OCCUPATION(S)
                                 DURING PAST FIVE YEARS
 NAME, AGE AND                        AND POSITIONS              NUMBER OF
 POSITION WITH FUND           HELD WITH AFFILIATED ENTITIES    PORTFOLIOS/3/
 (YEAR FIRST ELECTED          OR THE PRINCIPAL UNDERWRITER       OVERSEEN      OTHER DIRECTORSHIPS/4/ HELD
 AS A DIRECTOR/OFFICER/2/)             OF THE FUND              BY DIRECTOR      BY DIRECTOR OR OFFICER
-----------------------------------------------------------------------------------------------------------

 James B. Lovelace, 51       Senior Vice President - Capital         3         None
 Vice Chairman of the        Research Global Investors,
 Board (1992)                Capital Research and Management
                             Company; Director, Capital
                             Research and Management Company

-----------------------------------------------------------------------------------------------------------
 Catherine M. Ward, 60       Senior Vice President and               1         None
 Director (1987)             Director, Capital Research and
                             Management Company; Director,
                             American Funds Service
                             Company*; Director, Capital
                             Group Research, Inc.*
-----------------------------------------------------------------------------------------------------------

OTHER OFFICERS/6/

 NAME, AGE AND
 POSITION WITH FUND         PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
 (YEAR FIRST ELECTED          AND POSITIONS HELD WITH AFFILIATED ENTITIES
 AS AN OFFICER/2/)             OR THE PRINCIPAL UNDERWRITER OF THE FUND
-------------------------------------------------------------------------------

 Joyce E. Gordon, 51     Senior Vice President - Capital Research Global
 President (1996)        Investors, Capital Research and Management Company;
                         Director, Capital Research and Management Company
-------------------------------------------------------------------------------
 Mark R. Macdonald,      Senior Vice President - Fixed Income, Capital
 48                      Research and Management Company; Director, Capital
 Executive Vice          Research and Management Company
 President (2001)
-------------------------------------------------------------------------------
 Darcy B. Kopcho, 54     Senior Vice President - Capital Research Global
 Senior Vice             Investors, Capital Research and Management Company;
 President (2006)        Director, Capital Research and Management Company
-------------------------------------------------------------------------------
 Michael J. Thawley,     Senior Vice President, Capital Research and
 57                      Management Company; Senior Vice President, Capital
 Senior Vice             Strategy Research, Inc.*; former Australian
 President (2007)        Ambassador to the United States
-------------------------------------------------------------------------------
 Michael Cohen, 45       Senior Vice President - Capital Research Global
 Vice President          Investors, Capital Research Company*; Director,
 (2006)                  Capital Research Company*
-------------------------------------------------------------------------------
 David A. Hoag, 42       Senior Vice President - Fixed Income, Capital
 Vice President          Research and Management Company
 (2006)
-------------------------------------------------------------------------------
 David M. Riley, 40      Senior Vice President - Capital Research Global
 Vice President          Investors, Capital Research and Management Company
 (2006)
-------------------------------------------------------------------------------
 Vincent P. Corti, 51    Vice President - Fund Business Management Group,
 Secretary (1987)        Capital Research and Management Company
-------------------------------------------------------------------------------
 Sheryl F. Johnson,      Vice President - Fund Business Management Group,
 39                      Capital Research and Management Company
 Treasurer (2003)
-------------------------------------------------------------------------------
 Jeffrey P. Regal, 36    Vice President - Fund Business Management Group,
 Assistant Treasurer     Capital Research and Management Company
 (2001)
-------------------------------------------------------------------------------

                       Capital Income Builder -- Page 14
<PAGE>

* Company affiliated with Capital Research and Management Company.

/1/  The term "independent" director refers to a director who is not an "interested
     person" of the fund within the meaning of the 1940 Act.

/2/  Directors and officers of the fund serve until their resignation, removal or
     retirement.

/3/  Funds managed by Capital Research and Management Company, including the
     American Funds, American Funds Insurance Series,(R) which is composed of 15
     funds and serves as the underlying investment vehicle for certain variable
     insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
     which is composed of nine funds and is available to investors in tax-deferred
     retirement plans and IRAs; and Endowments, which is composed of two portfolios
     and is available to certain nonprofit organizations.

/4/  This includes all directorships (other than those in the American Funds) that
     are held by each director as a director of a public company or a registered
     investment company.

/5/  "Interested persons" of the fund 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: SECRETARY.

                       Capital Income Builder -- Page 15
<PAGE>

FUND SHARES OWNED BY DIRECTOR AS OF DECEMBER 31, 2005

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

 "INDEPENDENT" DIRECTORS
-------------------------------------------------------------------------------
 Joseph C. Berenato          $10,001 - $50,000             Over $100,000
-------------------------------------------------------------------------------
 H. Frederick Christie         Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Robert J. Denison           $10,001 - $50,000          $50,001 - $100,000
-------------------------------------------------------------------------------
 Koichi Itoh                   Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Merit E. Janow              $10,001 - $50,000          $50,001 - $100,000
-------------------------------------------------------------------------------
 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              $50,001 - $100,000            Over $100,000
-------------------------------------------------------------------------------
 Charles Wolf, Jr.             Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 "INTERESTED" DIRECTORS
-------------------------------------------------------------------------------
 James B. Lovelace             Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Catherine M. Ward/2/          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/  Ms. Ward was appointed as a director on September 19, 2006.

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 boards of funds advised by the investment adviser typically meet
either individually or jointly with the boards of one or more other such funds
with substantially overlapping board membership (in each case referred to as a
"board cluster"). The fund typically pays each independent director an annual
fee, which ranges from $15,000 to $34,000, based primarily on the total number
of board clusters on which that independent director serves.

In addition, the fund generally pays independent directors attendance and other
fees for meetings of the board and its committees. Board chairs receive
additional fees for their services.

                       Capital Income Builder -- Page 16
<PAGE>

Independent directors also receive attendance fees for certain special joint
meetings and information sessions with directors and trustees of other groupings
of funds advised by the investment adviser. The fund and the other funds served
by each independent director each pay an equal portion of these attendance fees.

No pension or retirement benefits are accrued as part of fund expenses.
Independent 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 independent directors.

DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED OCTOBER 31, 2006

                                                        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.                       $28,332                          $214,500
 Berenato/3/
------------------------------------------------------------------------------------------
 H. Frederick                     31,989                           379,750
 Christie/3/
------------------------------------------------------------------------------------------
 Robert J. Denison                30,375                           152,500
------------------------------------------------------------------------------------------
 Koichi Itoh/3/                   28,750                           147,500
------------------------------------------------------------------------------------------
 Merit E. Janow                   45,200                            93,500
------------------------------------------------------------------------------------------
 Mary Myers                       45,100                           218,500
 Kauppila/3/
------------------------------------------------------------------------------------------
 Gail L. Neale                    29,625                           147,000
------------------------------------------------------------------------------------------
 Robert J. O'Neill                44,700                           101,000
------------------------------------------------------------------------------------------
 Donald E.                        38,950                            79,500
 Petersen/3/
------------------------------------------------------------------------------------------
 Stefanie Powers                  38,950                            79,500
------------------------------------------------------------------------------------------
 Steadman Upham/3/                43,700                            90,500
------------------------------------------------------------------------------------------
 Charles Wolf, Jr.                44,700                            92,500
------------------------------------------------------------------------------------------

/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, 2006 does not include earnings on amounts deferred in
     previous fiscal years. See footnote 3 to this table for more information.

/2/  Funds managed by Capital Research and Management Company, including the
     American Funds, American Funds Insurance Series,(R) which is composed of 15
     funds and serves as the underlying investment vehicle for certain variable
     insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
     which is composed of nine funds and is available to investors in tax-deferred
     retirement plans and IRAs; and Endowments, which is composed of two portfolios
     and is available 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 2006
     fiscal year for participating directors is as follows: Joseph C. Berenato
     ($3,531), H. Frederick Christie ($226,522), Koichi Itoh ($36,582), Mary Myers
     Kauppila ($556,564), Donald E. Petersen ($112,349) and Steadman Upham
     ($215,783). Amounts deferred and accumulated earnings thereon are not funded
     and are general unsecured liabilities of the fund until paid to the directors.

                       Capital Income Builder -- Page 17
<PAGE>

As of December 1, 2006, 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.

Independent board members 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. 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 529 college savings
plan account owners invested in Class 529 shares 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
Class 529 shares, the Virginia College Savings Plan/SM/ will vote any proxies
relating to such 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 independent
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.

                       Capital Income Builder -- Page 18
<PAGE>

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, 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 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. Five audit committee meetings were held during the 2006
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 issues as the board's composition,
responsibilities, committees, compensation and other relevant issues, and
recommends any appropriate changes to the full board of directors. The committee
also evaluates, selects and nominates independent director candidates to the
full board of directors. While the committee normally is able to identify from
its own and other resources an ample number of qualified candidates, it will
consider shareholder suggestions of persons to be considered as nominees to fill
future vacancies on the board. Such suggestions must be sent in writing to the
nominating committee of the fund, addressed to the fund's secretary, and must be
accompanied by complete biographical and occupational data on the prospective
nominee, along with a written consent of the prospective nominee for
consideration of his or her name by the committee. One nominating committee
meeting was held during the 2006 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 2006 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

                       Capital Income Builder -- Page 19
<PAGE>

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. One proxy
committee meeting was held during the 2006 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 voting committees that vote proxies or delegate
to a voting officer the authority to vote on behalf of those funds. Proxies for
all other funds (including the fund) are voted by a committee of the appropriate
equity investment division 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. For proxies of securities managed by a particular investment division
of the investment adviser, the initial voting recommendation is made by one or
more research analysts in that investment division familiar with the company and
industry. A second recommendation is made by a proxy coordinator (a senior
investment professional) within the appropriate investment division based on the
individual's knowledge of the Guidelines and familiarity with proxy-related
issues. The proxy summary and voting recommendations are then sent to the
appropriate proxy voting committee for the final voting decision.

The analyst and proxy coordinator making voting recommendations are responsible
for noting any potential material conflicts of interest. One example might be
where a director of one or more American Funds is also a director of a company
whose proxy is being voted. In such instances, proxy voting committee members
are alerted to the potential conflict. The proxy voting 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, (b) on the American
Funds website at americanfunds.com and (c) on the SEC's website at 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

                       Capital Income Builder -- Page 20
<PAGE>

the full Guidelines is available upon request, free of charge, by calling
American Funds Service Company at 800/421-0180 or visiting the American Funds
website.

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

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

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

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

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, 2006. 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        33.65%
 201 Progress Parkway                                Class B        19.72
 Maryland Heights, MO 63043-3009
----------------------------------------------------------------------------
 Citigroup Global Markets, Inc.                      Class A         5.26
 333 W. 34th Street                                  Class B         8.88
 New York, NY 10001-2402                             Class C        19.15
                                                     Class F         5.37
----------------------------------------------------------------------------
 MLPF&S                                              Class B         6.96
 4800 Deer Lake Drive East, Floor 2                  Class C        15.88
 Jacksonville, FL 32246-6484
----------------------------------------------------------------------------
 Hartford Life Insurance Co.                         Class R-1      32.76
 P.O. Box 2999                                       Class R-3      22.97
 Hartford, CT 06104-2999
----------------------------------------------------------------------------
 Nationwide Trust Company                            Class R-3       6.86
 P.O. Box 182029
 Columbus, OH 43218-2029
----------------------------------------------------------------------------
 MG Trust Co.                                        Class R-4       8.72
 700 - 17th Street, Suite 300
 Denver, CO 80202-3531
----------------------------------------------------------------------------
 CGTC                                                Class R-5      15.83
 400 S. Hope Street, Floor 22
 Los Angeles, CA 90071-2801
----------------------------------------------------------------------------

                       Capital Income Builder -- Page 21
<PAGE>

INVESTMENT ADVISER -- Capital Research and Management Company, the fund's
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 6455 Irvine Center Drive, Irvine,
CA 92618. It is a wholly owned subsidiary of The Capital Group Companies, Inc.,
a holding company for several investment management subsidiaries. Capital
Research and Management Company manages equity assets through two investment
divisions, Capital World Investors and Capital Research Global Investors, and
manages fixed-income assets through its Fixed Income division. Capital World
Investors and Capital Research Global Investors generally function separately
from each other with respect to investment research activities and make
investment and proxy voting decisions on an independent basis.

The investment adviser has adopted policies and procedures that address issues
that may arise as a result of an investment professional's management of the
fund and other funds and accounts. Potential issues could involve allocation of
investment opportunities and trades among funds and accounts, use of information
regarding the timing of fund trades, investment professional compensation and
voting relating to portfolio securities. The investment adviser believes that
its policies and procedures are reasonably designed to address these issues.

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 make investment decisions for 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,

                       Capital Income Builder -- Page 22
<PAGE>

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; results of the top 20% of MSCI US Index
constituents ranked by yield; results of the top 40% of MSCI All Country World
Index (ex US) constituents ranked by yield; Lehman Aggregate Bond Index; and the
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 portions of other mutual funds or accounts
advised by Capital Research and Management Company or its affiliates.

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF OCTOBER 31, 2006:

                                           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.                 Over           2      $106.6      1      $0.05         None
 Lovelace              $1,000,000
---------------------------------------------------------------------------------------------
 Joyce E. Gordon          Over           2      $106.6         None             None//
                       $1,000,000
---------------------------------------------------------------------------------------------
 Mark R.                  Over           5      $189.5         None              None
 Macdonald             $1,000,000
---------------------------------------------------------------------------------------------
 Michael Cohen         $10,001 -            None               None              None
                        $50,000
---------------------------------------------------------------------------------------------
 David A. Hoag            Over           2      $  5.1         None              None
                       $1,000,000
---------------------------------------------------------------------------------------------
 David M. Riley           Over              None               None              None
                       $1,000,000
---------------------------------------------------------------------------------------------
 Timothy D.            $500,001 -        3      $116.0         None              None
 Armour                $1,000,000
---------------------------------------------------------------------------------------------
 Steven T. Watson      $50,001 -         3      $211.5         None             None//
                        $100,000
---------------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 23
<PAGE>

/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. No fund has an advisory fee that is based on the
     performance of the fund.
/3/  Represents funds advised or sub-advised by Capital Research and Management
     Company and sold outside the United States and/ or fixed-income assets in
     institutional accounts managed by investment adviser subsidiaries of Capital
     Group International, Inc., an affiliate of Capital Research and Management
     Company. Assets noted are the total net assets of the funds or accounts and are
     not indicative of the total assets managed by the individual, which is a
     substantially lower amount. No fund or account has an advisory fee that is
     based on the performance of the fund or account.
/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.

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, 2008, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (a) the board of directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (b) the vote of a majority of directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the investment adviser has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written notice to the other party, and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).

In 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;

                       Capital Income Builder -- Page 24
<PAGE>

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 independent
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
----------------------------------------------------------------------------
      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              115,000,000,000
----------------------------------------------------------------------------
      0.110               115,000,000,000
----------------------------------------------------------------------------

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

                       Capital Income Builder -- Page 25
<PAGE>

                              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.

For the fiscal years ended October 31, 2006, 2005 and 2004, the investment
adviser was entitled to receive from the fund management fees of $164,654,000,
$124,219,000 and $80,589,000, respectively. After giving effect to the
management fee waivers described below, the fund paid the investment adviser
management fees of $148,174,000 (a reduction of $16,480,000), $114,050,000 (a
reduction of $10,169,000) and $79,841,000 (a reduction of $748,000) for the
fiscal years ended October 31, 2006, 2005 and 2004, respectively.

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

In addition, during the year ended October 31, 2006, the investment adviser
waived the fees in excess of the rates provided in the November 1, 2006 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, 2008, 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 independent directors. The investment adviser has the
right to terminate the Administrative

                       Capital Income Builder -- Page 26
<PAGE>

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 Class R and 529 shares. The investment adviser may contract
with third parties, including American Funds Service Company, the fund's
Transfer Agent, to provide some of 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, 2006, the total fees paid by the investment adviser
were $326,000.

The investment adviser receives an administrative services fee at the annual
rate of up to 0.15% of the average daily net assets for Class C, F, R (excluding
Class R-5 shares) and 529 shares for administrative services provided to these
share classes. Administrative services fees are paid monthly and accrued daily.
The 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 does 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. The administrative services fee includes compensation for
transfer agent and shareholder services provided to the fund's Class C, F, R and
529 shares. In addition to making administrative service fee payments to
unaffiliated third parties, the investment adviser also makes payments from the
administrative services fee to American Funds Service Company according to a fee
schedule contained in a Shareholder Services Agreement between the fund and
American Funds Service Company.

During the 2006 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

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

               CLASS C                               $8,764,000
------------------------------------------------------------------------------
               CLASS F                                2,414,000
------------------------------------------------------------------------------
             CLASS 529-A                                473,000
------------------------------------------------------------------------------
             CLASS 529-B                                104,000
------------------------------------------------------------------------------
             CLASS 529-C                                229,000
------------------------------------------------------------------------------
             CLASS 529-E                                 26,000
------------------------------------------------------------------------------
             CLASS 529-F                                  8,000
------------------------------------------------------------------------------
              CLASS R-1                                  80,000
------------------------------------------------------------------------------
              CLASS R-2                               1,616,000
------------------------------------------------------------------------------
              CLASS R-3                                 716,000
------------------------------------------------------------------------------
              CLASS R-4                                 136,000
------------------------------------------------------------------------------
              CLASS R-5                                 377,000
------------------------------------------------------------------------------

                       Capital Income Builder -- Page 27
<PAGE>

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; 6455 Irvine Center Drive, Irvine, CA 92618; 3500 Wiseman
Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513.

The Principal Underwriter receives revenues from sales of the fund's shares. For
Class A and 529-A shares, the Principal Underwriter receives commission revenue
consisting of that portion of the Class A and 529-A sales charge remaining after
the allowances by the Principal Underwriter to investment dealers. For Class B
and 529-B shares, the Principal Underwriter sells the rights to the 12b-1 fees
paid by the fund for distribution expenses to a third party and receives the
revenue remaining after compensating investment dealers for sales of Class B and
529-B shares. The fund also pays the Principal Underwriter for advancing the
immediate service fees paid to qualified dealers of Class B and 529-B shares.
For Class C and 529-C shares, the Principal Underwriter receives any contingent
deferred sales charges that apply during the first year after purchase. The fund
pays the Principal Underwriter for advancing the immediate service fees and
commissions paid to qualified dealers of Class C and 529-C shares. For Class
529-E shares, the fund pays the Principal Underwriter for advancing the
immediate service fees and commissions paid to qualified dealers. For Class F
and 529-F shares, the fund pays the Principal Underwriter for advancing the
immediate service fees paid to qualified dealers and advisers who sell Class F
and 529-F shares. For Class R-1, R-2, R-3 and R-4 shares, the fund pays the
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                          2006            $51,399,000        $226,129,000
                                                  2005             62,521,000         278,645,000
                                                  2004             39,449,000         176,000,000
                 CLASS B                          2006              3,409,000          22,689,000
                                                  2005              3,982,000          30,029,000
                                                  2004              4,241,000          28,435,000
-----------------------------------------------------------------------------------------------------
                 CLASS C                          2006              1,012,000          21,456,000
                                                  2005                     --          23,732,000
                                                  2004                     --          15,511,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-A                        2006              1,165,000           5,433,000
                                                  2005              1,102,000           5,196,000
                                                  2004                583,000           2,772,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-B                        2006                109,000             691,000
                                                  2005                120,000             734,000
                                                  2004                132,000             709,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-C                        2006                     --             796,000
                                                  2005                     --             691,000
                                                  2004                     --             477,000
-----------------------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 28
<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 independent
directors of the fund 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 independent
directors are committed to the discretion of the independent directors 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 by the board of directors 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, respectively; (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

                       Capital Income Builder -- Page 29
<PAGE>

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, after reimbursement for paying service-related
expenses, is reimbursed to the Principal Underwriter for paying
distribution-related expenses, including 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 the amount recovered
does not cause the fund to 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.

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.

                       Capital Income Builder -- Page 30
<PAGE>

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 2006 fiscal year, total 12b-1 expenses, and the portion of
the expenses that remained unpaid, were:

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

               CLASS A                        $111,629,000               $16,097,000
--------------------------------------------------------------------------------------------
               CLASS B                          38,228,000                 4,212,000
--------------------------------------------------------------------------------------------
               CLASS C                          69,974,000                11,034,000
--------------------------------------------------------------------------------------------
               CLASS F                           6,551,000                 1,331,000
--------------------------------------------------------------------------------------------
             CLASS 529-A                         1,064,000                   169,000
--------------------------------------------------------------------------------------------
             CLASS 529-B                         1,013,000                   118,000
--------------------------------------------------------------------------------------------
             CLASS 529-C                         2,432,000                   398,000
--------------------------------------------------------------------------------------------
             CLASS 529-E                           162,000                    30,000
--------------------------------------------------------------------------------------------
             CLASS 529-F                                 0                         0
--------------------------------------------------------------------------------------------
              CLASS R-1                            492,000                   105,000
--------------------------------------------------------------------------------------------
              CLASS R-2                          2,334,000                   443,000
--------------------------------------------------------------------------------------------
              CLASS R-3                          1,745,000                   327,000
--------------------------------------------------------------------------------------------
              CLASS R-4                            222,000                    45,000
--------------------------------------------------------------------------------------------

OTHER COMPENSATION TO DEALERS -- As of January 2007, the top dealers (or their
affiliates) that American Funds Distributors anticipates will receive additional
compensation (as described in the prospectus) include:

     A. G. Edwards & Sons, Inc.
     AIG Advisors Group:
          Advantage Capital Corporation
          AIG Financial Advisors, Inc.
          American General Securities Incorporated
          FSC Securities Corporation
          Royal Alliance Associates, Inc.
     AXA Advisors, LLC
     Cadaret, Grant & Co., Inc.
     Cambridge Investment Research, Inc.
     Commonwealth Financial Network
     Cuna Brokerage Services, Inc.
     Deutsche Bank Securities Inc.
     Edward Jones
     Genworth Financial Securities Corporation
     Hefren-Tillotson, Inc.

                       Capital Income Builder -- Page 31
<PAGE>

     HTK/Janney Montgomery Group:
          Hornor, Townsend & Kent, Inc.
          Janney Montgomery Scott LLC
     ING Advisors Network Inc.:
          Bancnorth Investment Group, Inc.
          Financial Network Investment Corporation
          Guaranty Brokerage Services, Inc.
          ING Financial Partners, Inc.
          Multi-Financial Securities Corporation
          Primevest Financial Services, Inc.
     InterSecurities/Transamerica:
          InterSecurities, Inc.
          Transamerica Financial Advisors, Inc.
     J.J.B. Hilliard/PNC Bank:
          J.J.B. Hilliard, W.L. Lyons, Inc.
          PNC Bank, National Association
          PNC Brokerage Corp.
          PNC Investments LLC
     Lincoln Financial Advisors Corporation:
          Lincoln Financial Advisors Corporation
          Jefferson Pilot Securities Corporation
     LPL Financial Services:
          Linsco/Private Ledger Corp.
          Uvest Investment Services
     Merrill Lynch, Pierce, Fenner & Smith Incorporated
     Metlife Enterprises:
          Metlife Securities Inc.
          Tower Square Securities
          New England Securities
          Walnut Street Securities, Inc.
     MML Investors Services, Inc.
     Morgan Keegan & Company, Inc.
     Morgan Stanley DW Inc.
     National Planning Holdings Inc.:
          Invest Financial Corporation
          Investment Centers of America, Inc.
          National Planning Corporation
          SII Investments, Inc.
     NFP Securities, Inc.
     Northwestern Mutual Investment Services, LLC
     Pacific Select Distributors Inc.:
          Associated Securities Corp.
          Contemporary Financial Solutions, Inc.
          M.L. Stern & Co., LLC
          Mutual Service Corporation
          Sorrento Pacific Financial, LLC
          United Planners' Financial Services of America
          Waterstone Financial Group, Inc.
     Park Avenue Securities LLC
     Princor Financial Services Corporation

                       Capital Income Builder -- Page 32
<PAGE>

     Raymond James Group:
          Raymond James & Associates, Inc.
          Raymond James Financial Services Inc.
     RBC Dain Rauscher Inc.
     Robert W. Baird & Co. Incorporated
     Securian/C.R.I.:
          CRI Securities, LLC
          Securian Financial Services, Inc.
     Smith Barney
     U.S. Bancorp Investments, Inc.
     UBS Financial Services Inc.
     First Clearing LLC
     Wells Fargo Investments, L.L.C.

                      EXECUTION OF PORTFOLIO TRANSACTIONS

The investment adviser places orders with broker-dealers for the fund's
portfolio transactions. Purchases and sales of equity securities on a securities
exchange or an over-the-counter market are effected through broker-dealers who
receive commissions for their services. Generally, commissions relating to
securities traded on foreign exchanges will be higher than commissions relating
to securities traded on U.S. exchanges and may not be subject to negotiation.
Equity securities may also be purchased from underwriters at prices that include
underwriting fees. Purchases and sales of fixed-income securities are generally
made with an issuer or a primary market-maker acting as principal with no stated
brokerage commission. The price paid to an underwriter for fixed-income
securities includes underwriting fees. Prices for fixed-income securities in
secondary trades usually include undisclosed compensation to the market-maker
reflecting the spread between the bid and ask prices for the securities.

In selecting broker-dealers, the investment adviser strives to obtain "best
execution" (the most favorable total price reasonably attainable under the
circumstances) for the fund's portfolio transactions, taking into account a
variety of factors. These factors include the size and type of transaction, the
nature and character of the markets for the security to be purchased or sold,
the cost, quality and reliability of the executions and the broker-dealer's
ability to offer liquidity and anonymity. The investment adviser considers these
factors which involve qualitative judgments when selecting broker-dealers and
execution venues for fund portfolio transactions. The investment adviser views
best execution as a process that should be evaluated over time as part of an
overall relationship with particular broker-dealer firms rather than on a
trade-by-trade basis. The fund does not consider the investment adviser as
having an obligation to obtain the lowest commission rate available for a
portfolio transaction to the exclusion of price, service and qualitative
considerations.

The investment adviser may execute portfolio transactions with broker-dealers
who provide certain brokerage and/or investment research services to it, but
only when in the investment adviser's judgment the broker-dealer is capable of
providing best execution for that transaction. The receipt of these services
permits the investment adviser to supplement its own research and analysis and
makes available the views of, and information from, individuals and the research
staffs of other firms. Such views and information may be provided in the form of
written reports, telephone contacts and meetings with securities analysts. These
services may include, among other things, reports and other communications with
respect to individual companies, industries, countries and regions, economic,
political and legal developments, as well as setting up

                       Capital Income Builder -- Page 33
<PAGE>

meetings with corporate executives and seminars and conferences related to
relevant subject matters. The investment adviser considers these services to be
supplemental to its own internal research efforts and therefore the receipt of
investment research from broker-dealers does not tend to reduce the expenses
involved in the investment adviser's research efforts. If broker-dealers were to
discontinue providing such services it is unlikely the investment adviser would
attempt to replicate them on its own, in part because they would then no longer
provide an independent, supplemental viewpoint. Nonetheless, if it were to
attempt to do so, the investment adviser would incur substantial additional
costs. Research services that the investment adviser receives from
broker-dealers may be used by the investment adviser in servicing the fund and
other funds and accounts that it advises; however, not all such services will
necessarily benefit the fund.

The investment adviser may pay commissions in excess of what other
broker-dealers might have charged - including on an execution-only basis - for
certain portfolio transactions in recognition of brokerage and/or investment
research services provided by a broker-dealer. In this regard, the investment
adviser has adopted a brokerage allocation procedure consistent with the
requirements of Section 28(e) of the U.S. Securities Exchange Act of 1934.
Section 28(e) permits an investment adviser to cause an account to pay a higher
commission to a broker-dealer that provides certain brokerage and/or investment
research services to the investment adviser, if the investment adviser makes a
good faith determination that such commissions are reasonable in relation to the
value of the services provided by such broker-dealer to the investment adviser
in terms of that particular transaction or the investment adviser's overall
responsibility to the fund and other accounts that it advises. Certain brokerage
and/or investment research services may not necessarily benefit all accounts
paying commissions to each such broker-dealer; therefore, the investment adviser
assesses the reasonableness of commissions in light of the total brokerage and
investment research services provided by each particular broker-dealer. In
accordance with its internal brokerage allocation procedure, the investment
adviser periodically assesses the brokerage and investment research services
provided by each broker-dealer from whom it receives such services. Using its
judgment, the investment adviser then creates lists with suggested levels of
commissions for particular broker-dealers and provides those lists to its
trading desks. Neither the investment adviser nor the fund incurs any obligation
to any broker-dealer to pay for research by generating trading commissions. The
actual level of business received by any broker-dealer may be less then the
suggested level of commissions and can, and often does, exceed the suggested
level in the normal course of business. As part of its ongoing relationships
with broker-dealers, the investment adviser routinely meets with firms,
typically at the firm's request, to discuss the level and quality of the
brokerage and research services provided, as well as the perceived value and
cost of such services. In valuing the brokerage and investment research services
the investment adviser receives from broker-dealers for its good faith
determination of reasonableness, the investment adviser does not attribute a
dollar value to such services, but rather takes various factors into
consideration, including the quantity, quality and usefulness of the services to
the investment adviser.

The investment adviser seeks, on an ongoing basis, to determine what the
reasonable levels of commission rates are in the marketplace. The investment
adviser takes various considerations into account when evaluating such
reasonableness, including, (a) rates quoted by broker-dealers, (b) the size of a
particular transaction in terms of the number of shares and dollar amount, (c)
the complexity of a particular transaction, (d) the nature and character of the
markets on which a particular trade takes place, (e) the ability of a
broker-dealer to provide anonymity while executing trades, (f) the ability of a
broker-dealer to execute large trades while minimizing market impact, (g) the
extent to which a broker-dealer has put its own capital at risk, (h) the level

                       Capital Income Builder -- Page 34
<PAGE>

and type of business done with a particular broker-dealer over a period of time,
(i) historical commission rates, and (j) commission rates that other
institutional investors are paying.

When executing portfolio transactions in the same equity security for the funds
and accounts, or portions of funds and accounts, over which the investment
adviser, through its equity investment divisions, has investment discretion,
each of the investment divisions will normally aggregate their respective
purchases or sales and execute them as part of the same transaction or series of
transactions. When executing portfolio transactions in the same fixed-income
security for the fund and the other funds or accounts over which it or one of
its affiliated companies has investment discretion, the investment adviser will
normally aggregate such purchases or sales and execute them as part of the same
transaction or series of transactions. The objective of aggregating purchases
and sales of a security is to allocate executions in an equitable manner among
the funds and other accounts that have concurrently authorized a transaction in
such security.

The investment adviser may place orders for the fund's portfolio transactions
with broker-dealers who have sold shares in the funds managed by the investment
adviser or its affiliated companies, however, it does not give consideration to
whether a broker-dealer has sold shares of the funds managed by the investment
adviser or its affiliated companies when placing any such orders for the fund's
portfolio transactions.

Brokerage commissions paid on portfolio transactions, including investment
dealer concessions on underwritings, if applicable, for the fiscal years ended
October 31, 2006, 2005 and 2004 amounted to $42,768,000, $34,660,000 and
$25,365,000, 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 volume of trading activity increased during the year, resulting in an
increase in  brokerage commissions and concessions paid on portfolio
transactions.

The fund is required to disclose information regarding investments in the
securities of its "regular" broker-dealers (or parent companies of its regular
broker-dealers) that derive more than 15% of their revenue from broker-dealer,
underwriter or investment adviser activities. A regular broker-dealer is (a) one
of the 10 broker-dealers that received from the fund the largest amount of
brokerage commissions by participating, directly or indirectly, in the fund's
portfolio transactions during the fund's most recent fiscal year; (b) one of the
10 broker-dealers that engaged as principal in the largest dollar amount of
portfolio transactions of the fund during the fund's most recent fiscal year; or
(c) one of the 10 broker-dealers that sold the largest amount of securities of
the fund during the fund's most recent fiscal year.

At the end of the fund's most recent fiscal year, the fund's regular
broker-dealers included Citigroup Global Markets Inc., Credit Suisse Group,
Deutsche Bank AG, First Clearing LLC, Goldman Sachs & Co., J.P. Morgan
Securities Inc., Lehman Brothers and UBS AG. As of the fund's most recent fiscal
year-end, the fund held equity securities of Citigroup Inc. in the amount of
$710,767,000, Credit Suisse Group in the amount of $100,507,000, J.P. Morgan
Chase & Co. in the amount of $237,200,000 and UBS AG in the amount of
$180,289,000. The fund held debt securities of Citigroup Inc. in the amount of
$30,459,000, Deutsche Bank AG in the amount of $8,187,000, Goldman Sachs Group
Inc. in the amount of $8,140,000, J.P. Morgan Chase & Co. in the amount of
$43,108,000, Lehman Brothers Holdings Inc. in the amount of $8,009,000 and
Wachovia Corporation in the amount of $21,239,000.

                       Capital Income Builder -- Page 35
<PAGE>

                        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.
The fund's custodian, outside counsel and auditor, each of which requires
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
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.

                       Capital Income Builder -- Page 36
<PAGE>

                                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 should 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 indicated below. The fund follows
standard industry practice by typically reflecting changes in its holdings of
portfolio securities on the first business day following a portfolio trade.

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

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 prin-

                       Capital Income Builder -- Page 37
<PAGE>

cipally 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 by the investment adviser, 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. The
valuation committee employs additional fair value procedures to address issues
related to equity holdings of applicable fund portfolios outside the United
States. Securities owned by these funds trade in markets that open and close at
different times, reflecting time zone differences. If significant events occur
after the close of a market (and before these fund's net asset values are next
determined) which affect the value of portfolio securities, appropriate
adjustments from closing market prices may be made to reflect these events.
Events of this type could include, for example, earthquakes and other natural
disasters or significant price changes in other markets (e.g., U.S. stock
markets).

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

                       Capital Income Builder -- Page 38
<PAGE>

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
nearest 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 39
<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  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. 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 40
<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.

     The price of a bond purchased after its original issuance may reflect
     market discount which, depending on the particular circumstances, may
     affect the tax character and amount of income required to be recognized by
     a fund holding the bond. In determining whether a bond is purchased with
     market discount, certain de minimis rules apply.

     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. Some
     foreign countries 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 carryforward of
     the fund.

                       Capital Income Builder -- Page 41
<PAGE>

     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.
     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 other than a corporation 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.

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.

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).

                       Capital Income Builder -- Page 42
<PAGE>

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.

                       Capital Income Builder -- Page 43
<PAGE>

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

                        PURCHASE AND EXCHANGE OF SHARES

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

     CONTACTING YOUR 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.

     The amount of time it takes for us to receive regular U.S. postal mail may
     vary and there is no assurance that we will receive such mail on the day
     you expect. Mailing addresses for regular U.S. postal mail can be found in
     the prospectus. To send investments or correspondence to us via overnight
     mail or courier service, use any of the following addresses:

           American Funds
           8332 Woodfield Crossing Blvd.
           Indianapolis, IN 46240-2482

           American Funds
           3500 Wiseman Blvd.
           San Antonio, TX 78251-4321

           American Funds
           5300 Robin Hood Rd.
           Norfolk, VA  23513-2407

     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

                       Capital Income Builder -- Page 44
<PAGE>

           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.

PURCHASES RECEIVED WITHOUT INVESTMENT INSTRUCTIONS -- When purchasing shares,
you should designate the fund or funds in which you wish to invest. In the
case of accounts other than 529 accounts, if no fund is designated and the
amount of your cash investment is more than $5,000, your money will be held
uninvested (without liability to the transfer agent for loss of income or
appreciation pending receipt of proper instructions) until investment
instructions are received, but for no more than three business days.
Your investment will be made at the net asset value (plus any applicable sales
charge in the case of Class A shares) next determined after investment
instructions are received and accepted by the transfer agent. If investment
instructions are not received, your money will be invested in Class A shares of
The Cash Management Trust of America on the third business day after receipt of
your investment.

In the case of accounts other than 529 accounts, if no fund is designated and
the amount of your cash investment is $5,000 or less, your money will be
invested in the same proportion and in the same fund or funds in which your last
cash investment (excludes exchanges) was made, provided such investment was made
within the last 16 months. If no investment was made within the last
16 months, your money will be held uninvested (without liability to the
transfer agent for loss of income or appreciation pending receipt of proper
instructions) until investment instructions are received, but for no more than
three business days. Your investment will be made at the net asset value (plus
any applicable sales charge in the case of Class A shares) next determined after
investment instructions are received and accepted by the transfer agent. If
investment instructions are not received, your money will be invested in Class A
shares of The Cash Management Trust of America on the third business day after
receipt of your investment.

OTHER PURCHASE INFORMATION -- 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. 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. In addition, the American Funds state
tax-exempt funds are qualified for sale only in certain jurisdictions, and
tax-exempt funds in general should

                       Capital Income Builder -- Page 45
<PAGE>

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. As noted in the prospectus,
purchase minimums may be waived or reduced in certain cases.

In the case of American Funds non-tax-exempt funds, 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.

Certain accounts held on the fund's books, known as omnibus accounts, contain
multiple underlying accounts that are invested in shares of the fund. These
underlying accounts are maintained by entities such as financial intermediaries
and are subject to the applicable initial purchase minimums as described in the
prospectus and statement of additional information.

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. Exchanges are not permitted from Class A shares
of The Cash Management Trust of America to Class B or C shares of Intermediate
Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America and
Short-Term Bond Fund of America. 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.

                       Capital Income Builder -- Page 46
<PAGE>

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

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

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

     If you wish to "move" your investment between share classes (within the
     same fund or between different funds), we generally will process your
     request as an exchange of the shares you currently hold for shares in
     the new class or fund. Below is more information about how sales charges
     are handled for various scenarios.

     EXCHANGING CLASS B SHARES FOR CLASS A SHARES -- If you exchange Class B
     shares for Class A shares during the contingent deferred sales charge
     period you are responsible for paying applicable deferred sales charges on
     Class B shares, but you will not be required to pay a Class A sales charge.
     If you exchange your Class B shares for Class A shares after the contingent
     deferred sales charge period you are responsible for paying any applicable
     Class A sales charges.

     If you redeem Class B shares after the contingent deferred sales charge
     period, you may either reinvest the proceeds in Class B shares or purchase
     Class A shares; if you purchase Class A shares you are responsible for
     paying any applicable Class A sales charges.

     EXCHANGING CLASS C SHARES FOR CLASS A SHARES -- If you exchange Class C
     shares for Class A shares, you are still responsible for paying any Class C
     contingent deferred sales charges and applicable Class A sales charges.

                       Capital Income Builder -- Page 47
<PAGE>

     EXCHANGING CLASS C SHARES FOR CLASS F SHARES -- If you are part of a
     qualified fee-based program and you wish to exchange your Class C shares
     for Class F shares to be held in the program, you are still responsible for
     paying any applicable Class C contingent deferred sales charges.

     EXCHANGING CLASS F SHARES FOR CLASS A SHARES -- You can exchange Class F
     shares held in a qualified fee-based program for 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 of your request. If you have already
     redeemed your Class F shares, the foregoing requirements apply and you must
     purchase Class A shares within 90 days after redeeming your Class F shares.

     In addition, you may redeem Class F shares held in a fee-based brokerage
     account/ program for less than one year and with the redemption proceeds
     purchase Class A shares without a sales charge if the redemption is
     necessary to comply with the repeal of SEC Rule 202 under the Investment
     Advisers Act of 1940 and the transaction occurs prior to October 1, 2007,
     or such other date as determined by rule, regulation or court order.

     EXCHANGING CLASS A SHARES FOR CLASS F SHARES -- If you are part of a
     qualified fee-based program and you wish to exchange your Class A shares
     for Class F shares to be held in 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.

     EXCHANGING CLASS A SHARES FOR CLASS R SHARES -- Provided it is eligible to
     invest in Class R shares, a retirement plan currently invested in Class A
     shares may exchange its shares for Class R shares. Any Class A sales
     charges that the retirement plan previously paid will not be credited back
     to the plan's account.

     MOVING BETWEEN OTHER SHARE CLASSES -- If you desire to move your investment
     between share classes and the particular scenario is not described in this
     statement of additional information, please contact American Funds Service
     Company at 800/421-0180 for more information.

NON-REPORTABLE TRANSACTIONS -- Automatic conversions described in the prospectus
will be non-reportable for tax purposes. In addition, except in the case of a
movement between a 529 share class and a non-529 share class, an exchange of
shares from one share class of a fund to another share class of the same fund
will be treated as a non-reportable exchange for tax purposes, provided that the
exchange request is received in writing by American Funds Service Company and
processed as a single transaction.

                                 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

                       Capital Income Builder -- Page 48
<PAGE>

     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 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;

                       Capital Income Builder -- Page 49
<PAGE>

     (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.

     TRANSFERS TO COLLEGEAMERICA -- A transfer from the Virginia Prepaid
     Education Program/SM/ or the Virginia Education Savings Trust/SM/ to a
     CollegeAmerica account will be made with no sales charge. No commission
     will be paid to the dealer on such a transfer.

MOVING BETWEEN ACCOUNTS -- Investments in certain account types may be moved to
other account types without incurring additional Class A sales charges. These
transactions include, for example:

     .    redemption proceeds from a non-retirement account (for example, a
          joint tenant account) used to purchase fund shares in an IRA or other
          individual-type retirement account;

     .    required minimum distributions from an IRA or other individual-type
          retirement account used to purchase fund shares in a non-retirement
          account; and

     .    death distributions paid to a beneficiary's account that are used by
          the beneficiary to purchase fund shares in a different account.

LOAN REPAYMENTS -- Repayments on loans taken from a retirement plan or an
individual-type retirement account are not subject to sales charges if American
Funds Service Company is notified of the repayment.

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 of less than $4 million, 0.50% on
amounts of at least $4 million but less than $10 million and 0.25% on amounts of
at least $10 million. Commissions are based on cumulative investments over the
life of the account with no adjustment for redemptions, transfers, or market
declines. For example, if a shareholder has accumulated investments in excess of
$4 million (but less than $10 million) and subsequently redeems all or a portion
of the account(s), purchases following the redemption will generate a dealer
commission of 0.50%.

                       Capital Income Builder -- Page 50
<PAGE>

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

                      SALES CHARGE REDUCTIONS AND WAIVERS

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

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

     The Statement period starts on the date on which your first purchase made
     toward satisfying the Statement is processed. 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
     reaching such amounts, the Statements for these

                       Capital Income Builder -- Page 51
<PAGE>

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

     In addition, if you currently have individual holdings in American Legacy
     variable annuity contracts or variable life insurance policies that were
     established on or before March 31, 2007, you may continue to apply
     purchases under such contracts and policies to a Statement.

     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 plans, 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

     .    529 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

                       Capital Income Builder -- Page 52
<PAGE>

     .    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, in each case of a single employer or affiliated employers as
          defined in the 1940 Act.

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

     CONCURRENT PURCHASES -- As described in the prospectus, you may reduce your
     Class A sales charge by combining purchases of all classes of shares in the
     American Funds, as well as individual holdings in Endowments. 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. If you
     currently have individual holdings in American Legacy variable annuity
     contracts or variable life insurance policies that were established on or
     before March 31, 2007, you may continue to combine purchases made under
     such contracts and policies to reduce your Class A sales charge.

     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. Direct purchases of American Funds money market
     funds are excluded. 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, accounts held in nominee or street name may not
     be eligible for calculation at cost value and instead may 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 your
     investment is not in an employer-sponsored retirement plan, you may also
     continue to take into account the market value (as of the day prior to your
     American Funds investment) of your individual holdings in various American
     Legacy variable annuity contracts and variable life insurance policies that
     were established on or before March 31, 2007. An employer-sponsored
     retirement plan may also continue to take into account the market value of
     its

                       Capital Income Builder -- Page 53
<PAGE>

     investments in American Legacy Retirement Investment Plans that were
     established on or before March 31, 2007.

     You may not purchase Class B or 529-B shares if your combined American
     Funds and applicable American Legacy holdings cause you to be eligible to
     purchase Class A or 529-A shares at the $100,000 or higher sales charge
     discount rate, and you may not purchase Class C or 529-C shares if such
     combined holdings cause you to be eligible to purchase Class A or 529-A
     shares at the $1 million or more sales charge discount rate (i.e. at net
     asset value).

     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 applicable American
     Legacy accounts.

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

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

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

     .    Redemptions through an automatic withdrawal plan (AWP) (see "Automatic
          withdrawals" under "Shareholder account services and privileges"
          below). For each AWP 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 AWP 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 an AWP will also count toward the 12% limit. In the
          case of an AWP, the 12% limit is calculated at the time an automatic
          redemption is first made, and is recalculated at the time each
          additional automatic redemption is made. Shareholders who establish an
          AWP 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.

                       Capital Income Builder -- Page 54
<PAGE>

     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 elimination of the fund by
the Virginia College Savings Plan as an option for additional investment within
CollegeAmerica.

                                 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. To contact American Funds Service Company via overnight mail or
courier service, see "Purchase and exchange of shares."

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 Financial
Industry Regulatory Authority, 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 10
business 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.

                       Capital Income Builder -- Page 55
<PAGE>

                  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 and the date on
which you would like your investments to occur. The plan will begin within 30
days after your account application is received. Your bank account will be
debited on the day or a few days before your investment is made, depending on
the bank's capabilities. The Transfer Agent will then invest your money into the
fund you specified on or around the date you specified. If the date you
specified falls on a weekend or holiday, your money will be invested on the
following business day. However, if the following business day falls in the next
month, your money will be invested on the business day immediately preceding the
weekend or holiday. If your bank account cannot be debited due to insufficient
funds, a stop-payment or the closing of the account, the plan may be terminated
and the related investment reversed. You may change the amount of the investment
or discontinue the plan at any time by contacting the Transfer Agent.

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

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

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.

                       Capital Income Builder -- Page 56
<PAGE>

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

Redemption proceeds from an automatic withdrawal plan are not eligible for
reinvestment without a sales charge.

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,

                       Capital Income Builder -- Page 57
<PAGE>

trustees, officers, employees and agents harmless from any losses, expenses,
costs or liabilities (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 upon meeting
the fund's initial purchase minimum of $1,000. 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.

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.

While payment of redemptions normally will be in cash, the fund's articles of
incorporation permits payment of the redemption price wholly or partly in
securities or other property included in the assets belonging to the fund when
the adviser determines that it is in the best interest of the remaining
shareholders.

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 6455 Irvine Center Drive, Irvine, CA 92618. American Funds Service
Company was paid a fee of $34,302,000 for Class A shares and $3,159,000 for
Class B shares for the 2006 fiscal year. American Funds Service Company is also
compensated for

                       Capital Income Builder -- Page 58
<PAGE>

certain transfer agency services provided to all other share classes from the
administrative services fees paid to Capital Research and Management Company, as
described under "Administrative services agreement."

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 independent 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
determination with respect to the independence of the fund's "independent legal
counsel" will be made at least annually by the independent directors of the
fund, as prescribed by the 1940 Act and related rules.

PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- The fund's fiscal
year ends on October 31. Shareholders are provided updated prospectuses annually
and at least semiannually with reports showing the fund's investment portfolio
or 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

                       Capital Income Builder -- Page 59
<PAGE>

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 (now the Financial Industry
Regulatory Authority) 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 August 30, 2006, the NASD
Hearing Panel ruled against the Principal Underwriter and imposed a $5 million
fine. The Principal Underwriter has appealed this decision to the NASD's
National Adjudicatory Council.

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
subsequently appealed the Superior Court's decision to California's Court of
Appeal for the Second Appellate District. On January 26, 2007, the Court of
Appeal issued a ruling allowing the California Attorney General to proceed with
his civil action.

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. In addition, class action lawsuits have been
filed in the U.S. District Court, Central District of California, relating to
these matters. The investment adviser believes that these suits are 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."

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- OCTOBER 31, 2006

Net asset value and redemption price per share
  (Net assets divided by shares outstanding). .                     $59.91
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). . . . . . . . . . . . . . . .                      $63.56

OTHER INFORMATION -- The fund reserves the right to modify the privileges
described in this statement of additional information at any time.

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 on fund numbers is not included in the annual report:

                       Capital Income Builder -- Page 60
<PAGE>

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
Short-Term Bond Fund of America/SM/  . . . . . . . . . . . . .     048      248      348       448
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 61
<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
Short-Term Bond Fund of America    1048     1248     1348     1548      1448
U.S. Government Securities Fund    1022     1222     1322     1522      1422
MONEY MARKET FUND
The Cash Management Trust of
America . . . . . . . . . . . .    1009     1209     1309     1509      1409

                                                    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
Short-Term Bond Fund of America. . .    2148    2248    2348    2448     2548
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 62
<PAGE>

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

AMERICAN FUNDS TARGET DATE RETIREMENT SERIES/(R)/
American Funds 2050 Target
Date Retirement Fund  . . .     069     2169    2269    2369    2469     2569
American Funds 2045 Target
Date Retirement Fund  . . .     068     2168    2268    2368    2468     2568
American Funds 2040 Target
Date Retirement Fund  . . .     067     2167    2267    2367    2467     2567
American Funds 2035 Target
Date Retirement Fund  . . .     066     2166    2266    2366    2466     2566
American Funds 2030 Target
Date Retirement Fund  . . .     065     2165    2265    2365    2465     2565
American Funds 2025 Target
Date Retirement Fund  . . .     064     2164    2264    2364    2464     2564
American Funds 2020 Target
Date Retirement Fund  . . .     063     2163    2263    2363    2463     2563
American Funds 2015 Target
Date Retirement Fund  . . .     062     2162    2262    2362    2462     2562
American Funds 2010 Target
Date Retirement Fund  . . .     061     2161    2261    2361    2461     2561

                       Capital Income Builder -- Page 63
<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.

                          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.

                       Capital Income Builder -- Page 64
<PAGE>

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 65
<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 66
<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 67
```

|                                                                                                                                                                                  |                                                                          |                                                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|------------------------------------------------------|
| Common                  stocks                  — 67.54%                                                                                                                        | Shares                                                                        | Market                  value                  (000) |
|                                                                                                                                                                                  | ** **                                                                    | ** **                                           |
| **FINANCIALS                  — 19.09%**                                                                                                                                        |                                                                          |                                                 |
| Fannie                  Mae                                                                                                                                                           | 12,900,000                                                                    | $764,454                                             |
| Société                  Générale                                                                                                                                 | 4,398,870                                                                     | 730,807                                              |
| HSBC                  Holdings                  PLC (Hong Kong)                                                                                                                       | 23,870,097                                                                    | 450,397                                              |
| HSBC                  Holdings                  PLC (United Kingdom)                                                                                                                  | 14,158,402                                                                    | 268,381                                              |
| Citigroup                  Inc.                                                                                                                                                       | 14,170,000                                                                    | 710,767                                              |
| Bank                  of                  America Corp.                                                                                                                               | 11,867,340                                                                    | 639,294                                              |
| BNP                  Paribas                                                                                                                                                          | 5,320,270                                                                     | 584,843                                              |
| Banco                  Santander Central Hispano, SA                                                                                                                                  | 33,432,614                                                                    | 578,470                                              |
| Freddie                  Mac                                                                                                                                                          | 7,900,000                                                                     | 545,021                                              |
| Washington                  Mutual, Inc.                                                                                                                                              | 12,000,000                                                                    | 507,600                                              |
| ING                  Groep                  NV                                                                                                                                        | 9,866,216                                                                     | 436,974                                              |
| National                  City                  Corp.                                                                                                                                 | 11,619,800                                                                    | 432,838                                              |
| iStar                  Financial, Inc.1                                                                                                                                               | 7,065,500                                                                     | 327,345                                              |
| Danske                  Bank                  A/S                                                                                                                                     | 7,641,000                                                                     | 320,611                                              |
| Fortis                                                                                                                                                                                | 7,420,000                                                                     | 311,210                                              |
| Lloyds                  TSB                  Group PLC                                                                                                                                | 25,235,000                                                                    | 269,249                                              |
| AXA                  SA                                                                                                                                                               | 6,983,333                                                                     | 265,985                                              |
| Banco                  Itaú                  Holding Financeira SA, preferred nominative                                                                                         | 7,696,200                                                                     | 253,425                                              |
| Bank                  of Nova                  Scotia                                                                                                                                 | 5,647,200                                                                     | 247,936                                              |
| Westpac                  Banking Corp.                                                                                                                                                | 13,256,437                                                                    | 245,802                                              |
| J.P.                  Morgan                  Chase & Co.                                                                                                                         | 5,000,000                                                                     | 237,200                                              |
| St.                  George                  Bank Ltd.                                                                                                                                | 9,034,601                                                                     | 226,695                                              |
| Wells                  Fargo                  & Co.                                                                                                                               | 6,070,000                                                                     | 220,280                                              |
| Sun                  Hung Kai                  Properties Ltd.                                                                                                                        | 19,622,000                                                                    | 214,503                                              |
| Regions                  Financial Corp.                                                                                                                                              | 5,650,000                                                                     | 214,417                                              |
| Equity                  Residential                                                                                                                                                   | 3,750,500                                                                     | 204,815                                              |
| Irish                  Life                  & Permanent PLC                                                                                                                      | 7,713,949                                                                     | 189,478                                              |
| UniCredito                  Italiano SpA                                                                                                                                              | 22,480,000                                                                    | 186,334                                              |
| Royal                  Bank of                  Canada                                                                                                                                | 4,180,000                                                                     | 185,381                                              |
| UBS                  AG                                                                                                                                                               | 3,016,620                                                                     | 180,289                                              |
| Archstone-Smith                  Trust                                                                                                                                                | 2,915,000                                                                     | 175,512                                              |
| DnB                  NOR                  ASA                                                                                                                                         | 12,870,000                                                                    | 168,614                                              |
| CapitaMall                  Trust Management Ltd.1                                                                                                                                    | 100,628,470                                                                   | 167,155                                              |
| Westfield                  Group                                                                                                                                                      | 11,506,447                                                                    | 165,961                                              |
| Hang                  Lung                  Properties Ltd.                                                                                                                           | 71,649,100                                                                    | 156,189                                              |
| Swire                  Pacific                  Ltd., Class A                                                                                                                         | 12,950,000                                                                    | 136,739                                              |
| Commerzbank                  U.S. Finance, Inc.                                                                                                                                       | 3,750,000                                                                     | 133,071                                              |
| Weingarten                  Realty Investors                                                                                                                                          | 2,634,750                                                                     | 122,516                                              |
| Banco                  Bilbao                  Vizcaya Argentaria, SA                                                                                                                 | 5,000,000                                                                     | 120,710                                              |
| Chinatrust                  Financial Holding Co., Ltd.                                                                                                                               | 165,157,759                                                                   | 119,957                                              |
| Siam                  Commercial Bank PCL                                                                                                                                             | 65,552,400                                                                    | 117,026                                              |
| Health                  Care                  Property Investors, Inc.                                                                                                                | 3,670,000                                                                     | 115,238                                              |
| Brandywine                  Realty Trust                                                                                                                                              | 3,400,000                                                                     | 113,424                                              |
| ProLogis                                                                                                                                                                              | 1,750,000                                                                     | 110,722                                              |
| CapitaCommercial                  Trust Management Ltd.1                                                                                                                              | 77,882,700                                                                    | 107,893                                              |
| Marsh&                  McLennan Companies, Inc.                                                                                                                                  | 3,600,000                                                                     | 105,984                                              |
| Cathay                  Financial Holding Co., Ltd.                                                                                                                                   | 52,833,344                                                                    | 102,489                                              |
| United                  Overseas Bank Ltd.                                                                                                                                            | 8,885,000                                                                     | 100,862                                              |
| Credit                  Suisse                  Group                                                                                                                                 | 1,666,000                                                                     | 100,507                                              |
| Ascendas                  Real                  Estate Investment Trust1                                                                                                              | 72,142,600                                                                    | 100,404                                              |
| Suntec                  Real                  Estate Investment Trust1                                                                                                                | 92,244,000                                                                    | 91,700                                               |
| Bank                  of New                  York Co., Inc.                                                                                                                          | 2,040,000                                                                     | 70,115                                               |
| KeyCorp                                                                                                                                                                               | 1,860,000                                                                     | 69,080                                               |
| GuangZhou                  R&F Properties Co., Ltd., Class H                                                                                                                      | 42,284,000                                                                    | 69,023                                               |
| AMB                  Property                  Corp.                                                                                                                                  | 1,175,000                                                                     | 68,632                                               |
| ABN                  AMRO                  Holding NV                                                                                                                                 | 2,350,000                                                                     | 68,518                                               |
| United                  Bankshares, Inc.                                                                                                                                              | 1,775,000                                                                     | 67,787                                               |
| Kimco                  Realty                  Corp.                                                                                                                                  | 1,500,000                                                                     | 66,645                                               |
| Hongkong                  Land                  Holdings Ltd.                                                                                                                         | 17,107,600                                                                    | 64,325                                               |
| KBC                  Groupe                  SA                                                                                                                                       | 525,000                                                                       | 57,343                                               |
| FirstMerit                  Corp.                                                                                                                                                     | 2,444,493                                                                     | 56,761                                               |
| St.                  Paul                  Travelers Companies, Inc.                                                                                                                  | 1,075,000                                                                     | 54,965                                               |
| Macquarie                  International Infrastructure Fund Ltd.1                                                                                                                    | 83,170,000                                                                    | 52,008                                               |
| XL                  Capital                  Ltd., Class A                                                                                                                            | 642,800                                                                       | 45,350                                               |
| Hospitality                  Properties Trust                                                                                                                                         | 930,000                                                                       | 45,068                                               |
| SunTrust                  Banks, Inc.                                                                                                                                                 | 550,000                                                                       | 43,444                                               |
| Developers                  Diversified Realty Corp.                                                                                                                                  | 670,000                                                                       | 40,803                                               |
| Fortune                  Real                  Estate Investment Trust1                                                                                                               | 52,262,500                                                                    | 39,297                                               |
| Lincoln                  National Corp.                                                                                                                                               | 541,500                                                                       | 34,282                                               |
| Fidelity                  National Financial, Inc.                                                                                                                                    | 1,300,000                                                                     | 28,990                                               |
| Shanghai                  Forte Land Co., Ltd., Class H                                                                                                                               | 57,180,000                                                                    | 25,209                                               |
| AmSouth                  Bancorporation                                                                                                                                               | 750,000                                                                       | 22,665                                               |
| Mercury                  General Corp.                                                                                                                                                | 400,000                                                                       | 20,708                                               |
| Wing                  Lung                  Bank Ltd.                                                                                                                                 | 2,095,900                                                                     | 19,935                                               |
| Public                  Financial Holdings Ltd.                                                                                                                                       | 26,009,000                                                                    | 19,924                                               |
| Allco                  Commercial REIT1                                                                                                                                               | 32,100,000                                                                    | 19,764                                               |
| Prosperity                  REIT1                                                                                                                                                     | 81,325,000                                                                    | 18,815                                               |
| Mapletree                  Logistics Trust                                                                                                                                            | 26,730,000                                                                    | 17,143                                               |
| Wharf                  (Holdings) Ltd.                                                                                                                                                | 4,680,000                                                                     | 15,880                                               |
| Arthur                  J.                  Gallagher & Co.                                                                                                                       | 550,000                                                                       | 15,317                                               |
| Colonial                  Properties Trust                                                                                                                                            | 244,200                                                                       | 12,305                                               |
|                                                                                                                                                                                  |                                                                          | **14,833,575**                                       |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **UTILITIES                  — 9.77%**                                                                                                                                          | ** **                                                                    |                                                 |
| E.ON                  AG                                                                                                                                                              | 10,460,000                                                                    | 1,254,614                                            |
| Exelon                  Corp.                                                                                                                                                         | 13,485,000                                                                    | 835,800                                              |
| National                  Grid                  PLC                                                                                                                                   | 61,137,551                                                                    | 781,148                                              |
| Veolia                  Environnement                                                                                                                                                 | 12,546,100                                                                    | 767,944                                              |
| Gas                  Natural                  SDG, SA                                                                                                                                 | 10,120,000                                                                    | 401,856                                              |
| Electricité                  de France SA                                                                                                                                        | 5,381,000                                                                     | 326,211                                              |
| FirstEnergy                  Corp.                                                                                                                                                    | 5,010,500                                                                     | 294,868                                              |
| Dominion                  Resources, Inc.                                                                                                                                             | 3,462,190                                                                     | 280,403                                              |
| Southern                  Co.                                                                                                                                                         | 6,800,000                                                                     | 247,520                                              |
| Scottish                  Power PLC                                                                                                                                                   | 18,813,396                                                                    | 234,457                                              |
| PPL                  Corp.                                                                                                                                                            | 5,840,000                                                                     | 201,597                                              |
| Hongkong                  Electric Holdings Ltd.                                                                                                                                      | 35,750,000                                                                    | 168,179                                              |
| Public                  Service Enterprise Group Inc.                                                                                                                                 | 2,386,300                                                                     | 145,684                                              |
| Edison                  International                                                                                                                                                 | 3,000,000                                                                     | 133,320                                              |
| DTE                  Energy                  Co.                                                                                                                                      | 2,750,000                                                                     | 124,933                                              |
| Xcel                  Energy                  Inc.                                                                                                                                    | 5,516,000                                                                     | 121,738                                              |
| Northeast                  Utilities                                                                                                                                                  | 4,645,000                                                                     | 116,171                                              |
| Ameren                  Corp.                                                                                                                                                         | 2,076,020                                                                     | 112,313                                              |
| SP                  AusNet1                                                                                                                                                           | 107,253,698                                                                   | 107,947                                              |
| Cheung                  Kong                  Infrastructure Holdings Ltd.                                                                                                            | 36,022,000                                                                    | 107,879                                              |
| FPL                  Group,                  Inc.                                                                                                                                     | 2,000,000                                                                     | 102,000                                              |
| Energy                  East                  Corp.                                                                                                                                   | 3,880,000                                                                     | 94,323                                               |
| Duke                  Energy                  Corp.                                                                                                                                   | 2,677,640                                                                     | 84,721                                               |
| Consolidated                  Edison, Inc.                                                                                                                                            | 1,650,000                                                                     | 79,777                                               |
| Equitable                  Resources, Inc.                                                                                                                                            | 1,780,000                                                                     | 72,126                                               |
| Entergy                  Corp.                                                                                                                                                        | 752,500                                                                       | 64,587                                               |
| Scottish                  and                  Southern Energy PLC                                                                                                                    | 2,400,000                                                                     | 60,139                                               |
| KeySpan                  Corp.                                                                                                                                                        | 1,390,000                                                                     | 56,406                                               |
| Progress                  Energy, Inc.                                                                                                                                                | 1,200,000                                                                     | 55,200                                               |
| NiSource                  Inc.                                                                                                                                                        | 2,289,307                                                                     | 53,272                                               |
| Pinnacle                  West                  Capital Corp.                                                                                                                         | 738,200                                                                       | 35,293                                               |
| American                  Electric Power Co., Inc.                                                                                                                                    | 684,600                                                                       | 28,363                                               |
| United                  Utilities PLC                                                                                                                                                 | 1,666,666                                                                     | 22,677                                               |
| Hong                  Kong and                  China Gas Co. Ltd.                                                                                                                    | 7,800,000                                                                     | 17,866                                               |
|                                                                                                                                                                                  |                                                                          | **7,591,332**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **TELECOMMUNICATION                  SERVICES — 7.64%**                                                                                                                         | ** **                                                                    |                                                 |
| BellSouth                  Corp.                                                                                                                                                      | 26,003,000                                                                    | 1,172,735                                            |
| AT&T                  Inc.                                                                                                                                                        | 33,519,452                                                                    | 1,148,041                                            |
| Koninklijke                  KPN NV                                                                                                                                                   | 58,237,900                                                                    | 778,042                                              |
| Verizon                  Communications Inc.                                                                                                                                          | 19,410,000                                                                    | 718,170                                              |
| Chunghwa                  Telecom Co., Ltd. (ADR)                                                                                                                                     | 11,590,952                                                                    | 211,999                                              |
| Chunghwa                  Telecom Co., Ltd.                                                                                                                                           | 79,914,960                                                                    | 136,997                                              |
| France                  Télécom, SA                                                                                                                                         | 12,593,000                                                                    | 326,997                                              |
| Embarq                  Corp.                                                                                                                                                         | 6,500,000                                                                     | 314,275                                              |
| Telekomunikacja                  Polska SA                                                                                                                                            | 33,779,800                                                                    | 248,668                                              |
| Telefónica,                  SA                                                                                                                                                  | 8,683,763                                                                     | 167,315                                              |
| Singapore                  Telecommunications Ltd.                                                                                                                                    | 74,337,500                                                                    | 126,344                                              |
| Telecom                  Corp.                  of New Zealand Ltd.                                                                                                                   | 39,363,919                                                                    | 123,203                                              |
| Perusahaan                  Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, Class                  B                                                                             | 118,300,000                                                                   | 109,380                                              |
| Belgacom                  SA                                                                                                                                                          | 2,030,800                                                                     | 83,077                                               |
| Advanced                  Info                  Service PCL                                                                                                                           | 27,980,000                                                                    | 68,635                                               |
| BT                  Group                  PLC                                                                                                                                        | 10,000,000                                                                    | 53,062                                               |
| Vodafone                  Group PLC                                                                                                                                                   | 17,500,000                                                                    | 45,053                                               |
| Far                  EasTone                  Telecommunications Co., Ltd.                                                                                                            | 32,178,000                                                                    | 36,775                                               |
| Philippine                  Long Distance Telephone Co.                                                                                                                               | 730,190                                                                       | 34,603                                               |
| SK                  Telecom                  Co., Ltd. (ADR)                                                                                                                          | 1,400,000                                                                     | 33,712                                               |
|                                                                                                                                                                                  |                                                                          | **5,937,083**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **CONSUMER                  STAPLES — 5.64%**                                                                                                                                   | ** **                                                                    |                                                 |
| Altria                  Group,                  Inc.                                                                                                                                  | 13,575,500                                                                    | 1,104,095                                            |
| UST                  Inc.1                                                                                                                                                            | 8,178,000                                                                     | 438,014                                              |
| Nestlé                  SA                                                                                                                                                       | 1,150,000                                                                     | 393,139                                              |
| Diageo                  PLC                                                                                                                                                           | 18,793,272                                                                    | 347,636                                              |
| H.J.                  Heinz                  Co.                                                                                                                                      | 8,145,000                                                                     | 343,393                                              |
| Reynolds                  American Inc.                                                                                                                                               | 5,380,000                                                                     | 339,801                                              |
| Foster’s                  Group Ltd.                                                                                                                                            | 47,374,500                                                                    | 236,569                                              |
| Imperial                  Tobacco Group PLC                                                                                                                                           | 5,790,000                                                                     | 205,041                                              |
| Gallaher                  Group PLC                                                                                                                                                   | 11,980,292                                                                    | 203,333                                              |
| Kellogg                  Co.                                                                                                                                                          | 3,880,000                                                                     | 195,203                                              |
| ConAgra                  Foods, Inc.                                                                                                                                                  | 7,170,000                                                                     | 187,496                                              |
| Coca-Cola                  Co.                                                                                                                                                        | 2,625,000                                                                     | 122,640                                              |
| Unilever                  NV                                                                                                                                                          | 3,280,800                                                                     | 80,879                                               |
| Sara                  Lee                  Corp.                                                                                                                                      | 4,500,000                                                                     | 76,950                                               |
| Unilever                  PLC                                                                                                                                                         | 2,025,000                                                                     | $                  50,240                            |
| Wolverhampton                  & Dudley Breweries, PLC                                                                                                                            | 1,066,255                                                                     | 29,626                                               |
| Lion                  Nathan                  Ltd.                                                                                                                                    | 4,431,066                                                                     | 28,439                                               |
|                                                                                                                                                                                  |                                                                          | **4,382,494**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **INDUSTRIALS                  — 5.41%**                                                                                                                                        | ** **                                                                    |                                                 |
| General                  Electric Co.                                                                                                                                                 | 21,075,000                                                                    | 739,943                                              |
| Macquarie                  Infrastructure Group1                                                                                                                                      | 139,581,612                                                                   | 365,257                                              |
| Siemens                  AG                                                                                                                                                           | 3,525,000                                                                     | 317,102                                              |
| Macquarie                  Airports1                                                                                                                                                  | 107,363,105                                                                   | 266,817                                              |
| Brisa                  Auto-Estradas de Portugal SA                                                                                                                                   | 20,777,613                                                                    | 229,596                                              |
| GS                  Engineering & Construction Co. Ltd.1                                                                                                                          | 2,550,000                                                                     | 198,445                                              |
| Volvo                  AB,                  Class B                                                                                                                                   | 2,908,400                                                                     | 181,863                                              |
| Singapore                  Technologies Engineering Ltd.                                                                                                                              | 80,098,000                                                                    | 152,059                                              |
| SembCorp                  Marine Ltd.                                                                                                                                                 | 67,499,000                                                                    | 148,055                                              |
| Abertis                  Infraestructuras SA, Class A                                                                                                                                 | 5,262,100                                                                     | 142,413                                              |
| Sandvik                  AB                                                                                                                                                           | 10,875,000                                                                    | 132,916                                              |
| Koninklijke                  BAM Groep NV                                                                                                                                             | 6,100,695                                                                     | 127,120                                              |
| Stagecoach                  Group PLC                                                                                                                                                 | 46,814,168                                                                    | 124,538                                              |
| Emerson                  Electric Co.                                                                                                                                                 | 1,470,000                                                                     | 124,068                                              |
| Geberit                  AG                                                                                                                                                           | 88,850                                                                        | 115,851                                              |
| Uponor                  Oyj                                                                                                                                                           | 3,480,000                                                                     | 105,461                                              |
| Waste                  Management, Inc.                                                                                                                                               | 2,600,000                                                                     | 97,448                                               |
| Leighton                  Holdings Ltd.                                                                                                                                               | 5,347,000                                                                     | 88,050                                               |
| Transport                  International Holdings Ltd.                                                                                                                                | 15,922,800                                                                    | 82,376                                               |
| ComfortDelGro                  Corp. Ltd.                                                                                                                                             | 67,824,451                                                                    | 70,904                                               |
| Singapore                  Post Private Ltd.                                                                                                                                          | 95,685,000                                                                    | 61,368                                               |
| Spirax-Sarco                  Engineering PLC                                                                                                                                         | 3,336,391                                                                     | 59,299                                               |
| Sydney                  Roads                  Group1,3                                                                                                                               | 60,682,071                                                                    | 53,558                                               |
| SMRT                  Corp.                  Ltd.                                                                                                                                     | 73,763,000                                                                    | 52,985                                               |
| Qantas                  Airways Ltd.                                                                                                                                                  | 15,052,744                                                                    | 49,412                                               |
| Transurban                  Group3                                                                                                                                                    | 6,256,552                                                                     | 34,972                                               |
| Seco                  Tools                  AB, Class B                                                                                                                              | 2,525,000                                                                     | 34,970                                               |
| Fong’s                  Industries Co. Ltd.1                                                                                                                                    | 36,590,000                                                                    | 24,879                                               |
| Hong                  Kong                  Aircraft Engineering Co. Ltd.                                                                                                             | 1,232,400                                                                     | 15,595                                               |
| Macquarie                  Infrastructure Company Trust                                                                                                                               | 339,100                                                                       | 10,115                                               |
|                                                                                                                                                                                  |                                                                          | **4,207,435**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **ENERGY                  — 4.54%**                                                                                                                                             | ** **                                                                    |                                                 |
| Royal                  Dutch                  Shell PLC, Class A (ADR)                                                                                                                | 6,828,000                                                                     | 475,365                                              |
| Royal                  Dutch                  Shell PLC, Class B                                                                                                                      | 6,997,187                                                                     | 250,593                                              |
| Royal                  Dutch                  Shell PLC, Class B (ADR)                                                                                                                | 1,866,228                                                                     | 134,368                                              |
| Royal                  Dutch                  Shell PLC, Class A                                                                                                                      | 3,055,000                                                                     | 105,836                                              |
| Husky                  Energy                  Inc.                                                                                                                                   | 8,065,000                                                                     | 513,678                                              |
| Chevron                  Corp.                                                                                                                                                        | 5,640,000                                                                     | 379,008                                              |
| ENI                  SpA                                                                                                                                                              | 11,060,000                                                                    | 333,480                                              |
| ConocoPhillips                                                                                                                                                                        | 4,676,000                                                                     | 281,682                                              |
| Norsk                  Hydro                  ASA                                                                                                                                     | 11,470,000                                                                    | 263,766                                              |
| SBM                  Offshore                  NV1                                                                                                                                    | 8,335,188                                                                     | 246,642                                              |
| Repsol                  YPF,                  SA                                                                                                                                      | 6,856,000                                                                     | 227,455                                              |
| Enbridge                  Inc.                                                                                                                                                        | 3,531,116                                                                     | 118,742                                              |
| Marathon                  Oil                  Corp.                                                                                                                                  | 1,250,000                                                                     | 108,000                                              |
| TOTAL                  SA                                                                                                                                                             | 694,000                                                                       | 46,978                                               |
| TOTAL                  SA                  (ADR)                                                                                                                                      | 600,000                                                                       | 40,884                                               |
|                                                                                                                                                                                  |                                                                          | **3,526,477**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **CONSUMER                  DISCRETIONARY — 3.86%**                                                                                                                             | ** **                                                                    |                                                 |
| Renault                  SA                                                                                                                                                           | 3,496,000                                                                     | $                  408,841                           |
| Greek                  Organization of Football Prognostics SA                                                                                                                        | 10,207,040                                                                    | 364,417                                              |
| DSG                  International PLC                                                                                                                                                | 54,809,561                                                                    | 227,335                                              |
| Esprit                  Holdings Ltd.                                                                                                                                                 | 22,418,000                                                                    | 216,973                                              |
| Mediaset                  SpA                                                                                                                                                         | 17,700,000                                                                    | 198,524                                              |
| Kingfisher                  PLC                                                                                                                                                       | 37,845,000                                                                    | 189,989                                              |
| General                  Motors Corp.                                                                                                                                                 | 4,665,600                                                                     | 162,923                                              |
| Kesa                  Electricals PLC                                                                                                                                                 | 21,750,000                                                                    | 145,481                                              |
| Shangri-La                  Asia Ltd.                                                                                                                                                 | 60,472,000                                                                    | 131,202                                              |
| Macquarie                  Communications Infrastructure Group1                                                                                                                       | 25,667,933                                                                    | 121,617                                              |
| Vivendi                  SA                                                                                                                                                           | 3,000,000                                                                     | 113,577                                              |
| Harrah’s                  Entertainment, Inc.                                                                                                                                   | 1,450,000                                                                     | 107,779                                              |
| Clear                  Channel                  Communications, Inc.                                                                                                                  | 2,631,700                                                                     | 91,715                                               |
| Greene                  King                  PLC                                                                                                                                     | 3,927,110                                                                     | 71,782                                               |
| SanomaWSOY                  OYJ, Class B                                                                                                                                              | 2,250,000                                                                     | 58,022                                               |
| Schibsted                  ASA                                                                                                                                                        | 1,907,400                                                                     | 57,803                                               |
| Intercontinental                  Hotels Group PLC                                                                                                                                    | 2,874,292                                                                     | 55,306                                               |
| Hyundai                  Motor                  Co., nonvoting preferred, Series 2                                                                                                    | 1,130,000                                                                     | 53,387                                               |
| British                  Sky                  Broadcasting Group PLC                                                                                                                  | 4,665,000                                                                     | 48,262                                               |
| ServiceMaster                  Co.                                                                                                                                                    | 3,504,500                                                                     | 39,706                                               |
| Ekornes                  ASA                                                                                                                                                          | 1,830,425                                                                     | 39,641                                               |
| Hilton                  Group                  PLC                                                                                                                                    | 4,200,000                                                                     | 32,718                                               |
| Fisher&                  Paykel Appliances Holdings Ltd.                                                                                                                          | 10,600,000                                                                    | 26,996                                               |
| Gestevisión                  Telecinco SA                                                                                                                                        | 650,000                                                                       | 17,077                                               |
| KangwonLand                  Inc.                                                                                                                                                     | 875,000                                                                       | 16,954                                               |
|                                                                                                                                                                                  |                                                                          | **2,998,027**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **MATERIALS                  — 3.22%**                                                                                                                                          | ** **                                                                    |                                                 |
| Bayer                  AG                                                                                                                                                             | 7,267,000                                                                     | 365,808                                              |
| China                  Steel                  Corp.                                                                                                                                   | 402,931,115                                                                   | 356,276                                              |
| POSCO                                                                                                                                                                                 | 825,000                                                                       | 229,045                                              |
| UPM-Kymmene                  Corp.                                                                                                                                                    | 6,600,000                                                                     | 167,506                                              |
| Gujarat                  Ambuja Cements Ltd.                                                                                                                                          | 56,000,000                                                                    | 146,548                                              |
| Fletcher                  Building Ltd.                                                                                                                                               | 21,176,596                                                                    | 134,829                                              |
| Norske                  Skogindustrier ASA                                                                                                                                            | 6,582,142                                                                     | 103,764                                              |
| Taiwan                  Fertilizer Co., Ltd.1                                                                                                                                         | 63,700,000                                                                    | 103,453                                              |
| Dow                  Chemical                  Co.                                                                                                                                    | 2,500,000                                                                     | 101,975                                              |
| Lyondell                  Chemical Co.                                                                                                                                                | 3,600,000                                                                     | 92,412                                               |
| Aracruz                  Celulose SA, Class B, preferred nominative (ADR)                                                                                                             | 1,673,000                                                                     | 92,048                                               |
| Packaging                  Corp. of America                                                                                                                                           | 3,763,000                                                                     | 86,436                                               |
| Stora                  Enso                  Oyj, Class R                                                                                                                             | 5,000,000                                                                     | 80,898                                               |
| PaperlinX                  Ltd.1                                                                                                                                                      | 22,547,000                                                                    | 71,918                                               |
| RPM                  International, Inc.                                                                                                                                              | 3,325,000                                                                     | 63,674                                               |
| Worthington                  Industries, Inc.                                                                                                                                         | 3,639,800                                                                     | 62,896                                               |
| Compass                  Minerals International, Inc.                                                                                                                                 | 1,550,000                                                                     | 47,972                                               |
| LG                  Petrochemical Co., Ltd.                                                                                                                                           | 1,843,750                                                                     | 43,945                                               |
| AngloGold                  Ashanti Ltd.                                                                                                                                               | 987,000                                                                       | 41,878                                               |
| E.I.                  du Pont                  de Nemours and Co.                                                                                                                     | 900,000                                                                       | 41,220                                               |
| Boral                  Ltd.                                                                                                                                                           | 6,013,024                                                                     | 33,844                                               |
| Temple-Inland                  Inc.                                                                                                                                                   | 472,860                                                                       | 18,649                                               |
| Hung                  Hing                  Printing Group Ltd.                                                                                                                       | 29,024,000                                                                    | 15,855                                               |
|                                                                                                                                                                                  |                                                                          | **2,502,849**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **HEALTH                  CARE — 2.94%**                                                                                                                                        | ** **                                                                    |                                                 |
| Merck&                  Co., Inc.                                                                                                                                                 | 15,319,600                                                                    | 695,816                                              |
| Bristol-Myers                  Squibb Co.                                                                                                                                             | 19,000,000                                                                    | 470,250                                              |
| Abbott                  Laboratories                                                                                                                                                  | 8,098,700                                                                     | 384,769                                              |
| Pfizer                  Inc                                                                                                                                                           | 10,450,000                                                                    | 278,493                                              |
| AstraZeneca                  PLC (ADR)                                                                                                                                                | 2,445,000                                                                     | 143,522                                              |
| Sonic                  Healthcare Ltd.                                                                                                                                                | 10,995,549                                                                    | 111,943                                              |
| Cochlear                  Ltd.                                                                                                                                                        | 2,480,600                                                                     | 106,913                                              |
| Fisher&                  Paykel Healthcare Corp. Ltd.1                                                                                                                            | 33,211,000                                                                    | 93,038                                               |
|                                                                                                                                                                                  |                                                                          | **2,284,744**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **INFORMATION                  TECHNOLOGY — 0.98%**                                                                                                                             | ** **                                                                    |                                                 |
| Microsoft                  Corp.                                                                                                                                                      | 15,185,000                                                                    | 435,961                                              |
| Taiwan                  Semiconductor Manufacturing Co. Ltd. (ADR)                                                                                                                    | 12,267,593                                                                    | 118,996                                              |
| Taiwan                  Semiconductor Manufacturing Co. Ltd.                                                                                                                          | 24,415,649                                                                    | 44,793                                               |
| Delta                  Electronics, Inc.                                                                                                                                              | 35,000,000                                                                    | 98,947                                               |
| Rotork                  PLC                                                                                                                                                           | 2,400,000                                                                     | 35,928                                               |
| Electrocomponents                  PLC                                                                                                                                                | 5,192,100                                                                     | 28,565                                               |
|                                                                                                                                                                                  |                                                                          | **763,190**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **MISCELLANEOUS                  — 4.45%**                                                                                                                                      | ** **                                                                    |                                                 |
| Other                  common                  stocks in initial period of acquisition                                                                                                |                                                                          | **3,460,109**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **Total                  common stocks (cost: $38,338,196,000)**                                                                                                                      | ** **                                                                    | **52,487,315**                                       |
| ** **                                                                                                                                                                            | ** **                                                                    |                                                 |
|                                                                                                                                                                                  | ** **                                                                    | ** **                                           |
| Preferred                  stocks — 0.38%                                                                                                                                       |                                                                          |                                                 |
|                                                                                                                                                                                  | ** **                                                                    | ** **                                           |
| **FINANCIALS                  — 0.38%**                                                                                                                                         |                                                                          |                                                 |
| MUFG                  Capital                  Finance 1 Ltd. 6.346% noncumulative preferred4                                                                                         | 45,829,000                                                                    | 46,147                                               |
| BNP                  Paribas                  5.186% noncumulative4,5                                                                                                                 | 43,050,000                                                                    | 41,126                                               |
| Fannie                  Mae,                  Series E, 5.10%                                                                                                                         | 550,000                                                                       | 25,450                                               |
| Fannie                  Mae,                  Series L, 5.125%                                                                                                                        | 273,350                                                                       | 12,547                                               |
| Wachovia                  Capital Trust III 5.80%4                                                                                                                                    | 35,000,000                                                                    | 35,342                                               |
| Banco                  Santander Central Hispano, SA 6.80%3,5                                                                                                                         | 1,014,800                                                                     | 25,370                                               |
| Bank                  of                  America Corp., Series E, 0% preferred depositary shares3                                                                                    | 1,000,000                                                                     | 25,050                                               |
| Public                  Storage, Inc., Series F, 6.45% preferred                                                                                                                      | 1,000,000                                                                     | 24,700                                               |
| Shinsei                  Finance II (Cayman) Ltd. 7.16% noncumulative preferred4,5                                                                                                    | 20,000,000                                                                    | 20,375                                               |
| Chuo                  Mitsui                  Trust and Banking Co., Ltd. 5.506%4,5                                                                                                   | 14,520,000                                                                    | 13,972                                               |
| iStar                  Financial, Inc., Series F, 7.80% cumulative redeemable                  preferred1                                                                             | 400,000                                                                       | 10,432                                               |
| HSBC                  Holdings                  PLC 4.61% (undated)4,5                                                                                                                | 8,000,000                                                                     | 7,500                                                |
| Deutsche                  Bank                  Capital Funding Trust I, 7.872%4,5                                                                                                    | 3,950,000                                                                     | 4,191                                                |
|                                                                                                                                                                                  |                                                                          | ** **                                           |
| **Total                  preferred stocks (cost: $286,139,000)**                                                                                                                      | ** **                                                                    | **292,202**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    |                                                 |
|                                                                                                                                                                                  |                                                                          |                                                 |
| Convertible                  securities — 0.47%                                                                                                                                 | Shares                  or                  principal                  amount |                                                 |
|                                                                                                                                                                                  | ** **                                                                    | ** **                                           |
| **FINANCIALS                  — 0.12%**                                                                                                                                         |                                                                          |                                                 |
| Fannie                  Mae                  5.375% convertible preferred                                                                                                             | 965                                                                           | **93,967**                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **UTILITIES                  — 0.11%**                                                                                                                                          | ** **                                                                    |                                                 |
| PG&E                  Corp. 9.50% convertible notes 2010                                                                                                                          | $28,000,000                                                                   | **87,780**                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| ** **                                                                                                                                                                            | ** **                                                                    |                                                 |
|                                                                                                                                                                                  |                                                                          |                                                 |
| Convertible                  securities                                                                                                                                               | Shares                  or                  principal amount                  | Market                  value                  (000) |
|                                                                                                                                                                                  | ** **                                                                    | ** **                                           |
| **CONSUMER                  DISCRETIONARY — 0.11%**                                                                                                                             |                                                                          |                                                 |
| Ford                  Motor                  Co. Capital Trust II 6.50% cumulative convertible trust preferred                  2032                                                  | 1,949,300                                                                     | $                  67,153                            |
| General                  Motors Corp., Series B, 5.25% convertible debentures 2032                                                                                                    | $17,500,000                                                                   | 14,469                                               |
|                                                                                                                                                                                  |                                                                          | **81,622**                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **HEALTH                  CARE — 0.07%**                                                                                                                                        | ** **                                                                    |                                                 |
| Schering-Plough                  Corp. 6.00% convertible preferred 2007                                                                                                               | 1,000,000                                                                     | **55,060**                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **MATERIALS                  — 0.06%**                                                                                                                                          | ** **                                                                    |                                                 |
| Freeport-McMoRan                  Copper & Gold Inc. 5.50% convertible preferred                                                                                                  | 32,900                                                                        | **45,081**                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **Total                  convertible securities (cost: $331,832,000)**                                                                                                                | ** **                                                                    | **363,510**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    |                                                 |
|                                                                                                                                                                                  |                                                                          |                                                 |
|                                                                                                                                                                                  |                                                                          |                                                 |
| Bonds&                  notes — 19.28%                                                                                                                                      | Principal                  amount (000)                                       |                                                 |
|                                                                                                                                                                                  | ** **                                                                    | ** **                                           |
| **MORTGAGE-BACKED                  OBLIGATIONS6—                  6.31%**                                                                                                       |                                                                          |                                                 |
| Fannie                  Mae                  4.89% 2012                                                                                                                               | $25,000                                                                       | 24,659                                               |
| Fannie                  Mae,                  Series 2002-T11, Class B, 5.341% 2012                                                                                                   | 20,000                                                                        | 20,336                                               |
| Fannie                  Mae                  4.00% 2015                                                                                                                               | 61,641                                                                        | 58,998                                               |
| Fannie                  Mae                  11.00% 2015                                                                                                                              | 628                                                                           | 706                                                  |
| Fannie                  Mae                  7.00% 2016                                                                                                                               | 106                                                                           | 108                                                  |
| Fannie                  Mae                  11.00% 2016                                                                                                                              | 335                                                                           | 379                                                  |
| Fannie                  Mae                  5.00% 2017                                                                                                                               | 216                                                                           | 213                                                  |
| Fannie                  Mae,                  Series 2002-15, Class PG, 6.00% 2017                                                                                                    | 16,837                                                                        | 17,066                                               |
| Fannie                  Mae                  5.00% 2018                                                                                                                               | 36,107                                                                        | 35,684                                               |
| Fannie                  Mae                  5.00% 2018                                                                                                                               | 2,280                                                                         | 2,253                                                |
| Fannie                  Mae                  11.00% 2018                                                                                                                              | 646                                                                           | 736                                                  |
| Fannie                  Mae                  5.50% 2019                                                                                                                               | 30,010                                                                        | 30,120                                               |
| Fannie                  Mae                  11.00% 2020                                                                                                                              | 247                                                                           | 272                                                  |
| Fannie                  Mae                  6.00% 2021                                                                                                                               | 11,304                                                                        | 11,481                                               |
| Fannie                  Mae                  6.00% 2021                                                                                                                               | 8,865                                                                         | 9,004                                                |
| Fannie                  Mae                  10.50% 2022                                                                                                                              | 510                                                                           | 564                                                  |
| Fannie                  Mae,                  Series 2002-W3, Class A-5, 7.50% 2028                                                                                                   | 442                                                                           | 459                                                  |
| Fannie                  Mae                  7.50% 2029                                                                                                                               | 96                                                                            | 100                                                  |
| Fannie                  Mae                  7.00% 2030                                                                                                                               | 345                                                                           | 356                                                  |
| Fannie                  Mae,                  Series 2001-25, Class ZA, 6.50% 2031                                                                                                    | 4,000                                                                         | 4,130                                                |
| Fannie                  Mae                  7.00% 2031                                                                                                                               | 298                                                                           | 307                                                  |
| Fannie                  Mae                  7.50% 2031                                                                                                                               | 313                                                                           | 325                                                  |
| Fannie                  Mae                  7.50% 2031                                                                                                                               | 63                                                                            | 65                                                   |
| Fannie                  Mae                  7.00% 2032                                                                                                                               | 448                                                                           | 461                                                  |
| Fannie                  Mae                  3.742% 20334                                                                                                                             | 13,034                                                                        | 12,809                                               |
| Fannie                  Mae                  4.056% 20334                                                                                                                             | 2,577                                                                         | 2,527                                                |
| Fannie                  Mae                  4.184% 20334                                                                                                                             | 2,857                                                                         | 2,827                                                |
| Fannie                  Mae                  5.50% 2034                                                                                                                               | 22,323                                                                        | 22,100                                               |
| Fannie                  Mae                  5.50% 2034                                                                                                                               | 21,288                                                                        | 21,085                                               |
| Fannie                  Mae                  5.50% 2034                                                                                                                               | 11,253                                                                        | 11,141                                               |
| Fannie                  Mae                  4.50% 20354                                                                                                                              | 10,528                                                                        | 10,364                                               |
| Fannie                  Mae                  5.00% 2035                                                                                                                               | 13,227                                                                        | 12,784                                               |
| Fannie                  Mae                  5.00% 2035                                                                                                                               | 5,752                                                                         | 5,560                                                |
| Fannie                  Mae                  5.50% 2035                                                                                                                               | 51,767                                                                        | 51,249                                               |
| Fannie                  Mae,                  Series 2005-68, Class PG, 5.50% 2035                                                                                                    | 15,000                                                                        | 14,954                                               |
| Fannie                  Mae                  5.50% 2035                                                                                                                               | 14,609                                                                        | 14,463                                               |
| Fannie                  Mae,                  Series 2006-32, Class OA, principal only, 0% 2036                                                                                       | 15,103                                                                        | 11,043                                               |
| Fannie                  Mae,                  Series 2006-51, Class PO, principal only, 0% 2036                                                                                       | 11,278                                                                        | 8,527                                                |
| Fannie                  Mae,                  Series 2006-56, Class OG, principal only, 0% 2036                                                                                       | 2,855                                                                         | 2,183                                                |
| Fannie                  Mae,                  Series 2006-96, Class OP, principal only, 0% 2036                                                                                       | 2,279                                                                         | 1,674                                                |
| Fannie                  Mae                  5.50% 2036                                                                                                                               | 16,102                                                                        | 15,914                                               |
| Fannie                  Mae,                  Series 2006-106, Class HG, 6.00% 2036                                                                                                   | 85,000                                                                        | 86,441                                               |
| Fannie                  Mae,                  Series 2006-43, Class PX, 6.00% 2036                                                                                                    | 75,083                                                                        | 76,329                                               |
| Fannie                  Mae                  6.00% 2036                                                                                                                               | 62,010                                                                        | 62,495                                               |
| Fannie                  Mae,                  Series 2006-49, Class PA, 6.00% 2036                                                                                                    | 57,217                                                                        | 58,613                                               |
| Fannie                  Mae                  6.00% 2036                                                                                                                               | 35,000                                                                        | 35,241                                               |
| Fannie                  Mae                  6.00% 2036                                                                                                                               | 5,787                                                                         | 5,823                                                |
| Fannie                  Mae                  6.50% 2036                                                                                                                               | 11,580                                                                        | 11,800                                               |
| Fannie                  Mae,                  Series 2001-50, Class BA, 7.00% 2041                                                                                                    | 537                                                                           | 559                                                  |
| Freddie                  Mac                  4.00% 2015                                                                                                                              | 72,238                                                                        | 68,722                                               |
| Freddie                  Mac                  6.00% 2017                                                                                                                              | 518                                                                           | 526                                                  |
| Freddie                  Mac                  4.50% 2018                                                                                                                              | 6,253                                                                         | 6,060                                                |
| Freddie                  Mac                  5.00% 2018                                                                                                                              | 12,461                                                                        | 12,307                                               |
| Freddie                  Mac                  6.00% 2021                                                                                                                              | 43,157                                                                        | 43,802                                               |
| Freddie                  Mac,                  Series 1617, Class PM, 6.50% 2023                                                                                                      | 5,000                                                                         | 5,166                                                |
| Freddie                  Mac,                  Series 3135, Class OP, principal only, 0% 2026                                                                                         | 6,682                                                                         | 5,202                                                |
| Freddie                  Mac                  6.50% 2032                                                                                                                              | 5,509                                                                         | 5,641                                                |
| Freddie                  Mac                  7.50% 2032                                                                                                                              | 2,432                                                                         | 2,525                                                |
| Freddie                  Mac                  4.646% 20354                                                                                                                            | 26,080                                                                        | 25,658                                               |
| Freddie                  Mac                  4.789% 20354                                                                                                                            | 27,729                                                                        | 27,364                                               |
| Freddie                  Mac,                  Series 3061, Class PN, 5.50% 2035                                                                                                      | 27,947                                                                        | 28,130                                               |
| Freddie                  Mac,                  Series 3136, Class OP, principal only, 0% 2036                                                                                         | 26,618                                                                        | 19,821                                               |
| Freddie                  Mac,                  Series 3155, Class FO, principal only, 0% 2036                                                                                         | 16,146                                                                        | 12,219                                               |
| Freddie                  Mac,                  Series 3149, Class AO, principal only, 0% 2036                                                                                         | 6,355                                                                         | 4,794                                                |
| Freddie                  Mac,                  Series 3147, Class OD, principal only, 0% 2036                                                                                         | 6,309                                                                         | 4,677                                                |
| Freddie                  Mac,                  Series 3149, Class MO, principal only, 0% 2036                                                                                         | 6,309                                                                         | 4,667                                                |
| Freddie                  Mac,                  Series 3117, Class OG, principal only, 0% 2036                                                                                         | 3,651                                                                         | 2,714                                                |
| Freddie                  Mac                  5.00% 2036                                                                                                                              | 17,333                                                                        | 16,743                                               |
| Freddie                  Mac                  5.50% 2036                                                                                                                              | 14,655                                                                        | 14,498                                               |
| Freddie                  Mac                  6.00% 2036                                                                                                                              | 351,505                                                                       | 353,934                                              |
| Freddie                  Mac,                  Series 3156, Class NG, 6.00% 2036                                                                                                      | 68,510                                                                        | 70,300                                               |
| Freddie                  Mac                  6.00% 2036                                                                                                                              | 20,000                                                                        | 20,138                                               |
| Freddie                  Mac                  6.50% 2036                                                                                                                              | 805                                                                           | 822                                                  |
| Countrywide                  Alternative Loan Trust, Series 2004-28CB, Class 7-A-1, 5.00%                  2020                                                                       | 7,710                                                                         | 7,504                                                |
| Countrywide                  Alternative Loan Trust, Series 2005-9CB, Class 2-A-1, 6.00%                  2020                                                                        | 7,318                                                                         | 7,329                                                |
| Countrywide                  Alternative Loan Trust, Series 2005-46CB, Class A-8, 5.50%                  2035                                                                         | 70,810                                                                        | 70,755                                               |
| Countrywide                  Alternative Loan Trust, Series 2005-49CB, Class A-1, 5.50%                  2035                                                                         | 35,959                                                                        | 35,723                                               |
| Countrywide                  Alternative Loan Trust, Series 2005-23CB, Class A-15, 5.50%                  2035                                                                        | 29,654                                                                        | 29,369                                               |
| Countrywide                  Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50%                  2035                                                                       | 15,949                                                                        | 15,894                                               |
| Countrywide                  Alternative Loan Trust, Series 2005-30CB, Class 2-A-1, 5.50%                  2035                                                                       | 14,195                                                                        | 13,917                                               |
| Countrywide                  Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50%                  2035                                                                         | 8,671                                                                         | 8,519                                                |
| Countrywide                  Alternative Loan Trust, Series 2005-21CB, Class A-9, 5.50%                  2035                                                                         | 7,782                                                                         | 7,771                                                |
| Countrywide                  Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50%                  2035                                                                       | 2,890                                                                         | 2,887                                                |
| Countrywide                  Alternative Loan Trust, Series 2005-62, Class 2-A-1, 5.563%                  20354                                                                       | 44,802                                                                        | 44,851                                               |
| Countrywide                  Alternative Loan Trust, Series 2004-28CB, Class 5-A-1, 5.75%                  2035                                                                       | 5,942                                                                         | 5,879                                                |
| Countrywide                  Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00%                  2035                                                                        | 35,297                                                                        | 35,270                                               |
| Countrywide                  Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00%                  2035                                                                       | 24,504                                                                        | 24,721                                               |
| Countrywide                  Alternative Loan Trust, Series 2004-28CB, Class 6-A-1, 6.00%                  2035                                                                       | 2,468                                                                         | 2,464                                                |
| Countrywide                  Alternative Loan Trust, Series 2006-6CB, Class 1-A-1, 5.50%                  2036                                                                        | 15,282                                                                        | 15,269                                               |
| Countrywide                  Alternative Loan Trust, Series 2006-31CB, Class A-3, 6.00%                  2036                                                                         | 87,644                                                                        | 87,315                                               |
| Countrywide                  Alternative Loan Trust, Series 2006-24CB, Class A-1, 6.00%                  2036                                                                         | 23,725                                                                        | 23,673                                               |
| Countrywide                  Alternative Loan Trust, Series 2006-16CB, Class A-2, 6.00%                  2036                                                                         | 22,563                                                                        | 22,597                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1,                  7.50%                  2032                                | 2,445                                                                         | 2,456                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1,                  7.50%                  2032                                | 1,236                                                                         | 1,245                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1,                  6.50%                  2033                                | 1,438                                                                         | 1,453                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1,                  7.00%                  2033                                | 3,682                                                                         | 3,731                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2004-AR8, Class 2-A-1,                  4.61%                  20344                              | 8,688                                                                         | 8,567                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2004-AR1, Class II-A-1,                  4.668%                  20344                            | 8,677                                                                         | 8,596                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2003-AR30, Class II-A-1,                  4.693%                  20344                           | 20,653                                                                        | 20,594                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238%                  2034                                                 | 8,203                                                                         | 8,266                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2001-CK3, Class A-4, 6.53%                  2034                                                  | 2,790                                                                         | 2,934                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2005-6, Class VI-A-1,                  6.00%                  2035                                | 7,307                                                                         | 7,328                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38%                  2035                                                  | 48,000                                                                        | 49,905                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2002-CKP1, Class G, 7.165%                  20355                                                 | 1,435                                                                         | 1,549                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal                  only, 0% 20365                                    | 78,140                                                                        | 54,811                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2002-CKS4, 4.485%                  2036                                                           | 4,952                                                                         | 4,874                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2006-3, Class 1-A-4A,                  5.896%                  2036                               | 10,000                                                                        | 10,095                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2006-2, Class 5-A-6, 6.00%                  2036                                                  | 44,320                                                                        | 44,263                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2004-C5, Class A-2, 4.183%                  2037                                                  | 22,840                                                                        | 22,204                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2004-C5, Class A-3, 4.499%                  2037                                                  | 11,000                                                                        | 10,668                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2004-C4, Class A-1, 3.466%                  2039                                                  | 9,559                                                                         | 9,365                                                |
| CS                  First                  Boston Mortgage Securities Corp., Series 2006-C1, Class A-AB, 5.681%                  2039                                                 | 18,000                                                                        | 18,304                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23%                  2040                                                   | 37,500                                                                        | 37,339                                               |
| CS                  First                  Boston Mortgage Securities Corp., Series 1998-C1, Class C, 6.78%                  2040                                                     | 6,550                                                                         | 6,759                                                |
| Government                  National Mortgage Assn. 4.00% 20354                                                                                                                       | 24,237                                                                        | 23,843                                               |
| Government                  National Mortgage Assn. 4.00% 20354                                                                                                                       | 7,901                                                                         | 7,754                                                |
| Government                  National Mortgage Assn. 4.00% 20354                                                                                                                       | 7,575                                                                         | 7,434                                                |
| Government                  National Mortgage Assn. 6.00% 2035                                                                                                                        | 6,187                                                                         | 6,257                                                |
| Government                  National Mortgage Assn. 6.00% 2036                                                                                                                        | 172,869                                                                       | 174,807                                              |
| Government                  National Mortgage Assn. 6.00% 2036                                                                                                                        | 70,944                                                                        | 71,739                                               |
| Residential                  Accredit Loans, Inc., Series 2003-QS16, Class A-1, 5.00%                  2018                                                                           | 29,581                                                                        | 28,895                                               |
| Residential                  Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00%                  2019                                                                            | 13,140                                                                        | 12,850                                               |
| Residential                  Accredit Loans, Inc., Series 2005-QS3, Class II-A-1, 5.00%                  2020                                                                         | 39,225                                                                        | 38,357                                               |
| Residential                  Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50%                  2034                                                                         | 56,331                                                                        | 55,994                                               |
| Residential                  Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034                                                                                               | 15,347                                                                        | 15,251                                               |
| Residential                  Accredit Loans, Inc., Series 2004-QS12, Class M-1, 6.00%                  2034                                                                           | 1,460                                                                         | 1,440                                                |
| Residential                  Accredit Loans, Inc., Series 2005-QS13, Class I-A-5, 5.50%                  2035                                                                         | 14,589                                                                        | 14,392                                               |
| Residential                  Accredit Loans, Inc., Series 2005-QS12, Class A-7, 5.50%                  2035                                                                           | 12,475                                                                        | 12,477                                               |
| Residential                  Accredit Loans, Inc., Series 2005-QS9, Class A-6, 5.50%                  2035                                                                            | 2,000                                                                         | 1,938                                                |
| Residential                  Accredit Loans, Inc., Series 2006-QS10, Class I-A, 6.00%                  2035                                                                           | 16,925                                                                        | 16,886                                               |
| Residential                  Accredit Loans, Inc., Series 2005-QS14, Class 2-A-1, 6.00%                  2035                                                                         | 10,505                                                                        | 10,481                                               |
| Residential                  Accredit Loans, Inc., Series 2006-QS1, Class A-3, 5.75%                  2036                                                                            | 6,092                                                                         | 6,108                                                |
| Structured                  Adjustable Rate Mortgage Loan Trust, Series 2005-22, Class 5-A1,                  6.029%                  20354                                           | 12,895                                                                        | 12,952                                               |
| Structured                  Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1,                  5.971%                  20364                                           | 74,334                                                                        | 74,613                                               |
| Structured                  Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 4-A-1,                  5.98%                  20364                                            | 33,894                                                                        | 34,022                                               |
| Structured                  Adjustable Rate Mortgage Loan Trust, Series 2006-2, Class 5-A-1,                  6.00%                  20364                                            | 73,633                                                                        | 73,863                                               |
| CHL                  Mortgage                  Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.832% 20334                                                                          | 9,105                                                                         | 9,041                                                |
| CHL                  Mortgage                  Pass-Through Trust, Series 2004-7, Class 3-A-1, 4.057% 20344                                                                           | 6,708                                                                         | 6,503                                                |
| CHL                  Mortgage                  Pass-Through Trust, Series 2004-12, Class 12-A-1, 4.743% 20344                                                                         | 4,841                                                                         | 4,789                                                |
| CHL                  Mortgage                  Pass-Through Trust, Series 2004-HYB6, Class A-3, 5.139% 20344                                                                          | 4,304                                                                         | 4,296                                                |
| CHL                  Mortgage                  Pass-Through Trust, Series 2005-12, Class 2-A-5, 5.50%                  2035                                                           | 13,083                                                                        | 13,011                                               |
| CHL                  Mortgage                  Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.687% 20354                                                                        | 67,486                                                                        | 67,056                                               |
| Morgan                  Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.691%                  20344                                                                          | 25,917                                                                        | 25,424                                               |
| Morgan                  Stanley Mortgage Loan Trust, Series 2004-3, Class 3-A, 6.00%                  2034                                                                            | 6,551                                                                         | 6,541                                                |
| Morgan                  Stanley Mortgage Loan Trust, Series 2005-10, Class 5-A-1, 6.00%                  2035                                                                         | 25,025                                                                        | 25,181                                               |
| Morgan                  Stanley Mortgage Loan Trust, Series 2006-3AR, Class 3-A-1, 6.069%                  20364                                                                      | 38,234                                                                        | 38,614                                               |
| Bear                  Stearns                  ALT-A Trust, Series 2005-9, Class II-6A-1, 5.83% 20354                                                                                 | 45,194                                                                        | 45,309                                               |
| Bear                  Stearns                  ALT-A Trust, Series 2006-6, Class II-A-1, 6.00% 20364                                                                                  | 48,652                                                                        | 49,102                                               |
| Wells                  Fargo                  Mortgage-backed Securities Trust, Series 2003-6, Class I-A-1, 5.00%                  2018                                               | 11,886                                                                        | 11,647                                               |
| Wells                  Fargo                  Mortgage-backed Securities Trust, Series 2003-3, Class II-A-1,                  5.25%                  2033                             | 27,217                                                                        | 26,788                                               |
| Wells                  Fargo                  Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6,                  4.109%                  20354                        | 10,000                                                                        | 9,722                                                |
| Wells                  Fargo                  Mortgage-backed Securities Trust, Series 2006-AR15, Class A-1,                  5.697%                  2036                            | 39,472                                                                        | 39,449                                               |
| Bear                  Stearns                  ARM Trust, Series 2003-6, Class I-A-2, 3.984% 20334                                                                                    | 4,935                                                                         | 4,850                                                |
| Bear                  Stearns                  ARM Trust, Series 2004-1, Class I-2-A-5, 4.375% 20344                                                                                  | 6,877                                                                         | 6,770                                                |
| Bear                  Stearns                  ARM Trust, Series 2003-9, Class III-A-2, 4.977% 20344                                                                                  | 9,732                                                                         | 9,619                                                |
| Bear                  Stearns                  ARM Trust, Series 2003-8, Class III-A, 5.129% 20344                                                                                    | 12,099                                                                        | 12,023                                               |
| Bear                  Stearns                  ARM Trust, Series 2005-10, Class A-3, 4.65% 20354                                                                                      | 50,000                                                                        | 48,861                                               |
| Bear                  Stearns                  Commercial Mortgage Securities Inc., Series 1999-WF2, Class A-1,                  6.80%                  2031                          | 1,863                                                                         | 1,867                                                |
| Bear                  Stearns                  Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1,                  3.97%                  2035                         | 53,207                                                                        | 52,054                                               |
| Bear                  Stearns                  Commercial Mortgage Securities Inc., Series 2005-PWR9, Class A-AB,                  4.804%                  2042                       | 27,210                                                                        | 26,639                                               |
| IndyMac                  INDX                  Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.879% 20364                                                                        | 74,912                                                                        | 74,746                                               |
| Banc                  of                  America Commercial Mortgage Inc., Series 2002-PB2, Class A-2, 5.676%                  2035                                                  | 8,689                                                                         | 8,708                                                |
| Banc                  of                  America Commercial Mortgage Inc., Series 2001-PB1, Class A-2, 5.787%                  2035                                                  | 22,040                                                                        | 22,535                                               |
| Banc                  of                  America Commercial Mortgage Inc., Series 2004-5, Class A-1, 3.812%                  2041                                                    | 1,620                                                                         | 1,611                                                |
| Banc                  of                  America Commercial Mortgage Inc., Series 2004-5, Class A-2, 4.176%                  2041                                                    | 9,117                                                                         | 8,886                                                |
| Banc                  of                  America Commercial Mortgage Inc., Series 2005-1, Class A-3, 4.877%                  2042                                                    | 28,622                                                                        | 28,374                                               |
| Banc                  of                  America Commercial Mortgage Inc., Series 2002-2, Class A-1, 3.366%                  2043                                                    | 2,702                                                                         | 2,681                                                |
| GMAC                  Commercial Mortgage Securities, Inc., Series 1998-C1, Class D,                  6.974%                  2030                                                    | 15,595                                                                        | 15,950                                               |
| GMAC                  Commercial Mortgage Securities, Inc., Series 2001-C2, Class A-1,                  6.25%                  2034                                                   | 9,834                                                                         | 10,031                                               |
| GMAC                  Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2,                  6.465%                  2034                                                  | 25,000                                                                        | 26,140                                               |
| GMAC                  Commercial Mortgage Securities, Inc., Series 2001-C2, Class A-2,                  6.70%                  2034                                                   | 4,614                                                                         | 4,884                                                |
| GMAC                  Commercial Mortgage Securities, Inc., Series 2004-C3, Class A-3,                  4.207%                  2041                                                  | 15,648                                                                        | 15,280                                               |
| Tower                  Ventures, LLC, Series 2006-1, Class A1-FX, 5.361% 20365                                                                                                        | 32,500                                                                        | 32,608                                               |
| Tower                  Ventures, LLC, Series 2006-1, Class D, 6.052% 20365                                                                                                            | 33,000                                                                        | 33,339                                               |
| J.P.                  Morgan                  Chase Commercial Mortgage Securities Corp., Series 2001-C1, Class                  F,                  6.854% 20354,5                   | 2,000                                                                         | 2,129                                                |
| J.P.                  Morgan                  Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class                  A-1,                  3.972% 2039                   | 17,394                                                                        | 16,922                                               |
| J.P.                  Morgan                  Chase Commercial Mortgage Securities Corp., Series 2005-LDP3, Class                  A-2,                  4.851% 2042                  | 26,685                                                                        | 26,387                                               |
| J.P.                  Morgan                  Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class                  A-2,                  4.625% 2046                  | 20,000                                                                        | 19,734                                               |
| First                  Horizon                  Alternative Mortgage Securities Trust, Series 2005-FA8, Class I-A-14,                  5.50% 2035                                     | 12,838                                                                        | 12,835                                               |
| First                  Horizon                  Alternative Mortgage Securities Trust, Series 2005-FA11, Class                  I-A-5,                  5.75% 2036                    | 35,047                                                                        | 34,851                                               |
| First                  Horizon                  Alternative Mortgage Securities Trust, Series 2006-FA3, Class A-6,                  6.00%                  2036                       | 17,147                                                                        | 17,354                                               |
| GE                  Commercial                  Mortgage Corp., Series 2005-C2, Class A-2, 4.706% 2043                                                                                | 40,928                                                                        | 40,352                                               |
| GE                  Commercial                  Mortgage Corp., Series 2005-C4, Class A-3A, 5.333% 2045                                                                               | 20,000                                                                        | 20,205                                               |
| Crown                  Castle                  Towers LLC, Series 2005-1, Class A-FX, 4.643% 20355                                                                                    | 26,000                                                                        | 25,463                                               |
| Crown                  Castle                  Towers LLC, Series 2005-1, Class C, 5.074% 20355                                                                                       | 13,620                                                                        | 13,423                                               |
| Crown                  Castle                  Towers LLC, Series 2005-1, Class D, 5.612% 20355                                                                                       | 20,000                                                                        | 19,942                                               |
| WaMu                  Mortgage                  Pass-Through Certificates Trust, Series 2004-CB2, Class VII-A,                  5.50%                  2019                           | 10,076                                                                        | 10,083                                               |
| WaMu                  Mortgage                  Pass-Through Certificates Trust, Series 2003-AR7, Class A-7, 3.842%                  20334                                            | 4,767                                                                         | 4,719                                                |
| WaMu                  Mortgage                  Pass-Through Certificates Trust, Series 2003-AR8, Class A, 4.03%                  20334                                               | 4,237                                                                         | 4,179                                                |
| WaMu                  Mortgage                  Pass-Through Certificates Trust, Series 2003-AR6, Class A-1, 4.338%                  20334                                            | 3,662                                                                         | 3,615                                                |
| WaMu                  Mortgage                  Pass-Through Certificates Trust, Series 2004-AR11, Class A, 4.563%                  20344                                             | 4,847                                                                         | 4,785                                                |
| WaMu                  Mortgage                  Pass-Through Certificates Trust, Series 2005-AR15, Class A-1-A,                  5.58%                  20454                         | 29,607                                                                        | 29,725                                               |
| SBA                  CMBS                  Trust, Series 2005-1, Class A, 5.369% 20354,5                                                                                              | 22,000                                                                        | 22,101                                               |
| SBA                  CMBS                  Trust, Series 2005-1, Class C, 5.731% 20354,5                                                                                              | 17,320                                                                        | 17,455                                               |
| SBA                  CMBS                  Trust, Series 2006-1A, Class A, 5.314% 20365                                                                                               | 16,500                                                                        | 16,562                                               |
| SBA                  CMBS                  Trust, Series 2006-1A, Class C, 5.559% 20365                                                                                               | 2,000                                                                         | 2,008                                                |
| Washington                  Mutual Securities Corp., Series 2005-AR1, Class A-1-A, 5.58%                  20354                                                                       | 33,245                                                                        | 33,294                                               |
| Washington                  Mutual Securities Corp., WMALT Series 2005-1, Class 5-A-1, 6.00%                  2035                                                                    | 13,786                                                                        | 13,822                                               |
| Washington                  Mutual Securities Corp., WMALT Series 2005-1, Class 6-A-1, 6.50%                  2035                                                                    | 1,547                                                                         | 1,563                                                |
| Merrill                  Lynch                  Mortgage Investors, Inc., Series 2006-A1, Class II-A-1, 6.203%                  20364                                                 | 44,890                                                                        | 45,589                                               |
| GE                  Capital                  Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079%                  2033                                                        | 7,209                                                                         | 7,333                                                |
| GE                  Capital                  Commercial Mortgage Corp., Series 2001-1, Class A-2, 6.531%                  2033                                                        | 22,230                                                                        | 23,381                                               |
| GE                  Capital                  Commercial Mortgage Corp., Series 2001-3, Class A-2, 6.07%                  2038                                                         | 13,250                                                                        | 13,787                                               |
| Residential                  Asset Securitization Trust, Series 2005-A8CB, Class A-11, 6.00%                  2035                                                                    | 36,661                                                                        | 36,604                                               |
| Residential                  Asset Securitization Trust, Series 2005-A6CB, Class A-7, 6.00%                  2035                                                                     | 3,963                                                                         | 3,977                                                |
| J.P.                  Morgan                  Mortgage Trust, Series 2005-A4, Class 3-A-1, 5.192% 20354                                                                               | 39,251                                                                        | 38,891                                               |
| MASTR                  Alternative Loan Trust, Series 2003-2, Class 6-A-1, 6.00%                  2033                                                                                | 945                                                                           | 944                                                  |
| MASTR                  Alternative Loan Trust, Series 2004-2, Class 2-A-1, 6.00%                  2034                                                                                | 2,012                                                                         | 2,009                                                |
| MASTR                  Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50%                  2035                                                                                | 9,076                                                                         | 8,971                                                |
| MASTR                  Alternative Loan Trust, Series 2005-1, Class 1-A-1, 5.50%                  2035                                                                                | 4,612                                                                         | 4,521                                                |
| MASTR                  Alternative Loan Trust, Series 2005-3, Class 2-A-1, 6.00%                  2035                                                                                | 9,627                                                                         | 9,655                                                |
| MASTR                  Alternative Loan Trust, Series 2005-3, Class 3-A-1, 6.50%                  2035                                                                                | 9,848                                                                         | 9,978                                                |
| Morgan                  Stanley Capital I Trust, Series 2003-TOP11, Class A-2, 4.34%                  2041                                                                            | 16,600                                                                        | 16,247                                               |
| Morgan                  Stanley Capital I Trust, Series 2005-HQ7, Class A-2, 5.205%                  20424                                                                            | 19,500                                                                        | 19,531                                               |
| American                  General Mortgage Loan Trust, Series 2006-1, Class A-5, 5.75%                  20355                                                                         | 35,315                                                                        | 35,228                                               |
| CSAB                  Mortgage-backed Trust, Series 2006-2, Class A-6-A, 5.72% 20364                                                                                                  | 30,000                                                                        | 30,054                                               |
| PNC                  Mortgage                  Acceptance Corp., Series 2001-C1, Class A-2, 6.36% 2034                                                                                | 28,625                                                                        | 29,907                                               |
| Citigroup                  Mortgage Loan Trust, Inc., Series 2004-HYB1, Class A-3-1, 4.55%                  20344                                                                     | 26,688                                                                        | 26,376                                               |
| Meristar                  Commercial Mortgage Trust, Series 1999-C1, Class B, 7.90% 20165                                                                                             | 7,750                                                                         | 8,313                                                |
| Meristar                  Commercial Mortgage Trust, Series 1999-C1, Class C, 8.29% 20165                                                                                             | 13,900                                                                        | 15,192                                               |
| Structured                  Asset Securities Corp., Series 1998-RF2, Class A, 8.529% 20274,5                                                                                          | 1,852                                                                         | 1,862                                                |
| Structured                  Asset Securities Corp., Series 2005-6, Class 5-A-4, 5.00%                  2035                                                                           | 14,398                                                                        | 13,567                                               |
| Structured                  Asset Securities Corp., Series 2005-6, Class 5-A-9, 5.00%                  2035                                                                           | 7,183                                                                         | 7,090                                                |
| Greenwich                  Capital Commercial Funding Corp., Series 2005-GG5, Class A-4-1,                  5.243%                  2037                                              | 20,000                                                                        | 20,032                                               |
| Merrill                  Lynch                  Mortgage Trust, Series 2005-MKB2, Class A-2, 4.806% 2042                                                                              | 19,500                                                                        | 19,295                                               |
| Bank                  of                  America, NA and First Union National Bank Commercial Mortgage Trust,                  Series 2001-3, Class A-1, 4.89% 2037                  | 17,664                                                                        | 17,575                                               |
| Banc                  of                  America Funding Corp., Series 2005-H, Class 9-A-1, 5.966% 20354                                                                             | 16,334                                                                        | 16,390                                               |
| Bear                  Stearns                  Asset-backed Securities I Trust, Series 2005-AC8, Class A-4, 5.50%                  2035                                               | 16,120                                                                        | 16,082                                               |
| Wachovia                  Bank                  Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083%                  2042                                                   | 15,000                                                                        | 14,793                                               |
| Residential                  Asset Mortgage Products Trust, Series 2004-RS12, Class A-I-6, 4.547%                  2034                                                               | 9,000                                                                         | 8,613                                                |
| Residential                  Asset Mortgage Products Trust, Series 2004-RS12, Class M-I-1, 5.186%                  2034                                                               | 6,000                                                                         | 5,939                                                |
| Chase                  Commercial Mortgage Securities Corp., Series 2000-2, Class A-1,                  7.543%                  2032                                                  | 8,024                                                                         | 8,227                                                |
| Chase                  Commercial Mortgage Securities Corp., Series 2000-1, Class A-2,                  7.757%                  2032                                                  | 5,933                                                                         | 6,314                                                |
| Hilton                  Hotel                  Pool Trust, Series 2000-HLTA, Class C, 7.458% 20155                                                                                    | 10,000                                                                        | 10,804                                               |
| Banc                  of                  America Alternative Loan Trust, Series 2005-6, Class 2-CB-2, 6.00%                  2035                                                    | 10,368                                                                        | 10,406                                               |
| Morgan                  Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1,                  3.98%                  2036                                                | 10,389                                                                        | 10,108                                               |
| LB-UBS                  Commercial Mortgage Trust, Series 2002-C1, Class A-3, 6.226%                  2026                                                                            | 9,765                                                                         | 9,996                                                |
| GSR                  Mortgage                  Loan Trust, Series 2005-AR1, Class 2-A-1, 4.949% 20354                                                                                 | 9,772                                                                         | 9,702                                                |
| Banc                  of                  America Mortgage Securities Trust, Series 2003-G, Class 2-A-1,                  4.088%                  20334                               | 6,092                                                                         | 6,012                                                |
| Banc                  of                  America Mortgage Securities Trust, Series 2004-B, Class 1-A-1,                  3.457%                  20344                               | 2,207                                                                         | 2,193                                                |
| Salomon                  Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1,                  7.46%                  2008                                                  | 3,870                                                                         | 3,913                                                |
| Salomon                  Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-2,                  6.226%                  2035                                                 | 2,383                                                                         | 2,395                                                |
| Host                  Marriott                  Pool Trust, Series 1999-HMTA, Class A, 6.98% 20155                                                                                    | 5,986                                                                         | 6,131                                                |
| RAAC                  Mortgage                  Loan Asset-backed Trust, Series 2004-SP3, Class A-I-5, 4.89%                  2032                                                    | 5,000                                                                         | 4,830                                                |
| Residential                  Funding Mortgage Securities I, Inc., Series 2003-S20, Class II-A-1,                  4.75%                  2018                                         | 3,083                                                                         | 2,986                                                |
| First                  Union                  National Bank Commercial Mortgage Trust, Series 2002-C1, Class                  G, 7.196%                  20344,5                      | 2,000                                                                         | 2,139                                                |
| Commercial                  Mortgage Trust, Series 2000-C1, Class A-1, 7.206% 2033                                                                                                    | 568                                                                           | 568                                                  |
|                                                                                                                                                                                  |                                                                          | **4,901,970**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **FINANCIALS                  — 3.49%**                                                                                                                                         | ** **                                                                    |                                                 |
| USA                  Education, Inc. 5.625% 2007                                                                                                                                      | 40,000                                                                        | 40,050                                               |
| SLM                  Corp.,                  Series A, 3.625% 2008                                                                                                                    | 10,000                                                                        | 9,770                                                |
| SLM                  Corp.,                  Series A, 4.00% 2009                                                                                                                     | 10,000                                                                        | 9,756                                                |
| SLM                  Corp.,                  Series A, 5.35% 20094                                                                                                                    | 10,000                                                                        | 9,626                                                |
| SLM                  Corp.,                  Series A, 4.50% 2010                                                                                                                     | 31,000                                                                        | 30,262                                               |
| SLM                  Corp.,                  Series A, 5.40% 2011                                                                                                                     | 40,000                                                                        | 40,217                                               |
| SLM                  Corp.,                  Series A, 5.45% 2011                                                                                                                     | 20,000                                                                        | 20,147                                               |
| SLM                  Corp.,                  Series A, 5.375% 2014                                                                                                                    | 10,000                                                                        | 9,993                                                |
| International                  Lease Finance Corp., Series P, 3.125% 2007                                                                                                             | 5,000                                                                         | 4,945                                                |
| ASIF                  Global                  Financing XXIII 3.90% 20085                                                                                                             | 13,605                                                                        | 13,290                                               |
| International                  Lease Finance Corp. 4.35% 2008                                                                                                                         | 28,500                                                                        | 28,058                                               |
| International                  Lease Finance Corp. 4.50% 2008                                                                                                                         | 5,000                                                                         | 4,940                                                |
| AIG                  SunAmerica Global Financing VII 5.85% 20085                                                                                                                      | 5,000                                                                         | 5,057                                                |
| International                  Lease Finance Corp. 6.375% 2009                                                                                                                        | 15,000                                                                        | 15,385                                               |
| American                  International Group, Inc. 4.70% 2010                                                                                                                        | 5,000                                                                         | 4,934                                                |
| International                  Lease Finance Corp. 5.00% 2010                                                                                                                         | 6,560                                                                         | 6,514                                                |
| International                  Lease Finance Corp., Series Q, 5.45% 2011                                                                                                              | 35,000                                                                        | 35,337                                               |
| American                  General Finance Corp., Series J, 5.706% 20114                                                                                                               | 2,500                                                                         | 2,508                                                |
| International                  Lease Finance Corp. 5.00% 2012                                                                                                                         | 10,000                                                                        | 9,857                                                |
| American                  General Finance Corp., Series J, 5.75% 2016                                                                                                                 | 2,500                                                                         | 2,539                                                |
| ILFC                  E-Capital Trust I 5.90% 20654,5                                                                                                                                 | 7,000                                                                         | 7,116                                                |
| ILFC                  E-Capital Trust II 6.25% 20654,5                                                                                                                                | 17,000                                                                        | 17,255                                               |
| Bank                  of                  America Corp. 5.25% 2007                                                                                                                    | 20,000                                                                        | 19,990                                               |
| MBNA                  Corp.                  5.625% 2007                                                                                                                              | 26,000                                                                        | 26,086                                               |
| BankBoston                  NA                  7.00% 2007                                                                                                                            | 7,500                                                                         | 7,576                                                |
| Bank                  of                  America Corp. 3.875% 2008                                                                                                                   | 4,400                                                                         | 4,330                                                |
| MBNA                  America                  Bank, National Assn. 5.375% 2008                                                                                                       | 15,500                                                                        | 15,509                                               |
| BankAmerica                  Corp. 5.875% 2009                                                                                                                                        | 7,500                                                                         | 7,634                                                |
| Bank                  of                  America Corp. 4.50% 2010                                                                                                                    | 18,000                                                                        | 17,668                                               |
| BankAmerica                  Corp. 7.125% 2011                                                                                                                                        | 1,750                                                                         | 1,894                                                |
| Bank                  of                  America Corp. 4.875% 2012                                                                                                                   | 2,000                                                                         | 1,972                                                |
| Residential                  Capital Corp. 6.693% 20084                                                                                                                               | 13,750                                                                        | 13,914                                               |
| Residential                  Capital Corp. 6.375% 2010                                                                                                                                | 28,990                                                                        | 29,445                                               |
| Residential                  Capital Corp. 6.00% 2011                                                                                                                                 | 2,000                                                                         | 2,008                                                |
| General                  Motors Acceptance Corp. 6.875% 2011                                                                                                                          | 17,000                                                                        | 17,134                                               |
| General                  Motors Acceptance Corp. 7.25% 2011                                                                                                                           | 30,000                                                                        | 30,594                                               |
| General                  Motors Acceptance Corp. 7.00% 2012                                                                                                                           | 5,000                                                                         | 5,039                                                |
| Household                  Finance Corp. 5.75% 2007                                                                                                                                   | 11,000                                                                        | 11,010                                               |
| Household                  Finance Corp. 4.125% 2008                                                                                                                                  | 6,000                                                                         | 5,885                                                |
| Household                  Finance Corp. 6.40% 2008                                                                                                                                   | 60,000                                                                        | 61,146                                               |
| HSBC                  Bank USA                  4.625% 20145                                                                                                                          | 16,000                                                                        | 15,362                                               |
| HSBC                  Finance                  Corp. 5.00% 2015                                                                                                                       | 4,535                                                                         | 4,412                                                |
| Bank                  One,                  National Assn. 5.50% 2007                                                                                                                 | 20,000                                                                        | 20,006                                               |
| J.P.                  Morgan                  Chase & Co. 3.50% 2009                                                                                                              | 10,000                                                                        | 9,655                                                |
| J.P.                  Morgan                  Chase & Co. 6.75% 2011                                                                                                              | 13,000                                                                        | 13,764                                               |
| J.P.                  Morgan                  Chase & Co. 4.891% 2015                                                                                                             | 20,000                                                                        | 19,689                                               |
| J.P.                  Morgan                  Chase Capital XX, Series T, 6.55% 2036                                                                                                  | 25,000                                                                        | 25,985                                               |
| EOP                  Operating                  LP 7.75% 2007                                                                                                                         | 45,000                                                                        | 46,006                                               |
| EOP                  Operating                  LP 6.75% 2008                                                                                                                         | 9,195                                                                         | 9,342                                                |
| Spieker                  Properties, LP 6.75% 2008                                                                                                                                    | 3,500                                                                         | 3,534                                                |
| Spieker                  Properties, LP 7.125% 2009                                                                                                                                   | 2,000                                                                         | 2,092                                                |
| EOP                  Operating                  LP 4.65% 2010                                                                                                                         | 19,500                                                                        | 18,988                                               |
| EOP                  Operating                  LP 7.00% 2011                                                                                                                         | 4,000                                                                         | 4,258                                                |
| American                  Express Credit Corp. 3.00% 2008                                                                                                                             | 10,000                                                                        | 9,686                                                |
| American                  Express Co. 4.75% 2009                                                                                                                                      | 15,000                                                                        | 14,918                                               |
| American                  Express Credit Corp., Series B, 5.00% 2010                                                                                                                  | 9,000                                                                         | 8,995                                                |
| American                  Express Co. 6.80% 20664                                                                                                                                     | 44,000                                                                        | 46,873                                               |
| CIT                  Group                  Inc. 3.65% 2007                                                                                                                           | 11,000                                                                        | 10,815                                               |
| CIT                  Group                  Inc. 3.375% 2009                                                                                                                          | 5,000                                                                         | 4,802                                                |
| CIT                  Group                  Inc. 6.875% 2009                                                                                                                          | 16,000                                                                        | 16,732                                               |
| CIT                  Group                  Inc. 4.25% 2010                                                                                                                           | 10,000                                                                        | 9,715                                                |
| CIT                  Group                  Inc. 5.20% 2010                                                                                                                           | 20,000                                                                        | 19,989                                               |
| CIT                  Group                  Inc. 5.60% 2011                                                                                                                           | 15,000                                                                        | 15,190                                               |
| CNA                  Financial                  Corp. 6.75% 2006                                                                                                                      | 2,500                                                                         | 2,501                                                |
| CNA                  Financial                  Corp. 6.60% 2008                                                                                                                      | 4,000                                                                         | 4,098                                                |
| CNA                  Financial                  Corp. 6.00% 2011                                                                                                                      | 20,000                                                                        | 20,430                                               |
| CNA                  Financial                  Corp. 5.85% 2014                                                                                                                      | 42,000                                                                        | 42,304                                               |
| Allstate                  Corp. 5.375% 2006                                                                                                                                           | 20,000                                                                        | 19,998                                               |
| Allstate                  Financial Global Funding LLC 5.25% 20075                                                                                                                    | 15,000                                                                        | 14,996                                               |
| Allstate                  Life                  Global Funding Trust, Series 2004-1, 4.50% 2009                                                                                       | 15,000                                                                        | 14,777                                               |
| Allstate                  Financing II 7.83% 2045                                                                                                                                     | 18,537                                                                        | 19,282                                               |
| Washington                  Mutual, Inc. 5.55% 2010                                                                                                                                   | 10,000                                                                        | 10,114                                               |
| Washington                  Mutual, Inc. 5.50% 2011                                                                                                                                   | 10,000                                                                        | 10,073                                               |
| Washington                  Mutual, Inc. 5.79% 20124                                                                                                                                  | 10,000                                                                        | 10,042                                               |
| Washington                  Mutual, Inc. 5.95% 2013                                                                                                                                   | 10,000                                                                        | 10,238                                               |
| Washington                  Mutual Preferred Funding I Ltd. 6.534% (undated)4,5                                                                                                       | 24,700                                                                        | 24,669                                               |
| Ford                  Motor                  Credit Co. 7.20% 2007                                                                                                                    | 5,000                                                                         | 5,002                                                |
| Ford                  Motor                  Credit Co. 5.80% 2009                                                                                                                    | 12,000                                                                        | 11,468                                               |
| Ford                  Motor                  Credit Co. 7.875% 2010                                                                                                                   | 30,500                                                                        | 29,785                                               |
| Ford                  Motor                  Credit Co. 7.375% 2011                                                                                                                   | 15,000                                                                        | 14,345                                               |
| Liberty                  Mutual Group Inc. 5.75% 20145                                                                                                                                | 20,000                                                                        | 20,218                                               |
| Liberty                  Mutual Group Inc. 6.50% 20355                                                                                                                                | 13,000                                                                        | 12,874                                               |
| Liberty                  Mutual Group Inc. 7.50% 20365                                                                                                                                | 24,550                                                                        | 27,393                                               |
| Prudential                  Financial, Inc. 4.104% 2006                                                                                                                               | 15,000                                                                        | 14,994                                               |
| PRICOA                  Global                  Funding I 5.491% 20074,5                                                                                                              | 2,000                                                                         | 2,001                                                |
| PRICOA                  Global                  Funding I, Series 2003-2, 3.90% 20085                                                                                                 | 6,000                                                                         | 5,837                                                |
| Prudential                  Funding, LLC, Series B, 6.60% 20085                                                                                                                       | 12,412                                                                        | 12,663                                               |
| Prudential                  Financial, Inc., Series D, 5.50% 2016                                                                                                                     | 3,000                                                                         | 3,009                                                |
| Prudential                  Holdings, LLC, Series C, 8.695% 20235,6                                                                                                                   | 15,000                                                                        | 18,549                                               |
| Developers                  Diversified Realty Corp. 3.875% 2009                                                                                                                      | 15,000                                                                        | 14,525                                               |
| Developers                  Diversified Realty Corp. 4.625% 2010                                                                                                                      | 19,750                                                                        | 19,262                                               |
| Developers                  Diversified Realty Corp. 5.00% 2010                                                                                                                       | 22,500                                                                        | 22,235                                               |
| Monumental                  Global Funding Trust II, Series 2003-F, 3.45% 20075                                                                                                       | 10,000                                                                        | 9,789                                                |
| Monumental                  Global Funding II, Series 2002-A, 5.20% 20075                                                                                                             | 42,000                                                                        | 41,976                                               |
| Monumental                  Global Funding II, Series 2004-E, 5.457% 20074,5                                                                                                          | 2,000                                                                         | 2,002                                                |
| Monumental                  Global Funding II, Series 2006-A, 5.43% 20094,5                                                                                                           | 2,000                                                                         | 2,003                                                |
| Capital                  One                  Financial Corp. 7.125% 2008                                                                                                             | 5,750                                                                         | 5,914                                                |
| Capital                  One                  Bank 5.75% 2010                                                                                                                         | 3,000                                                                         | 3,052                                                |
| Capital                  One                  Financial Corp. 5.70% 2011                                                                                                              | 15,000                                                                        | 15,224                                               |
| Capital                  One                  Financial Corp. 6.25% 2013                                                                                                              | 5,000                                                                         | 5,215                                                |
| Capital                  One                  Bank 6.50% 2013                                                                                                                         | 13,477                                                                        | 14,215                                               |
| Capital                  One                  Financial Corp. 5.50% 2015                                                                                                              | 12,000                                                                        | 11,938                                               |
| XL                  Capital                  Ltd. 5.25% 2014                                                                                                                          | 13,000                                                                        | 12,803                                               |
| XL                  Capital                  Ltd. 6.375% 2024                                                                                                                         | 2,125                                                                         | 2,223                                                |
| Mangrove                  Bay                  Pass Through Trust 6.102% 20334,5                                                                                                      | 33,020                                                                        | 32,050                                               |
| Twin                  Reefs                  Asset Trust (XLFA), Series B, 6.32% (undated)4,5                                                                                         | 4,000                                                                         | 4,007                                                |
| Santander                  Issuances, SA Unipersonal 5.75% 20164,5                                                                                                                    | 7,600                                                                         | 7,613                                                |
| Santander                  Issuances, SA Unipersonal 5.805% 20164,5                                                                                                                   | 38,600                                                                        | 39,194                                               |
| Abbey                  National PLC 6.70% (undated)4                                                                                                                                  | 2,412                                                                         | 2,459                                                |
| United                  Dominion Realty Trust, Inc., Series E, 4.50% 2008                                                                                                             | 19,500                                                                        | 19,181                                               |
| United                  Dominion Realty Trust, Inc. 6.50% 2009                                                                                                                        | 28,925                                                                        | 29,933                                               |
| Plum                  Creek                  Timberlands, LP 5.875% 2015                                                                                                              | 48,500                                                                        | 48,064                                               |
| Simon                  Property Group, LP 6.375% 2007                                                                                                                                 | 5,000                                                                         | 5,044                                                |
| Simon                  Property Group, LP 5.375% 2008                                                                                                                                 | 2,000                                                                         | 1,997                                                |
| Simon                  Property Group, LP 3.75% 2009                                                                                                                                  | 3,000                                                                         | 2,905                                                |
| Simon                  Property Group, LP 4.875% 2010                                                                                                                                 | 5,000                                                                         | 4,945                                                |
| Simon                  Property Group, LP 4.875% 2010                                                                                                                                 | 2,500                                                                         | 2,464                                                |
| Simon                  Property Group, LP 5.375% 2011                                                                                                                                 | 2,000                                                                         | 2,004                                                |
| Simon                  Property Group, LP 5.60% 2011                                                                                                                                  | 14,750                                                                        | 14,929                                               |
| Simon                  Property Group, LP 5.75% 2012                                                                                                                                  | 12,650                                                                        | 12,885                                               |
| Westfield                  Capital Corp. Ltd., WT Finance Pty Ltd. and WEA Finance LLC 4.375%                  20105                                                                  | 38,500                                                                        | 37,204                                               |
| Westfield                  Group 5.40% 20125                                                                                                                                          | 5,000                                                                         | 5,003                                                |
| Westfield                  Capital Corp. Ltd., WT Finance Pty Ltd. and WEA Finance LLC 5.125%                  20145                                                                  | 5,000                                                                         | 4,869                                                |
| Sumitomo                  Mitsui Banking Corp. 5.625% (undated)4,5                                                                                                                    | 47,500                                                                        | 46,558                                               |
| Lincoln                  National Corp. 5.25% 2007                                                                                                                                    | 6,145                                                                         | 6,128                                                |
| Lincoln                  National Corp. 7.00% 20664                                                                                                                                   | 37,075                                                                        | 39,095                                               |
| HBOS                  PLC                  5.375% (undated)4,5                                                                                                                        | 25,780                                                                        | 25,487                                               |
| HBOS                  PLC,                  Series B, 5.92% (undated)4,5                                                                                                              | 20,000                                                                        | 19,618                                               |
| iStar                  Financial, Inc., Series B, 4.875% 20091                                                                                                                        | 2,000                                                                         | 1,976                                                |
| iStar                  Financial, Inc. 5.375% 20101                                                                                                                                   | 25,675                                                                        | 25,576                                               |
| iStar                  Financial, Inc., Series B, 5.125% 20111                                                                                                                        | 10,000                                                                        | 9,836                                                |
| iStar                  Financial, Inc. 5.80% 20111                                                                                                                                    | 7,600                                                                         | 7,665                                                |
| Wells                  Fargo                  & Co. 5.125% 2007                                                                                                                   | 27,500                                                                        | 27,477                                               |
| Wells                  Fargo                  & Co. 4.125% 2008                                                                                                                   | 15,000                                                                        | 14,774                                               |
| UniCredito                  Italiano SpA 5.584% 20174,5                                                                                                                               | 29,400                                                                        | 29,673                                               |
| UniCredito                  Italiano Capital Trust II 9.20% (undated)5                                                                                                                | 10,000                                                                        | 11,310                                               |
| Commercial                  Credit Co. 6.625% 2006                                                                                                                                    | 1,975                                                                         | 1,976                                                |
| Citigroup                  Inc. 4.125% 2010                                                                                                                                           | 11,000                                                                        | 10,702                                               |
| Citigroup                  Inc. 4.625% 2010                                                                                                                                           | 10,000                                                                        | 9,849                                                |
| Citigroup                  Inc. 5.125% 2014                                                                                                                                           | 10,000                                                                        | 9,908                                                |
| National                  Westminster Bank PLC 7.375% 2009                                                                                                                            | 3,000                                                                         | 3,188                                                |
| Royal                  Bank of                  Scotland Group PLC 5.512% noncumulative trust preferred                  (undated)4                                                   | 22,800                                                                        | 22,468                                               |
| National                  Westminster Bank PLC 7.75% (undated)                  4                                                                                                     | 4,588                                                                         | 4,677                                                |
| Hospitality                  Properties Trust 7.00% 2008                                                                                                                              | 5,500                                                                         | 5,611                                                |
| Hospitality                  Properties Trust 6.75% 2013                                                                                                                              | 18,925                                                                        | 19,948                                               |
| Hospitality                  Properties Trust 5.125% 2015                                                                                                                             | 3,000                                                                         | 2,866                                                |
| Hospitality                  Properties Trust 6.30% 2016                                                                                                                              | 1,150                                                                         | 1,179                                                |
| Lazard                  Group                  LLC 7.125% 2015                                                                                                                        | 28,000                                                                        | 29,253                                               |
| Nationwide                  Life Insurance Co. 5.35% 20075                                                                                                                            | 27,500                                                                        | 27,500                                               |
| North                  Front                  Pass Through Trust 5.81% 20244,5                                                                                                        | 1,165                                                                         | 1,160                                                |
| Realogy                  Corp.                  6.15% 20115                                                                                                                           | 27,000                                                                        | 27,465                                               |
| ACE                  INA                  Holdings Inc. 5.875% 2014                                                                                                                   | 7,500                                                                         | 7,677                                                |
| ACE                  Capital                  Trust II 9.70% 2030                                                                                                                     | 12,210                                                                        | 16,717                                               |
| ACE                  INA                  Holdings Inc. 6.70% 2036                                                                                                                    | 2,500                                                                         | 2,724                                                |
| ProLogis                  5.25% 2010                                                                                                                                                  | 22,000                                                                        | 21,919                                               |
| ProLogis                  5.50% 2013                                                                                                                                                  | 4,350                                                                         | 4,342                                                |
| Resona                  Bank,                  Ltd. 5.85% (undated)4,5                                                                                                                | 25,000                                                                        | 24,532                                               |
| Metropolitan                  Life Global Funding I, Series 2004-10, 3.375% 20075                                                                                                     | 20,000                                                                        | 19,490                                               |
| Met                  Life                  Global Funding I 2.60% 20085                                                                                                               | 2,500                                                                         | 2,390                                                |
| MetLife,                  Inc.                  5.00% 2015                                                                                                                            | 2,500                                                                         | 2,429                                                |
| ERP                  Operating                  LP 4.75% 2009                                                                                                                         | 6,360                                                                         | 6,276                                                |
| ERP                  Operating                  LP 6.95% 2011                                                                                                                         | 8,200                                                                         | 8,732                                                |
| ERP                  Operating                  LP 6.625% 2012                                                                                                                        | 8,000                                                                         | 8,488                                                |
| Willis                  North                  America Inc. 5.125% 2010                                                                                                               | 20,950                                                                        | 20,378                                               |
| Willis                  North                  America Inc. 5.625% 2015                                                                                                               | 3,000                                                                         | 2,872                                                |
| Wachovia                  Corp. 5.625% 2016                                                                                                                                           | 21,000                                                                        | 21,240                                               |
| Société                  Générale 5.75% 20165                                                                                                                     | 2,500                                                                         | 2,564                                                |
| SocGen                  Real                  Estate Co. LLC, Series A, 7.64% (undated)4,5                                                                                            | 17,749                                                                        | 18,108                                               |
| ING                  Security                  Life Institutional Funding 2.70% 20075                                                                                                 | 15,000                                                                        | 14,866                                               |
| ING                  Security                  Life Institutional Funding 5.564% 20104,5                                                                                              | 4,000                                                                         | 4,010                                                |
| PNC                  Funding                  Corp. 4.20% 2008                                                                                                                        | 10,000                                                                        | 9,826                                                |
| PNC                  Funding                  Corp. 5.125% 2010                                                                                                                       | 9,000                                                                         | 8,992                                                |
| Rouse                  Co.                  3.625% 2009                                                                                                                               | 5,000                                                                         | 4,750                                                |
| Rouse                  Co.                  7.20% 2012                                                                                                                                | 9,446                                                                         | 9,779                                                |
| Rouse                  Co.                  5.375% 2013                                                                                                                               | 4,000                                                                         | 3,754                                                |
| Hartford                  Financial Services Group, Inc. 5.55% 2008                                                                                                                   | 11,585                                                                        | 11,653                                               |
| Hartford                  Financial Services Group, Inc. 5.25% 2011                                                                                                                   | 6,250                                                                         | 6,265                                                |
| Price                  REIT,                  Inc. 7.50% 2006                                                                                                                         | 4,900                                                                         | 4,900                                                |
| Kimco                  Realty                  Corp., Series C, 3.95% 2008                                                                                                            | 5,000                                                                         | 4,885                                                |
| Kimco                  Realty                  Corp. 6.00% 2012                                                                                                                       | 2,000                                                                         | 2,072                                                |
| Kimco                  Realty                  Corp., Series C, 5.783% 2016                                                                                                           | 5,450                                                                         | 5,527                                                |
| Genworth                  Financial, Inc. 4.75% 2009                                                                                                                                  | 13,795                                                                        | 13,694                                               |
| Genworth                  Global Funding Trust, Series 2005-A, 5.55% 20104                                                                                                            | 3,000                                                                         | 3,011                                                |
| Berkshire                  Hathaway Finance Corp. 4.75% 2012                                                                                                                          | 15,000                                                                        | 14,743                                               |
| Principal                  Life Global Funding I 4.40% 20105                                                                                                                          | 10,000                                                                        | 9,691                                                |
| Principal                  Life Income Fundings Trust, Series 2005-34, 5.20% 2010                                                                                                     | 4,000                                                                         | 4,007                                                |
| Brandywine                  Operating Partnership, LP 5.75% 2012                                                                                                                      | 13,000                                                                        | 13,146                                               |
| World                  Savings                  Bank, FSB, Bank Notes, Series 2008-FXR, 4.125% 2008                                                                                   | 13,000                                                                        | 12,781                                               |
| Zions                  Bancorporation 6.00% 2015                                                                                                                                      | 11,585                                                                        | 11,902                                               |
| Union                  Bank of                  California, NA 5.95% 2016                                                                                                             | 10,000                                                                        | 10,345                                               |
| Skandinaviska                  Enskilda Banken AB 4.958% (undated)4,5                                                                                                                 | 10,400                                                                        | 9,788                                                |
| Popular                  North                  America, Inc., Series E, 3.875% 2008                                                                                                  | 10,000                                                                        | 9,738                                                |
| St.                  Paul                  Travelers Companies, Inc. 6.25% 2016                                                                                                       | 8,000                                                                         | 8,474                                                |
| Goldman                  Sachs                  Group, Inc. 5.75% 2016                                                                                                                | 8,000                                                                         | 8,140                                                |
| Lehman                  Brothers Holdings Inc., Series I, 5.493% 20094                                                                                                                | 8,000                                                                         | 8,009                                                |
| Boston                  Properties LP 6.25% 2013                                                                                                                                      | 6,500                                                                         | 6,772                                                |
| BOI                  Capital                  Funding (No. 2) LP 5.571% (undated)4,5                                                                                                  | 6,000                                                                         | 5,868                                                |
| Federal                  Realty Investment Trust 6.125% 2007                                                                                                                          | 4,500                                                                         | 4,520                                                |
| Federal                  Realty Investment Trust 8.75% 2009                                                                                                                           | 1,000                                                                         | 1,094                                                |
| Protective                  Life Insurance Co., Series 2005-C, 4.85% 2010                                                                                                             | 5,000                                                                         | 4,959                                                |
| New                  York Life                  Global Funding 4.625% 20105                                                                                                           | 5,000                                                                         | 4,922                                                |
| ZFS                  Finance                  Trust I 6.15% 20654,5                                                                                                                   | 4,500                                                                         | 4,530                                                |
| Deutsche                  Bank                  Financial LLC 5.375% 2015                                                                                                             | 4,000                                                                         | 3,996                                                |
| Independence                  Community Bank 3.75% 20144                                                                                                                              | 4,000                                                                         | 3,856                                                |
| Assurant,                  Inc. 5.625% 2014                                                                                                                                           | 3,000                                                                         | 3,014                                                |
| Downey                  Financial Corp. 6.50% 2014                                                                                                                                    | 2,840                                                                         | 2,859                                                |
| Principal                  Financial Group, Inc. 6.05% 2036                                                                                                                           | 2,000                                                                         | 2,072                                                |
| Jackson                  National Life Global Funding, Series 2002-1, 5.25% 20075                                                                                                     | 2,000                                                                         | 2,002                                                |
|                                                                                                                                                                                  |                                                                          | **2,710,997**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **U.S.                  GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES —                  2.59%**                                                                         | ** **                                                                    |                                                 |
| U.S.                  Treasury                  6.125% 2007                                                                                                                           | 140,000                                                                       | 141,193                                              |
| U.S.                  Treasury                  3.625% 2009                                                                                                                           | 100,000                                                                       | 97,500                                               |
| U.S.                  Treasury                  6.00% 2009                                                                                                                            | 200,000                                                                       | 207,094                                              |
| U.S.                  Treasury                  6.50% 2010                                                                                                                            | 56,000                                                                        | 59,224                                               |
| U.S.                  Treasury                  10.375% 2012                                                                                                                          | 50,000                                                                        | 52,773                                               |
| U.S.                  Treasury                  12.00% 2013                                                                                                                           | 64,000                                                                        | 71,950                                               |
| U.S.                  Treasury                  11.75% 2014                                                                                                                           | 95,000                                                                        | 113,911                                              |
| U.S.                  Treasury                  12.50% 2014                                                                                                                           | 40,000                                                                        | 48,138                                               |
| U.S.                  Treasury                  13.25% 2014                                                                                                                           | 60,000                                                                        | 72,319                                               |
| U.S.                  Treasury                  9.25% 2016                                                                                                                            | 50,000                                                                        | 67,336                                               |
| U.S.                  Treasury                  Principal Strip 0% 2018                                                                                                               | 11,460                                                                        | 6,658                                                |
| U.S.                  Treasury                  6.50% 2026                                                                                                                            | 34,250                                                                        | 41,635                                               |
| U.S.                  Treasury                  Principal Strip 0% 2029                                                                                                               | 8,200                                                                         | 2,850                                                |
| U.S.                  Treasury                  5.375% 2031                                                                                                                           | 84,000                                                                        | 91,206                                               |
| Freddie                  Mac                  5.125% 2008                                                                                                                             | 75,000                                                                        | 75,271                                               |
| Freddie                  Mac                  5.75% 2009                                                                                                                              | 75,000                                                                        | 76,447                                               |
| Freddie                  Mac                  6.625% 2009                                                                                                                             | 75,000                                                                        | 78,463                                               |
| Freddie                  Mac                  4.125% 2010                                                                                                                             | 35,000                                                                        | 34,142                                               |
| Freddie                  Mac                  7.00% 2010                                                                                                                              | 20,000                                                                        | 21,313                                               |
| Freddie                  Mac                  5.50% 2011                                                                                                                              | 50,000                                                                        | 51,377                                               |
| Freddie                  Mac                  5.875% 2011                                                                                                                             | 100,000                                                                       | 103,348                                              |
| Fannie                  Mae                  6.34% 2007                                                                                                                               | 20,000                                                                        | 20,203                                               |
| Fannie                  Mae                  7.125% 2007                                                                                                                              | 50,000                                                                        | 50,316                                               |
| Fannie                  Mae                  7.125% 2010                                                                                                                              | 40,000                                                                        | 42,976                                               |
| Fannie                  Mae                  7.25% 2010                                                                                                                               | 30,000                                                                        | 32,086                                               |
| Fannie                  Mae                  5.25% 2012                                                                                                                               | 100,000                                                                       | 100,765                                              |
| Federal                  Home                  Loan Bank 3.375% 2007                                                                                                                  | 93,295                                                                        | 91,730                                               |
| Federal                  Home                  Loan Bank 5.625% 2016                                                                                                                  | 49,375                                                                        | 50,997                                               |
| Federal                  Agricultural Mortgage Corp. 4.25% 2008                                                                                                                       | 45,000                                                                        | 44,461                                               |
| Federal                  Agricultural Mortgage Corp. 4.875% 20115                                                                                                                     | 55,000                                                                        | 54,883                                               |
| Federal                  Agricultural Mortgage Corp. 5.50% 20115                                                                                                                      | 10,000                                                                        | 10,174                                               |
|                                                                                                                                                                                  |                                                                          | **2,012,739**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **ASSET-BACKED                  OBLIGATIONS6—                  1.83%**                                                                                                          | ** **                                                                    |                                                 |
| CPS                  Auto                  Receivables Trust, Series 2003-A, Class A-2, XLCA insured, 2.89%                  20095                                                    | 889                                                                           | 876                                                  |
| CPS                  Auto                  Receivables Trust, Series 2002-B, Class A-2, XLCA insured, 3.50%                  20095                                                    | 1,411                                                                         | 1,399                                                |
| CPS                  Auto                  Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52%                  20095                                                    | 498                                                                           | 493                                                  |
| CPS                  Auto                  Receivables Trust, Series 2003-D, Class A-2, FSA insured, 3.56%                  20105                                                     | 3,059                                                                         | 3,012                                                |
| CPS                  Auto                  Receivables Trust, Series 2004-A, Class A-2, FSA insured, 3.87%                  20105                                                     | 10,000                                                                        | 9,866                                                |
| CPS                  Auto                  Receivables Trust, Series 2004-B, Class A-2, XLCA insured, 3.56%                  20115                                                    | 13,715                                                                        | 13,488                                               |
| CPS                  Auto                  Receivables Trust, Series 2004-D, Class A-2, XLCA insured, 3.86%                  20115                                                    | 16,735                                                                        | 16,494                                               |
| CPS                  Auto                  Receivables Trust, Series 2005-B, Class A-2, FSA insured, 4.36%                  20125                                                     | 12,000                                                                        | 11,846                                               |
| CPS                  Auto                  Receivables Trust, Series 2005-C, Class A-2, FSA insured, 4.79%                  20125                                                     | 12,500                                                                        | 12,379                                               |
| CPS                  Auto                  Receivables Trust, Series 2005-D, Class A-2, FSA insured, 5.06%                  20125                                                     | 20,000                                                                        | 20,031                                               |
| CPS                  Auto                  Receivables Trust, Series 2006-B, Class A-4, MBIA insured, 5.81%                  20125                                                    | 12,000                                                                        | 12,247                                               |
| Drive                  Auto                  Receivables Trust, Series 2005-2, Class A-2, MBIA insured, 4.12%                  20105                                                  | 14,525                                                                        | 14,420                                               |
| Drive                  Auto                  Receivables Trust, Series 2004-1, Class A-4, MBIA insured, 4.14%                  20105                                                  | 14,000                                                                        | 13,875                                               |
| Drive                  Auto                  Receivables Trust, Series 2005-1, Class A-4, MBIA insured, 4.01%                  2012                                                   | 18,750                                                                        | 18,440                                               |
| Drive                  Auto                  Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09%                  20135                                                   | 30,000                                                                        | 30,028                                               |
| Drive                  Auto                  Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33%                  2014                                                   | 25,000                                                                        | 25,076                                               |
| Triad                  Automobile Receivables Trust, Series 2006-C, Class A-2, AMBAC insured,                  5.40% 2010                                                             | 40,000                                                                        | 39,962                                               |
| Triad                  Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC insured,                  4.22% 2012                                                             | 33,475                                                                        | 32,943                                               |
| Triad                  Automobile Receivables Trust, Series 2006-C, Class A-4, AMBAC insured,                  5.31% 2013                                                             | 25,000                                                                        | 25,144                                               |
| Bank                  of                  America Credit Card Trust, Series 2006-A10, Class A-10, 5.31%                  20124                                                        | 67,200                                                                        | 67,200                                               |
| PG&E                  Energy Recovery Funding LLC, Series 2005-1, Class A-2, 3.87%                  2011                                                                          | 11,104                                                                        | 10,932                                               |
| PG&E                  Energy Recovery Funding LLC, Series 2005-2, Class A-2, 5.03%                  2014                                                                          | 28,800                                                                        | 28,874                                               |
| PG&E                  Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12%                  2014                                                                          | 20,095                                                                        | 20,192                                               |
| Residential                  Funding Mortgage Securities II, Inc., Series 2005-HI1, Class A-5,                  FGIC                  insured, 5.45% 2034                             | 16,000                                                                        | 15,743                                               |
| Residential                  Funding Mortgage Securities II, Inc., Series 2005-HS1, Class A-1-5,                  FGIC                  insured, 4.91% 2035                           | 27,500                                                                        | 26,641                                               |
| Residential                  Funding Mortgage Securities II, Inc., Series 2005-HSA1, Class A-I-5,                  FGIC                  insured, 5.48% 2035                          | 5,790                                                                         | 5,747                                                |
| Residential                  Funding Mortgage Securities II, Inc., Series 2006-HSA2, Class A-I-5,                  FGIC                  insured, 5.63% 2036                          | 5,000                                                                         | 4,996                                                |
| UPFC                  Auto                  Receivables Trust, Series 2004-A, Class A-3, AMBAC insured, 3.27%                  2010                                                   | 25,279                                                                        | 24,932                                               |
| UPFC                  Auto                  Receivables Trust, Series 2005-A, Class A-3, AMBAC insured, 4.34%                  2010                                                   | 13,681                                                                        | 13,577                                               |
| UPFC                  Auto                  Receivables Trust, Series 2005-B, Class A-3, XLCA insured, 4.98%                  2011                                                    | 12,625                                                                        | 12,586                                               |
| Vega                  ContainerVessel PLC, Series 2006-1, Class A, XLCA insured, 5.562%                  20215                                                                        | 50,000                                                                        | 50,755                                               |
| Rental                  Car                  Finance Corp., Series 2005-1, Class A-2, XLCA insured, 4.59%                  20115                                                      | 48,860                                                                        | 47,938                                               |
| Advanta                  Business Card Master Trust, Series 2005-A1, Class A-1, 5.39%                  20114                                                                          | 17,000                                                                        | 16,987                                               |
| Advanta                  Business Card Master Trust, Series 2005-A2, Class A-2, 5.45%                  20134                                                                          | 29,000                                                                        | 28,982                                               |
| Citigroup                  Mortgage Loan Trust, Inc., Series 2006-WFHE2, Class A-3, 5.54%                  20364                                                                      | 23,749                                                                        | 23,776                                               |
| Citigroup                  Mortgage Loan Trust, Inc., Series 2006-HE2, Class A-2D, 5.56%                  20364                                                                       | 17,545                                                                        | 17,582                                               |
| Hertz                  Vehicle                  Financing LLC, Rental Car Asset-backed Notes, Series 2005-1, Class                  A-5,                  MBIA insured, 5.08% 20115   | 25,150                                                                        | 25,060                                               |
| Hertz                  Vehicle                  Financing LLC, Rental Car Asset-backed Notes, Series 2005-2, Class                  A-6,                  AMBAC insured, 5.08% 20115  | 15,000                                                                        | 14,947                                               |
| AmeriCredit                  Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA insured,                  3.48% 2010                                                       | 13,026                                                                        | 12,930                                               |
| AmeriCredit                  Automobile Receivables Trust, Series 2004-B-M, Class A-4, MBIA                  insured,                  2.67% 2011                                     | 5,275                                                                         | 5,170                                                |
| AmeriCredit                  Automobile Receivables Trust, Series 2006-A-F, Class A-4, FSA insured,                  5.64% 2013                                                       | 20,000                                                                        | 20,325                                               |
| Consumer                  Credit Reference Index Securities Program Trust, Series 2002-1A,                  Class A,                  7.387% 20074,5                                  | 35,000                                                                        | 35,224                                               |
| Discover                  Card                  Master Trust I, Series 2004-1, Class A, 5.35% 20104                                                                                   | 32,800                                                                        | 32,820                                               |
| Drivetime                  Auto Owner Trust, Series 2004-A, Class A-3, XLCA insured, 2.419%                  20085                                                                    | 2,250                                                                         | 2,231                                                |
| Drivetime                  Auto Owner Trust, Series 2005-A, Class A-2, MBIA insured, 3.799%                  20085                                                                    | 1,686                                                                         | 1,684                                                |
| Drivetime                  Auto Owner Trust, Series 2004-B, Class A-3, MBIA insured, 3.475%                  20095                                                                    | 9,374                                                                         | 9,304                                                |
| Drivetime                  Auto Owner Trust, Series 2005-A, Class A-3, MBIA insured, 4.302%                  20095                                                                    | 18,579                                                                        | 18,448                                               |
| Prestige                  Auto                  Receivables Trust, Series 2004-1, Class A-2, FSA insured, 3.69%                  20115                                                | 6,408                                                                         | 6,346                                                |
| Prestige                  Auto                  Receivables Trust, Series 2006-1A, Class A-2, FSA insured, 5.25%                  20135                                               | 25,000                                                                        | 25,113                                               |
| DT                  Auto Owner                  Trust, Series 2005-B, Class A-3, XLCA insured, 4.429% 20105                                                                           | 31,488                                                                        | 31,207                                               |
| Long                  Beach                  Acceptance Auto Receivables Trust, Series 2004-C, Class A-4, FSA                  insured,                  3.777% 2011                  | 8,500                                                                         | 8,333                                                |
| Long                  Beach                  Acceptance Auto Receivables Trust, Series 2005-B, Class A-4, FSA                  insured,                  4.522% 2012                  | 22,000                                                                        | 21,730                                               |
| ARG                  Funding                  Corp., Series 2005-1, Class A-3, MBIA insured, 4.29% 20115                                                                              | 15,000                                                                        | 14,637                                               |
| ARG                  Funding                  Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 20115                                                                             | 15,000                                                                        | 14,898                                               |
| First                  Investors Auto Owner Trust, Series 2003-A, Class A, MBIA insured,                  2.58%                  20115                                                | 1,712                                                                         | 1,679                                                |
| First                  Investors Auto Owner Trust, Series 2005-A, Class A-2, MBIA insured,                  4.23%                  20125                                              | 14,904                                                                        | 14,748                                               |
| First                  Investors Auto Owner Trust, Series 2006-A, Class A-4, MBIA insured,                  5.00%                  20135                                              | 11,060                                                                        | 11,050                                               |
| BMW                  Vehicle                  Owner Trust, Series 2006-A, Class A-4, 5.07% 2011                                                                                       | 25,000                                                                        | 25,058                                               |
| Capital                  One                  Multi-asset Execution Trust, Series 2006-10, Class A, 5.15%                  2014                                                       | 23,700                                                                        | 23,885                                               |
| PP&L                  Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05%                  2009                                                                              | 4,820                                                                         | 4,853                                                |
| PP&L                  Transition Bond Co. LLC, Series 1999-1, Class A-8, 7.15%                  2009                                                                              | 16,190                                                                        | 16,682                                               |
| Home                  Equity                  Asset Trust, Series 2004-7, Class M-2, 5.98% 20354                                                                                      | 20,000                                                                        | 20,201                                               |
| Providian                  Master Note Trust, Series 2005-A1A, Class A, 5.38% 20124,5                                                                                                 | 20,000                                                                        | 20,022                                               |
| New                  Century                  Home Equity Loan Trust, Series 2004-A, Class A-II-3, FGIC insured,                  4.45%                  2034                         | 18,574                                                                        | 18,437                                               |
| CWABS,                  Inc.,                  Series 2004-10, Class 2-AV-2, 5.67% 20334                                                                                              | 2,440                                                                         | 2,440                                                |
| CWABS,                  Inc.,                  Series 2004-15, Class AF-6, 4.613% 2035                                                                                                | 15,000                                                                        | 14,489                                               |
| Bear                  Stearns                  Asset-backed Securities I Trust, Series 2005-CL1, Class A-1, 5.82%                  20344                                              | 16,717                                                                        | 16,783                                               |
| AEP                  Texas                  Central Transitioning Funding II LLC, Senior Secured Transition                  Bonds,                  Series A, Class A-3, 5.094% 2015 | 16,545                                                                        | 16,473                                               |
| Residential                  Asset Securities Corp. Trust, Series 2004-KS10, Class A-I-2, 5.64%                  20344                                                                | 7,005                                                                         | 7,012                                                |
| Residential                  Asset Securities Corp. Trust, Series 2004-KS12, Class A-1-2, 5.55%                  20354                                                                | 9,336                                                                         | 9,355                                                |
| CWHEQ                  Home                  Equity Loan Trust, Series 2006-S2, Class A-5, FGIC insured, 5.753%                  2027                                                 | 15,975                                                                        | 16,085                                               |
| World                  Financial Network Credit Card Master Note Trust, Series 2004-A,                  Class C,                  6.32% 20134                                         | 15,000                                                                        | 15,134                                               |
| Irwin                  Home                  Equity, Series 2006-1, Class 2-A2, 5.39% 20355                                                                                           | 15,000                                                                        | 14,903                                               |
| Cendant                  Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC                  insured, 4.67% 20175                                                     | 14,981                                                                        | 14,846                                               |
| Providian                  Gateway Master Trust, Series 2004-DA, Class A, 3.35% 20115                                                                                                 | 15,000                                                                        | 14,742                                               |
| MBNA                  Credit                  Card Master Note Trust, Series 2006-1, Class A, 4.90% 2011                                                                              | 12,500                                                                        | 12,490                                               |
| Chase                  Auto                  Owner Trust, Series 2006-B, Class A-4, 5.11% 2014                                                                                        | 12,000                                                                        | 12,049                                               |
| Vanderbilt                  Mortgage and Finance, Inc., Series 2000-D, Class A-4, 7.715%                  2027                                                                        | 7,721                                                                         | 8,070                                                |
| Vanderbilt                  Mortgage and Finance, Inc., Series 2001-A, Class B-2, 9.14%                  2031                                                                         | 3,000                                                                         | 3,357                                                |
| PSE&G                  Transition Funding II LLC, Series 2005-1, Class A-3, 4.49%                  2015                                                                           | 10,250                                                                        | 9,880                                                |
| Credit-Based                  Asset Servicing and Securitization LLC, Series 2005-CB4, Class                  AF-4,                  5.028% 20354                                     | 8,653                                                                         | 8,511                                                |
| Structured                  Asset Investment Loan Trust, Series 2004-BNC2, Class A-4, 5.64%                  20344                                                                    | 7,608                                                                         | 7,617                                                |
| Impac                  CMB                  Grantor Trust, Series 2004-6, Class 1-A-1, 5.72% 20344                                                                                    | 4,231                                                                         | 4,254                                                |
| Impac                  CMB                  Grantor Trust, Series 2004-6, Class M-2, 5.92% 20344                                                                                      | 2,915                                                                         | 2,922                                                |
| GE                  SeaCo                  Finance SRL, Series 2004-1, Class A, AMBAC insured, 5.62% 20194,5                                                                          | 6,263                                                                         | 6,263                                                |
| Popular                  ABS                  Mortgage Pass-Through Trust, Series 2004-5, Class AF-6, 4.747%                  2034                                                    | 5,800                                                                         | 5,621                                                |
| USAA                  Auto                  Owner Trust, Series 2004-3, Class A-3, 3.16% 2009                                                                                         | 5,271                                                                         | 5,231                                                |
| MBNA                  Master                  Credit Card Trust II, Series 2000-H, Class B, 5.92% 20134                                                                               | 5,000                                                                         | 5,089                                                |
| Vanderbilt                  Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70%                  2023                                                                             | 4,999                                                                         | 5,010                                                |
| Navistar                  Financial Owner Trust, Series 2004-A, Class B, 2.46% 2011                                                                                                   | 2,272                                                                         | 2,200                                                |
| Long                  Beach                  Mortgage Loan Trust, Series 2000-1, Class AF-3, 7.434% 20314                                                                             | 1,252                                                                         | 1,249                                                |
| Capital                  One                  Prime Auto Receivables Trust, Series 2004-2, Class A-3, 3.06%                  2008                                                     | 1,107                                                                         | 1,106                                                |
| New                  South                  Motor Vehicle Trust, Series 2002-A, Class A-3, AMBAC insured, 3.03%                  2010                                                 | 656                                                                           | 649                                                  |
| MMCA                  Auto                  Owner Trust, Series 2002-4, Class A-4, 3.05% 2009                                                                                         | 247                                                                           | 247                                                  |
| NPF                  XII,                  Inc., Series 2001-3, Class A, 5.52% 20075,7                                                                                                | 5,000                                                                         | 137                                                  |
| NPF                  XII,                  Inc., Series 2001-1A, Class A, 2.30% 20044,5,7                                                                                             | 3,000                                                                         | 82                                                   |
| ACE                  Securities Corp. Home Equity Loan Trust, Series 2003-NC1, Class                  A-2A,                  5.74% 20334                                              | 130                                                                           | 131                                                  |
|                                                                                                                                                                                  |                                                                          | **1,420,908**                                        |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **CONSUMER                  DISCRETIONARY — 0.98%**                                                                                                                             | ** **                                                                    |                                                 |
| Comcast                  Cable                  Communications, Inc. 6.875% 2009                                                                                                      | 18,000                                                                        | 18,724                                               |
| Comcast                  Corp.                  5.45% 2010                                                                                                                            | 9,500                                                                         | 9,557                                                |
| Tele-Communications,                  Inc. 7.875% 2013                                                                                                                                | 10,000                                                                        | 11,199                                               |
| Comcast                  Corp.                  5.85% 2015                                                                                                                            | 36,000                                                                        | 36,268                                               |
| Viacom                  Inc.                  5.75% 2011                                                                                                                              | 13,500                                                                        | 13,530                                               |
| Viacom                  Inc.                  6.25% 2016                                                                                                                              | 39,705                                                                        | 39,837                                               |
| Viacom                  Inc.                  6.875% 2036                                                                                                                             | 10,000                                                                        | 10,101                                               |
| Harrah’s                  Operating Co., Inc. 7.125% 2007                                                                                                                       | 6,000                                                                         | 6,029                                                |
| Harrah’s                  Operating Co., Inc. 5.50% 2010                                                                                                                        | 4,325                                                                         | 4,157                                                |
| Harrah’s                  Operating Co., Inc. 5.625% 2015                                                                                                                       | 18,600                                                                        | 15,705                                               |
| Harrah’s                  Operating Co., Inc. 6.50% 2016                                                                                                                        | 39,000                                                                        | 34,385                                               |
| Clear                  Channel                  Communications, Inc. 6.00% 2006                                                                                                       | 7,000                                                                         | 7,000                                                |
| Clear                  Channel                  Communications, Inc. 6.625% 2008                                                                                                      | 8,245                                                                         | 8,339                                                |
| Chancellor                  Media Corp. of Los Angeles 8.00% 2008                                                                                                                     | 34,000                                                                        | 35,522                                               |
| J.C.                  Penney                  Co., Inc. 8.00% 2010                                                                                                                    | 27,750                                                                        | 29,826                                               |
| J.C.                  Penney                  Co., Inc. 9.00% 2012                                                                                                                    | 12,480                                                                        | 14,485                                               |
| Pulte                  Homes,                  Inc. 4.875% 2009                                                                                                                       | 15,000                                                                        | 14,782                                               |
| Pulte                  Homes,                  Inc. 7.875% 2011                                                                                                                       | 14,000                                                                        | 15,188                                               |
| Pulte                  Homes,                  Inc. 8.125% 2011                                                                                                                       | 7,500                                                                         | 8,157                                                |
| Centex                  Corp.                  4.55% 2010                                                                                                                             | 2,000                                                                         | 1,927                                                |
| Centex                  Corp.                  7.875% 2011                                                                                                                            | 2,000                                                                         | 2,168                                                |
| Centex                  Corp.                  5.70% 2014                                                                                                                             | 10,000                                                                        | 9,861                                                |
| Centex                  Corp.                  5.25% 2015                                                                                                                             | 12,000                                                                        | 11,366                                               |
| Centex                  Corp.                  6.50% 2016                                                                                                                             | 10,000                                                                        | 10,267                                               |
| DaimlerChrysler                  North America Holding Corp. 4.05% 2008                                                                                                               | 6,480                                                                         | 6,338                                                |
| DaimlerChrysler                  North America Holding Corp. 4.75% 2008                                                                                                               | 6,520                                                                         | 6,460                                                |
| DaimlerChrysler                  North America Holding Corp. 7.20% 2009                                                                                                               | 3,000                                                                         | 3,129                                                |
| DaimlerChrysler                  North America Holding Corp. 8.00% 2010                                                                                                               | 17,500                                                                        | 18,856                                               |
| Kohl’s                  Corp.                  6.30% 2011                                                                                                                       | 27,690                                                                        | 28,751                                               |
| Kohl’s                  Corp.                  7.375% 2011                                                                                                                      | 2,800                                                                         | 3,023                                                |
| Marriott                  International, Inc., Series F, 4.625% 2012                                                                                                                  | 7,000                                                                         | 6,662                                                |
| Marriott                  International, Inc., Series G, 5.81% 2015                                                                                                                   | 21,323                                                                        | 21,065                                               |
| AOL                  Time                  Warner Inc. 6.15% 2007                                                                                                                     | 5,000                                                                         | 5,019                                                |
| Time                  Warner                  Inc. 8.18% 2007                                                                                                                         | 10,000                                                                        | 10,216                                               |
| Time                  Warner                  Companies, Inc. 9.125% 2013                                                                                                             | 10,000                                                                        | 11,691                                               |
| Viacom                  Inc.                  5.625% 2007                                                                                                                             | 25,000                                                                        | 25,021                                               |
| Toll                  Brothers, Inc. 6.875% 2012                                                                                                                                      | 4,000                                                                         | 4,098                                                |
| Toll                  Brothers, Inc. 5.15% 2015                                                                                                                                       | 22,500                                                                        | 20,485                                               |
| Ryland                  Group,                  Inc. 5.375% 2012                                                                                                                      | 12,000                                                                        | 11,508                                               |
| Ryland                  Group,                  Inc. 5.375% 2015                                                                                                                      | 12,000                                                                        | 11,127                                               |
| Carnival                  Corp. 3.75% 2007                                                                                                                                            | 6,000                                                                         | 5,893                                                |
| Carnival                  Corp. 6.15% 2008                                                                                                                                            | 15,725                                                                        | 15,865                                               |
| Target                  Corp.                  7.50% 2010                                                                                                                             | 20,000                                                                        | 21,607                                               |
| Gap,                  Inc.                  9.55% 20084                                                                                                                               | 19,460                                                                        | 20,949                                               |
| May                  Department Stores Co. 8.00% 2012                                                                                                                                 | 9,520                                                                         | 10,383                                               |
| May                  Department Stores Co. 5.75% 2014                                                                                                                                 | 3,785                                                                         | 3,746                                                |
| Federated                  Department Stores, Inc. 7.45% 2017                                                                                                                         | 5,412                                                                         | 5,941                                                |
| D.R.                  Horton,                  Inc. 6.00% 2011                                                                                                                        | 16,500                                                                        | 16,547                                               |
| D.R.                  Horton,                  Inc. 6.50% 2016                                                                                                                        | 3,000                                                                         | 2,995                                                |
| Hyatt                  Equities, LLC 6.875% 20075                                                                                                                                     | 17,040                                                                        | 17,140                                               |
| MDC                  Holdings,                  Inc. 7.00% 2012                                                                                                                       | 2,000                                                                         | 2,067                                                |
| MDC                  Holdings,                  Inc. 5.375% 2014                                                                                                                      | 15,000                                                                        | 13,979                                               |
| Thomson                  Corp.                  6.20% 2012                                                                                                                            | 14,000                                                                        | 14,484                                               |
| News                  America                  Holdings Inc. 9.25% 2013                                                                                                               | 5,200                                                                         | 6,163                                                |
| News                  America                  Inc. 5.30% 2014                                                                                                                        | 5,000                                                                         | 4,939                                                |
| News                  America                  Holdings Inc. 8.00% 2016                                                                                                               | 2,000                                                                         | 2,324                                                |
| Lowe’s                  Companies, Inc., Series B, 6.70% 2007                                                                                                                   | 5,455                                                                         | 5,509                                                |
| Lowe’s                  Companies, Inc. 8.25% 2010                                                                                                                              | 5,455                                                                         | 6,009                                                |
| Walt                  Disney                  Co., Series B, 5.375% 2007                                                                                                              | 5,000                                                                         | 5,004                                                |
| Walt                  Disney                  Co. 5.625% 2016                                                                                                                         | 3,000                                                                         | 3,040                                                |
| NVR,                  Inc.                  5.00% 2010                                                                                                                                | 8,000                                                                         | 7,806                                                |
| Hilton                  Hotels                  Corp. 7.625% 2008                                                                                                                     | 4,000                                                                         | 4,105                                                |
| Starwood                  Hotels & Resorts Worldwide, Inc. 7.375% 2007                                                                                                            | 1,500                                                                         | 1,517                                                |
| Delphi                  Automotive Systems Corp. 6.50% 20097                                                                                                                          | 1,200                                                                         | 1,242                                                |
|                                                                                                                                                                                  |                                                                          | **761,083**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **TELECOMMUNICATION                  SERVICES — 0.93%**                                                                                                                         | ** **                                                                    |                                                 |
| Sprint                  Capital Corp. 6.00% 2007                                                                                                                                      | 15,000                                                                        | 15,008                                               |
| US                  Unwired                  Inc., Series B, 10.00% 2012                                                                                                              | 33,305                                                                        | 36,802                                               |
| Nextel                  Communications, Inc., Series E, 6.875% 2013                                                                                                                   | 47,300                                                                        | 48,382                                               |
| Nextel                  Communications, Inc., Series D, 7.375% 2015                                                                                                                   | 54,340                                                                        | 56,173                                               |
| Verizon                  Wireless Capital LLC and Cellco Partnership 5.375% 2006                                                                                                      | 108,200                                                                       | 108,180                                              |
| AT&T                  Wireless Services, Inc. 7.50% 2007                                                                                                                          | 33,575                                                                        | 33,920                                               |
| AT&T                  Wireless Services, Inc. 7.875% 2011                                                                                                                         | 61,700                                                                        | 67,708                                               |
| SBC                  Communications Inc. 4.125% 2009                                                                                                                                  | 10,000                                                                        | 9,712                                                |
| SBC                  Communications Inc. 6.25% 2011                                                                                                                                   | 35,000                                                                        | 36,288                                               |
| SBC                  Communications Inc. 5.875% 2012                                                                                                                                  | 27,000                                                                        | 27,610                                               |
| AT&T                  Inc.                  6.80% 2036                                                                                                                            | 15,000                                                                        | 16,223                                               |
| Telecom                  Italia Capital SA 4.00% 2010                                                                                                                                 | 9,800                                                                         | 9,341                                                |
| Telecom                  Italia Capital SA, Series B, 5.25% 2013                                                                                                                      | 59,500                                                                        | 56,992                                               |
| Telecom                  Italia Capital SA 4.95% 2014                                                                                                                                 | 19,900                                                                        | 18,488                                               |
| PCCW-HKT                  Capital Ltd. 8.00% 20114,5                                                                                                                                  | 22,450                                                                        | 24,745                                               |
| PCCW-HKT                  Capital Ltd. 8.00% 2011                                                                                                                                     | 1,800                                                                         | 1,984                                                |
| PCCW-HKT                  Capital No. 3 Ltd. 5.25% 20155                                                                                                                              | 9,900                                                                         | 9,415                                                |
| Telefónica                  Emisiones, SAU 5.984% 2011                                                                                                                           | 20,000                                                                        | 20,453                                               |
| Telefónica                  Emisiones, SAU 7.045% 2036                                                                                                                           | 14,500                                                                        | 15,663                                               |
| Koninklijke                  KPN NV 8.00% 2010                                                                                                                                        | 23,750                                                                        | 25,775                                               |
| Koninklijke                  KPN NV 8.375% 2030                                                                                                                                       | 4,600                                                                         | 5,362                                                |
| Singapore                  Telecommunications Ltd. 6.375% 20115                                                                                                                       | 17,925                                                                        | 18,847                                               |
| Singapore                  Telecommunications Ltd. 6.375% 2011                                                                                                                        | 9,825                                                                         | 10,330                                               |
| British                  Telecommunications PLC 8.375% 20104                                                                                                                          | 4,200                                                                         | 4,721                                                |
| British                  Telecommunications PLC 8.875% 2030                                                                                                                           | 11,400                                                                        | 15,490                                               |
| Verizon                  Global Funding Corp. 4.90% 2015                                                                                                                              | 14,250                                                                        | 13,624                                               |
| Deutsche                  Telekom International Finance BV 8.00% 20104                                                                                                                | 5,100                                                                         | 5,571                                                |
| Deutsche                  Telekom International Finance BV 8.25% 20304                                                                                                                | 6,000                                                                         | 7,475                                                |
|                                                                                                                                                                                  |                                                                          | **720,282**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **UTILITIES                  — 0.65%**                                                                                                                                          | ** **                                                                    |                                                 |
| Dominion                  Resources, Inc., Series G, 3.66% 2006                                                                                                                       | 6,000                                                                         | 5,996                                                |
| Virginia                  Electric and Power Co., Series 2002-A, 5.375% 2007                                                                                                          | 6,000                                                                         | 5,998                                                |
| Dominion                  Resources, Inc., Series B, 4.125% 2008                                                                                                                      | 10,000                                                                        | 9,853                                                |
| Dominion                  Resources, Inc., Series 2002-D, 5.125% 2009                                                                                                                 | 18,561                                                                        | 18,469                                               |
| Dominion                  Resources, Inc., Series 2000-A, 8.125% 2010                                                                                                                 | 35,000                                                                        | 38,161                                               |
| Dominion                  Resources, Inc., Series 2002-C, 5.70% 20124                                                                                                                 | 4,250                                                                         | 4,310                                                |
| American                  Electric Power Co., Inc. 4.709% 20074                                                                                                                       | 12,500                                                                        | 12,432                                               |
| Appalachian                  Power Co., Series J, 4.40% 2010                                                                                                                          | 10,000                                                                        | 9,680                                                |
| Ohio                  Power                  Co., Series J, 5.30% 2010                                                                                                                | 18,000                                                                        | 17,992                                               |
| Appalachian                  Power Co., Series M, 5.55% 2011                                                                                                                          | 10,000                                                                        | 10,064                                               |
| Appalachian                  Power Co., Series I, 4.95% 2015                                                                                                                          | 15,000                                                                        | 14,283                                               |
| Indiana                  Michigan Power Co. 5.65% 2015                                                                                                                                | 11,000                                                                        | 10,982                                               |
| Scottish                  Power PLC 4.91% 2010                                                                                                                                        | 30,000                                                                        | 29,603                                               |
| Scottish                  Power PLC 5.375% 2015                                                                                                                                       | 25,000                                                                        | 24,589                                               |
| Commonwealth                  Edison Co., Series 99, 3.70% 2008                                                                                                                       | 2,750                                                                         | 2,690                                                |
| Exelon                  Corp.                  4.45% 2010                                                                                                                             | 15,000                                                                        | 14,588                                               |
| Exelon                  Corp.                  6.75% 2011                                                                                                                             | 2,000                                                                         | 2,100                                                |
| Exelon                  Generation Co., LLC 6.95% 2011                                                                                                                                | 21,600                                                                        | 22,911                                               |
| Exelon                  Corp.                  4.90% 2015                                                                                                                             | 5,000                                                                         | 4,736                                                |
| Commonwealth                  Edison Co., First Mortgage Bonds, Series 104, 5.95% 2016                                                                                                | 5,000                                                                         | 5,069                                                |
| Ameren                  Corp.                  4.263% 2007                                                                                                                            | 2,500                                                                         | 2,484                                                |
| Cilcorp                  Inc.                  8.70% 2009                                                                                                                             | 17,025                                                                        | 18,043                                               |
| AmerenEnergy                  Generating Co., Series D, 8.35% 2010                                                                                                                    | 5,000                                                                         | 5,478                                                |
| Union                  Electric Co. 4.65% 2013                                                                                                                                        | 4,250                                                                         | 4,053                                                |
| Cilcorp                  Inc.                  9.375% 2029                                                                                                                            | 5,000                                                                         | 5,347                                                |
| Constellation                  Energy Group, Inc. 6.125% 2009                                                                                                                         | 11,000                                                                        | 11,250                                               |
| Constellation                  Energy Group, Inc. 7.00% 2012                                                                                                                          | 15,000                                                                        | 16,139                                               |
| Constellation                  Energy Group, Inc. 4.55% 2015                                                                                                                          | 5,000                                                                         | 4,660                                                |
| National                  Grid                  PLC 6.30% 2016                                                                                                                        | 28,225                                                                        | 29,447                                               |
| NiSource                  Finance Corp. 6.15% 2013                                                                                                                                    | 3,000                                                                         | 3,070                                                |
| NiSource                  Finance Corp. 5.40% 2014                                                                                                                                    | 24,500                                                                        | 23,910                                               |
| PSEG                  Power                  LLC 3.75% 2009                                                                                                                           | 10,000                                                                        | 9,649                                                |
| PSEG                  Power                  LLC 7.75% 2011                                                                                                                           | 15,000                                                                        | 16,320                                               |
| Centerpoint                  Energy Resources Corp., Series B, 7.875% 2013                                                                                                            | 18,000                                                                        | 20,125                                               |
| Centerpoint                  Energy, Inc., Series B, 6.85% 2015                                                                                                                       | 5,000                                                                         | 5,339                                                |
| Duke                  Energy                  Corp., First and Refunding Mortgage Bonds, Series A, 3.75%                  2008                                                        | 10,000                                                                        | 9,811                                                |
| Duke                  Capital                  Corp. 7.50% 2009                                                                                                                       | 10,000                                                                        | 10,554                                               |
| Alabama                  Power                  Co., Series Y, 2.80% 2006                                                                                                             | 5,000                                                                         | 4,990                                                |
| Alabama                  Power                  Co., Series X, 3.125% 2008                                                                                                            | 1,800                                                                         | 1,745                                                |
| Alabama                  Power                  Co., Series R, 4.70% 2010                                                                                                             | 1,750                                                                         | 1,719                                                |
| Southern                  Power Co., Series B, 6.25% 2012                                                                                                                             | 6,000                                                                         | 6,243                                                |
| Alabama                  Power                  Co., Series Q, 5.50% 2017                                                                                                             | 4,000                                                                         | 4,038                                                |
| Progress                  Energy Florida, Inc., First Mortgage Bonds, 4.80% 2013                                                                                                      | 5,000                                                                         | 4,871                                                |
| Carolina                  Power & Light Co. d/b/a Progress Energy Carolinas, Inc., First                  Mortgage Bonds, 5.15% 2015                                              | 5,000                                                                         | 4,922                                                |
| Southern                  California Gas Co., First Mortgage Bonds, Series II, 4.375%                  2011                                                                           | 5,500                                                                         | 5,338                                                |
| Public                  Service Co. of Colorado, First Collateral Trust Bonds, Series No.                  12,                  4.875% 2013                                           | 5,000                                                                         | 4,902                                                |
| Oncor                  Electric Delivery Co. 6.375% 2012                                                                                                                              | 3,725                                                                         | 3,870                                                |
| MidAmerican                  Energy Co. 5.125% 2013                                                                                                                                   | 1,500                                                                         | 1,487                                                |
| Pacific                  Gas                  and Electric Co., First Mortgage Bonds, 4.20% 2011                                                                                      | 1,000                                                                         | 962                                                  |
|                                                                                                                                                                                  |                                                                          | **505,272**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **HEALTH                  CARE — 0.59%**                                                                                                                                        | ** **                                                                    |                                                 |
| Cardinal                  Health, Inc. 6.25% 2008                                                                                                                                     | 13,155                                                                        | 13,324                                               |
| Cardinal                  Health, Inc. 5.64% 20094,5                                                                                                                                  | 12,500                                                                        | 12,509                                               |
| Cardinal                  Health, Inc. 6.75% 2011                                                                                                                                     | 100,250                                                                       | 105,139                                              |
| Cardinal                  Health, Inc. 5.85% 2017                                                                                                                                     | 10,000                                                                        | 10,044                                               |
| Humana                  Inc.                  6.45% 2016                                                                                                                              | 40,875                                                                        | 42,606                                               |
| Humana                  Inc.                  6.30% 2018                                                                                                                              | 16,335                                                                        | 16,570                                               |
| Hospira,                  Inc.                  4.95% 2009                                                                                                                            | 48,950                                                                        | 48,136                                               |
| Hospira,                  Inc.                  5.90% 2014                                                                                                                            | 3,000                                                                         | 2,977                                                |
| Wyeth                  4.375%                  20084                                                                                                                                  | 45,250                                                                        | 44,716                                               |
| UnitedHealth                  Group Inc. 3.30% 2008                                                                                                                                   | 7,500                                                                         | 7,315                                                |
| UnitedHealth                  Group Inc. 4.125% 2009                                                                                                                                  | 25,165                                                                        | 24,471                                               |
| UnitedHealth                  Group Inc. 5.25% 2011                                                                                                                                   | 1,585                                                                         | 1,584                                                |
| UnitedHealth                  Group Inc. 5.375% 2016                                                                                                                                  | 5,250                                                                         | 5,242                                                |
| WellPoint,                  Inc. 5.00% 2011                                                                                                                                           | 37,000                                                                        | 36,646                                               |
| Boston                  Scientific Corp. 6.00% 2011                                                                                                                                   | 21,360                                                                        | 21,594                                               |
| Boston                  Scientific Corp. 6.40% 2016                                                                                                                                   | 10,325                                                                        | 10,506                                               |
| Universal                  Health Services, Inc. 7.125% 2016                                                                                                                          | 22,820                                                                        | 24,274                                               |
| Aetna                  Inc.                  5.75% 2011                                                                                                                               | 12,500                                                                        | 12,734                                               |
| Schering-Plough                  Corp. 5.55% 20134                                                                                                                                    | 10,000                                                                        | 10,073                                               |
| Amgen                  Inc.                  4.00% 2009                                                                                                                               | 10,000                                                                        | 9,711                                                |
|                                                                                                                                                                                  |                                                                          | **460,171**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **INDUSTRIALS                  — 0.53%**                                                                                                                                        | ** **                                                                    |                                                 |
| Continental                  Airlines, Inc., Series 1998-1, Class A, 6.648% 20196                                                                                                     | 11,664                                                                        | 11,905                                               |
| Continental                  Airlines, Inc., Series 1997-4, Class A, 6.90% 20196                                                                                                      | 5,499                                                                         | 5,715                                                |
| Continental                  Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20226                                                                                                   | 11,159                                                                        | 11,333                                               |
| Continental                  Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20226                                                                                                   | 12,676                                                                        | 13,698                                               |
| Continental                  Airlines, Inc., Series 2000-1, Class A-1, 8.048% 20226                                                                                                   | 14,029                                                                        | 15,336                                               |
| General                  Electric Capital Corp., Series A, 5.00% 2007                                                                                                                 | 47,500                                                                        | 47,415                                               |
| General                  Electric Capital Corp. 4.25% 2008                                                                                                                            | 10,000                                                                        | 9,895                                                |
| General                  Electric Co. 4.50% PINES 2035                                                                                                                                | 1,843                                                                         | 1,692                                                |
| American                  Airlines, Inc., Series 2001-2, Class B, 8.608% 2012                                                                                                         | 10,000                                                                        | 10,444                                               |
| American                  Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20136                                                                                                      | 35,450                                                                        | 38,308                                               |
| Delta                  Air                  Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417%                  20146                                                        | 39,770                                                                        | 40,192                                               |
| Delta                  Air                  Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718%                  20246                                                        | 3,870                                                                         | 3,940                                                |
| BAE                  SYSTEMS                  2001 Asset Trust, Series 2001, Class B, 7.156% 20115,6                                                                                  | 42,106                                                                        | 43,686                                               |
| Waste                  Management, Inc. 6.50% 2008                                                                                                                                    | 6,180                                                                         | 6,327                                                |
| Waste                  Management, Inc. 7.375% 2010                                                                                                                                   | 20,000                                                                        | 21,443                                               |
| Waste                  Management, Inc. 5.00% 2014                                                                                                                                    | 890                                                                           | 862                                                  |
| Caterpillar                  Financial Services Corp., Series F, 5.446% 20084                                                                                                         | 3,500                                                                         | 3,507                                                |
| Caterpillar                  Inc. 4.50% 2009                                                                                                                                          | 17,785                                                                        | 17,537                                               |
| Caterpillar                  Financial Services Corp. 4.30% 2010                                                                                                                      | 4,300                                                                         | 4,186                                                |
| Caterpillar                  Inc. 6.05% 2036                                                                                                                                          | 500                                                                           | 526                                                  |
| Tyco                  International Group SA 6.125% 2008                                                                                                                              | $13,000                                                                       | $                  13,192                            |
| Tyco                  International Group SA 6.125% 2009                                                                                                                              | 7,000                                                                         | 7,124                                                |
| Bombardier                  Inc. 6.30% 20145                                                                                                                                          | 19,000                                                                        | 17,527                                               |
| Raytheon                  Co.                  4.85% 2011                                                                                                                             | 16,000                                                                        | 15,764                                               |
| Hutchison                  Whampoa International Ltd. 6.50% 20135                                                                                                                     | 11,800                                                                        | 12,381                                               |
| Southwest                  Airlines Co., Series 2001-1, Class B, 6.126% 20066                                                                                                         | 8,500                                                                         | 8,504                                                |
| Southwest                  Airlines Co., Series 2001-1, Class A-2, 5.496% 20086                                                                                                       | 1,400                                                                         | 1,401                                                |
| John                  Deere                  Capital Corp. 3.90% 2008                                                                                                                 | 3,000                                                                         | 2,953                                                |
| John                  Deere                  Capital Corp. 4.875% 2009                                                                                                                | 6,000                                                                         | 5,969                                                |
| American                  Standard Inc. 7.625% 2010                                                                                                                                   | 7,000                                                                         | 7,385                                                |
| United                  Air                  Lines, Inc., Series 2001-1, Class A-2, 6.201% 20106                                                                                      | 1,648                                                                         | 1,649                                                |
| United                  Air                  Lines, Inc., Series 2001-1, Class A-3, 6.602% 20156                                                                                      | 4,380                                                                         | 4,421                                                |
| Northrop                  Grumman Systems Corp. 7.125% 2011                                                                                                                           | 5,000                                                                         | 5,359                                                |
|                                                                                                                                                                                  |                                                                          | **411,576**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **ENERGY                  — 0.49%**                                                                                                                                             | ** **                                                                    |                                                 |
| Devon                  Financing Corp., ULC 6.875% 2011                                                                                                                               | 75,500                                                                        | 80,559                                               |
| Apache                  Corp.                  6.25% 2012                                                                                                                             | 55,000                                                                        | 57,481                                               |
| Enterprise                  Products Operating LP 4.95% 2010                                                                                                                          | 18,000                                                                        | 17,709                                               |
| Enterprise                  Products Operating LP 7.50% 2011                                                                                                                          | 5,000                                                                         | 5,363                                                |
| Enterprise                  Products Partners LP 5.60% 2014                                                                                                                           | 15,100                                                                        | 14,925                                               |
| Enterprise                  Products Operating LP, Series B, 5.00% 2015                                                                                                               | 1,900                                                                         | 1,799                                                |
| Enterprise                  Products Operating LP 6.875% 2033                                                                                                                         | 10,000                                                                        | 10,553                                               |
| Energy                  Transfer Partners, LP 5.65% 2012                                                                                                                              | 14,385                                                                        | 14,425                                               |
| Energy                  Transfer Partners, LP 5.95% 2015                                                                                                                              | 30,615                                                                        | 30,939                                               |
| Williams                  Companies, Inc. 7.125% 2011                                                                                                                                 | 10,000                                                                        | 10,375                                               |
| Williams                  Companies, Inc. 8.125% 2012                                                                                                                                 | 16,300                                                                        | 17,563                                               |
| Transcontinental                  Gas Pipe Line Corp., Series B, 8.875% 2012                                                                                                          | 8,000                                                                         | 9,020                                                |
| Pemex                  Finance                  Ltd. 8.875% 20106                                                                                                                     | 12,427                                                                        | 13,380                                               |
| Pemex                  Project                  Funding Master Trust 5.75% 20155                                                                                                      | 21,000                                                                        | 20,764                                               |
| Ras                  Laffan                  Liquefied Natural Gas Co. Ltd. 3.437% 20095,6                                                                                            | 5,082                                                                         | 4,935                                                |
| Ras                  Laffan                  Liquefied Natural Gas Co. Ltd. 3.437% 20096                                                                                              | 801                                                                           | 778                                                  |
| Ras                  Laffan                  Liquefied Natural Gas II 5.298% 20205,6                                                                                                  | 27,650                                                                        | 26,745                                               |
| Sunoco,                  Inc.                  6.75% 2011                                                                                                                             | 7,500                                                                         | 7,915                                                |
| Sunoco,                  Inc.                  4.875% 2014                                                                                                                            | 9,250                                                                         | 8,828                                                |
| XTO                  Energy                  Inc. 5.65% 2016                                                                                                                          | 15,000                                                                        | 14,940                                               |
| Kinder                  Morgan                  Energy Partners LP 5.00% 2013                                                                                                         | 2,190                                                                         | 2,095                                                |
| Kinder                  Morgan                  Energy Partners LP 5.125% 2014                                                                                                        | 7,810                                                                         | 7,468                                                |
|                                                                                                                                                                                  |                                                                          | **378,559**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **MATERIALS                  — 0.41%**                                                                                                                                          | ** **                                                                    |                                                 |
| International                  Paper Co. 4.00% 2010                                                                                                                                   | 10,915                                                                        | 10,509                                               |
| International                  Paper Co. 6.75% 2011                                                                                                                                   | 10,000                                                                        | 10,656                                               |
| International                  Paper Co. 5.85% 2012                                                                                                                                   | 21,585                                                                        | 22,204                                               |
| International                  Paper Co. 5.50% 2014                                                                                                                                   | 16,000                                                                        | 15,848                                               |
| Norske                  Skogindustrier ASA 7.625% 20115                                                                                                                               | 55,130                                                                        | 57,521                                               |
| Lafarge                  6.15%                  2011                                                                                                                                  | 25,000                                                                        | 25,691                                               |
| Lafarge                  6.50%                  2016                                                                                                                                  | 17,060                                                                        | 17,802                                               |
| UPM-Kymmene                  Corp. 5.625% 20145                                                                                                                                       | 41,490                                                                        | 40,547                                               |
| Stora                  Enso                  Oyj 6.404% 20165                                                                                                                         | 34,000                                                                        | 34,897                                               |
| Dow                  Chemical                  Co. 5.00% 2007                                                                                                                         | 10,500                                                                        | 10,455                                               |
| Dow                  Chemical                  Co. 5.75% 2008                                                                                                                         | 10,500                                                                        | 10,625                                               |
| Dow                  Chemical                  Co. 6.00% 2012                                                                                                                         | 4,000                                                                         | 4,145                                                |
| Packaging                  Corp. of America 4.375% 2008                                                                                                                               | 14,000                                                                        | 13,756                                               |
| Weyerhaeuser                  Co. 6.75% 2012                                                                                                                                          | 11,330                                                                        | 11,878                                               |
| Teck                  Cominco                  Ltd. 5.375% 2015                                                                                                                       | 11,000                                                                        | 10,765                                               |
| Alcan                  Inc.                  6.45% 2011                                                                                                                               | 1,000                                                                         | 1,041                                                |
| Alcan                  Inc.                  5.20% 2014                                                                                                                               | 8,000                                                                         | 7,820                                                |
| Praxair,                  Inc.                  2.75% 2008                                                                                                                            | 6,350                                                                         | 6,119                                                |
| Arbermarle                  Corp. 5.10% 2015                                                                                                                                          | 6,000                                                                         | 5,733                                                |
| ICI                  Wilmington, Inc. 4.375% 2008                                                                                                                                     | 4,000                                                                         | 3,915                                                |
| ICI                  Wilmington, Inc. 5.625% 2013                                                                                                                                     | 500                                                                           | 496                                                  |
|                                                                                                                                                                                  |                                                                          | **322,423**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **NON-U.S.                  GOVERNMENT BONDS & NOTES — 0.15%**                                                                                                              | ** **                                                                    |                                                 |
| Russian                  Federation 5.00%/7.50% 20306,8                                                                                                                               | 62,600                                                                        | 70,269                                               |
| United                  Mexican States Government Global 5.625% 2017                                                                                                                  | 35,000                                                                        | 35,070                                               |
| Corporación                  Andina de Fomento 6.875% 2012                                                                                                                       | 10,000                                                                        | 10,665                                               |
|                                                                                                                                                                                  |                                                                          | **116,004**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **INFORMATION                  TECHNOLOGY — 0.15%**                                                                                                                             | ** **                                                                    |                                                 |
| Electronic                  Data Systems Corp., Series B, 6.50% 20134                                                                                                                 | 54,980                                                                        | 55,969                                               |
| Sabre                  Holdings Corp. 6.35% 2016                                                                                                                                      | 22,650                                                                        | 22,561                                               |
| Motorola,                  Inc. 4.608% 2007                                                                                                                                           | 12,500                                                                        | 12,419                                               |
| Motorola,                  Inc. 7.625% 2010                                                                                                                                           | 1,590                                                                         | 1,727                                                |
| Cisco                  Systems, Inc. 5.25% 2011                                                                                                                                       | 14,000                                                                        | 14,098                                               |
| Jabil                  Circuit, Inc. 5.875% 2010                                                                                                                                      | 7,975                                                                         | 8,021                                                |
|                                                                                                                                                                                  |                                                                          | **114,795**                                          |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **CONSUMER                  STAPLES — 0.12%**                                                                                                                                   | ** **                                                                    |                                                 |
| Wal-Mart                  Stores, Inc. 6.875% 2009                                                                                                                                    | 13,650                                                                        | 14,292                                               |
| Wal-Mart                  Stores, Inc., Series 1994-A2, 8.85% 2015                                                                                                                    | 18,000                                                                        | 21,173                                               |
| Tyson                  Foods,                  Inc. 6.85% 20164                                                                                                                       | 20,000                                                                        | 20,673                                               |
| Diageo                  Capital PLC 4.375% 2010                                                                                                                                       | 12,000                                                                        | 11,689                                               |
| Diageo                  Finance BV 5.30% 2015                                                                                                                                         | 2,300                                                                         | 2,267                                                |
| CVS                  Corp.                  4.00% 2009                                                                                                                                | 1,940                                                                         | 1,876                                                |
| CVS                  Corp.                  6.117% 20135,6                                                                                                                            | 10,989                                                                        | 11,137                                               |
| Kellogg                  Co.                  6.60% 2011                                                                                                                              | 5,250                                                                         | 5,542                                                |
| Kellogg                  Co.                  7.45% 2031                                                                                                                              | 500                                                                           | 608                                                  |
| Cadbury                  Schweppes US Finance LLC 5.125% 20135                                                                                                                        | 5,500                                                                         | 5,351                                                |
| Kraft                  Foods                  Inc. 4.625% 2006                                                                                                                        | 1,000                                                                         | 1,000                                                |
| Nabisco,                  Inc.                  7.05% 2007                                                                                                                            | 1,000                                                                         | 1,008                                                |
|                                                                                                                                                                                  |                                                                          | **96,616**                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **MUNICIPALS                  — 0.06%**                                                                                                                                         | ** **                                                                    |                                                 |
| State                  of                  California, Golden State Tobacco Securitization Corp., Tobacco                  Settlement                  Asset-backed Bonds,            |                                                                          |                                                 |
| Series                  2003-A-1, 6.25% 2033                                                                                                                                          | 15,580                                                                        | 17,277                                               |
| State                  of                  Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco Settlement                  Asset-backed Bonds, 6.125% 2027                  | 13,990                                                                        | 15,126                                               |
| State                  of                  South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement                  Asset-backed Bonds,                               |                                                                          |                                                 |
| Series                  2002-A, Class A, 6.72% 2025                                                                                                                                   | 9,842                                                                         | 9,847                                                |
| State                  of                  Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement                  Asset-backed Bonds,                                     |                                                                          |                                                 |
| Series                  2001-A, Class A, 6.36% 2025                                                                                                                                   | 5,211                                                                         | 5,210                                                |
|                                                                                                                                                                                  |                                                                          | **47,460**                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| **Total                  bonds & notes (cost: $14,979,536,000)**                                                                                                                  | ** **                                                                    | **14,980,855**                                       |
| ** **                                                                                                                                                                            | ** **                                                                    | ** **                                           |
| ** **                                                                                                                                                                            | ** **                                                                    |                                                 |
|                                                                                                                                                                                  |                                                                          |                                                 |
|                                                                                                                                                                                  |                                                                          |                                                 |
| Short-term                  securities — 12.48%                                                                                                                                 | Principal                  amount (000)                                       | Market                  value                  (000) |
|                                                                                                                                                                                  |                                                                          |                                                 |
| Federal                  Home                  Loan Bank 5.07%-5.25% due 11/1/2006-1/24/2007                                                                                          | $1,057,397                                                                    | $1,053,492                                           |
| Freddie                  Mac                  5.08%-5.23% due 11/14/2006-4/3/2007                                                                                                     | 887,780                                                                       | 880,547                                              |
| Fannie                  Mae                  5.07%-5.18% due 11/8/2006-3/21/2007                                                                                                      | 513,360                                                                       | 509,446                                              |
| Bank                  of                  America Corp. 5.22%-5.275% due 11/20/2006-1/31/2007                                                                                         | 421,000                                                                       | 418,261                                              |
| Ranger                  Funding Co. LLC 5.25%-5.32% due 11/2-12/12/20065                                                                                                              | 61,000                                                                        | 60,834                                               |
| Wal-Mart                  Stores Inc. 5.20%-5.23% due 11/7-12/19/20065                                                                                                                | 459,400                                                                       | 457,199                                              |
| U.S.                  Treasury                  Bills 4.805%-4.966% due 11/9-12/21/2006                                                                                               | 432,900                                                                       | 431,180                                              |
| CAFCO,                  LLC                  5.23%-5.26% due 12/12/2006-1/18/20075                                                                                                    | 200,000                                                                       | 198,291                                              |
| Ciesco                  LLC                  5.25%-5.26% due 11/6-12/7/20065                                                                                                          | 195,415                                                                       | 194,766                                              |
| Citigroup                  Funding Inc. 5.25%-5.27% due 11/16/2006                                                                                                                    | 32,000                                                                        | 31,929                                               |
| Federal                  Farm                  Credit Banks 5.05%-5.14% due 11/3-12/27/2006                                                                                           | 409,800                                                                       | 408,027                                              |
| Variable                  Funding Capital Corp. 5.22%-5.25% due 11/6/2006-1/5/20075                                                                                                   | 391,600                                                                       | 389,839                                              |
| Jupiter                  Securitization Co., LLC 5.24%-5.25% due 11/8-12/1/20065                                                                                                      | 159,193                                                                       | 158,533                                              |
| Preferred                  Receivables Funding Corp. 5.26% due 11/15/20065                                                                                                            | 80,000                                                                        | 79,831                                               |
| Park                  Avenue                  Receivables Co., LLC 5.24%-5.26% due 11/3-12/5/20065                                                                                    | 151,500                                                                       | 151,060                                              |
| Clipper                  Receivables Co., LLC 5.25%-5.28% due 11/3-12/4/20065                                                                                                         | 257,000                                                                       | 256,496                                              |
| State                  Street                  Corp. 5.23%-5.24% due 11/27-12/5/2006                                                                                                  | 105,000                                                                       | 104,495                                              |
| General                  Electric Co. 5.23%-5.24% due 12/20-12/28/2006                                                                                                                | 140,000                                                                       | 138,921                                              |
| Edison                  Asset                  Securitization LLC 5.23%-5.24% due 12/22/2006-1/12/20075                                                                               | 135,000                                                                       | 133,689                                              |
| General                  Electric Capital Services, Inc. 5.23%-5.25% due                  11/2-12/6/2006                                                                              | 80,000                                                                        | 79,730                                               |
| International                  Lease Finance Corp. 5.225%-5.235% due 11/1-12/18/2006                                                                                                  | 189,500                                                                       | 188,951                                              |
| American                  General Finance Corp. 5.225% due 12/13/2006                                                                                                                 | 50,000                                                                        | 49,701                                               |
| AIG                  Funding                  Inc. 5.22%-5.24% due 11/1-12/21/2006                                                                                                    | 110,000                                                                       | 109,634                                              |
| Gannett                  Co.                  5.18%-5.20% due 11/2-11/22/20065                                                                                                        | 236,700                                                                       | 236,186                                              |
| International                  Bank for Reconstruction and Development 5.06%-5.13% due                  11/13-11/29/2006                                                              | 217,200                                                                       | 216,701                                              |
| HSBC                  Finance                  Corp. 5.20%-5.23% due 11/10-12/12/2006                                                                                                 | 200,000                                                                       | 199,092                                              |
| HSBC                  Finance                  Corp. 5.25% due 12/1/20069                                                                                                             | 15,000                                                                        | 14,934                                               |
| UnionBanCal                  Commercial Funding Corp. 5.24% due 11/10-11/20/2006                                                                                                      | 111,600                                                                       | 111,350                                              |
| Union                  Bank of                  California, N.A. 5.27% due 11/28-12/11/2006                                                                                           | 93,200                                                                        | 93,200                                               |
| Tennessee                  Valley Authority 5.06%-5.135% due 11/9-12/21/2006                                                                                                          | 193,500                                                                       | 192,443                                              |
| Procter&                  Gamble Co. 5.21% due 12/1-12/11/20065                                                                                                                   | 182,000                                                                       | 181,057                                              |
| Three                  Pillars                  Funding, LLC 5.26%-5.27% due 11/17-12/19/20065                                                                                        | 176,282                                                                       | 175,481                                              |
| E.I.                  duPont                  de Nemours and Co. 5.19%-5.20% due 11/17-11/28/20065                                                                                    | 165,000                                                                       | 164,373                                              |
| Private                  Export Funding Corp. 5.18%-5.34% due 11/1/2006-2/7/20075                                                                                                     | 151,300                                                                       | 149,949                                              |
| FCAR                  Owner                  Trust I 5.25%-5.28% due 11/16-12/15/2006                                                                                                 | 147,500                                                                       | 146,784                                              |
| CIT                  Group,                  Inc. 5.25% due 1/8-2/5/20075                                                                                                             | 114,800                                                                       | 113,412                                              |
| CIT                  Group,                  Inc. 5.25% due 1/23/2007                                                                                                                 | 20,000                                                                        | 19,757                                               |
| Coco-Cola                  Co.                  5.19%-5.20% due 11/2-12/8/20065                                                                                                       | 130,000                                                                       | 129,569                                              |
| IBM                  Capital                  Inc. 5.205%-5.21% due 12/6/20065                                                                                                        | 65,800                                                                        | 65,476                                               |
| IBM                  Corp.                  5.16% due 12/4/20065                                                                                                                      | 50,000                                                                        | 49,756                                               |
| American                  Express Credit Corp. 5.23% due 11/28-12/13/2006                                                                                                             | 70,000                                                                        | 69,660                                               |
| American                  Express Credit Corp. 5.24%-5.25% due 12/4/20069                                                                                                             | 30,000                                                                        | 29,852                                               |
| 3M                  Co.                  5.19%-5.21% due 11/27-12/18/2006                                                                                                             | 100,000                                                                       | 99,413                                               |
| Kimberly-Clark                  Worldwide Inc. 5.19%-5.195% due 11/27-12/4/20065                                                                                                      | 95,500                                                                        | 95,089                                               |
| Abbott                  Laboratories 5.18% due 11/7/20065                                                                                                                             | 75,275                                                                        | 75,199                                               |
| Illinois                  Tool                  Works Inc. 5.21%-5.22% due 11/14-12/14/2006                                                                                           | 71,000                                                                        | 70,713                                               |
| NetJets                  Inc.                  5.18%-5.20% due 11/9-11/16/20065                                                                                                       | 65,000                                                                        | 64,887                                               |
| Hershey                  Co.                  5.19% due 11/13-12/8/20065                                                                                                              | 55,000                                                                        | 54,807                                               |
| Wells                  Fargo                  Bank, N.A. 5.27% due 11/3/2006                                                                                                          | 50,000                                                                        | 50,000                                               |
| Emerson                  Electric Co. 5.18% due 11/14/20065                                                                                                                           | 50,000                                                                        | 49,899                                               |
| Colgate-Palmolive                  Co. 5.19% due 11/7/20065                                                                                                                           | 43,100                                                                        | 43,056                                               |
| Triple-A                  One                  Funding Corp. 5.25% due 11/9/20065                                                                                                     | 30,730                                                                        | 30,690                                               |
| Becton,                  Dickinson and Co. 5.21% due 11/6/2006                                                                                                                        | 25,000                                                                        | 24,978                                               |
| McCormick                  & Co., Inc. 5.20% due 11/7/20065                                                                                                                       | 25,000                                                                        | 24,975                                               |
| Bank                  of New                  York Co., Inc. 5.21% due 11/10/2006                                                                                                     | 25,000                                                                        | 24,964                                               |
| Eli                  Lilly and                  Co. 5.17% due 11/13/20065                                                                                                             | 25,000                                                                        | 24,953                                               |
| USAA                  Capital                  Corp. 5.23% due 11/15/2006                                                                                                             | 25,000                                                                        | 24,948                                               |
| Target                  Corp.                  5.20% due 11/20/2006                                                                                                                   | 25,000                                                                        | 24,928                                               |
| Chevron                  Funding Corp. 5.22% due 11/27/2006                                                                                                                           | 25,000                                                                        | 24,902                                               |
| Medtronic                  Inc. 5.19% due 12/15/20065                                                                                                                                 | 21,700                                                                        | 21,559                                               |
| Wm.                  Wrigley                  Jr. Co. 5.21% due 12/5/20065                                                                                                            | 15,000                                                                        | 14,924                                               |
| Caterpillar                  Financial Services Corp. 5.19% due 11/14/2006                                                                                                            | 9,800                                                                         | 9,780                                                |
|                                                                                                                                                                                  |                                                                          |                                                 |
| **Total                  short-term securities (cost: $9,698,380,000)**                                                                                                               |                                                                          | **9,698,548**                                        |
|                                                                                                                                                                                  |                                                                          |                                                 |
|                                                                                                                                                                                  |                                                                          |                                                 |
| **Total                  investment securities (cost: $63,634,083,000)**                                                                                                              |                                                                          | **77,822,430**                                       |
| **Other                  assets less liabilities**                                                                                                                                    |                                                                          | **(114,307)**                                        |
|                                                                                                                                                                                  |                                                                          |                                                 |
| **Net                  assets**                                                                                                                                                       |                                                                          | **$77,708,123**                                      |

**Investments        are not FDIC-insured, nor are they deposits of or guaranteed by a bank or        any        other entity, so you may lose money.**

**Investors        should carefully consider the investment objectives, risks, charges and expenses        of the American Funds. This and other important information is contained        in each        fund’s prospectus, which can be obtained from a financial adviser and should be        read carefully before investing.**

| **Summary                  investment portfolio,** | **October                31,                2006** |
|----------------------------------------------------|----------------------------------------------------|

| Industry                sector diversification                           |   |   |   |
|--------------------------------------------------------------------------|--------|--------|--------|
| Financials                                                               |   |   | 19.09  | % |
| Utilities                                                                |   |   | 9.77   |   |
| Telecommunication                services                                |   |   | 7.64   |   |
| Consumer                staples                                          |   |   | 5.64   |   |
| Industrials                                                              |   |   | 5.41   |   |
| Convertible                securities & preferred stocks             |   |   | 0.85   |   |
| Bonds&                notes                                          |   |   | 19.28  |   |
| Other                industries                                          |   |   | 19.99  |   |
| Short-term                securities & other assets less liabilities |   |   | 12.33  |   |

| **Common                  stocks - 67.54%**                                                                                                                                             |   | **Shares** |                                          | **Market                  value (000)** |   | **Percent                  of****net                  assets** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------------------------------------------|-----------------------------------------|--------|----------------------------------------------------------------|--------|
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |
| **Financials                  - 19.09%**                                                                                                                                                |   |       |                                          |                                    |   |                                                           |   |
| Fannie                  Mae                                                                                                                                                             |   |       | 12,900,000                                    |                                    | $      | 764,454                                                        |   |   | .98 |   |
| Société                  Générale                                                                                                                                   |   |       | 4,398,870                                     |                                    |   | 730,807                                                        |   |   | .94 |   |
| HSBC                  Holdings                  PLC (Hong Kong)                                                                                                                         |   |       | 23,870,097                                    |                                    |   | 450,397                                                        |   |   |   |   |
| HSBC                  Holdings                  PLC (United Kingdom)                                                                                                                    |   |       | 14,158,402                                    |                                    |   | 268,381                                                        |   |   | .93 |   |
| Citigroup                  Inc.                                                                                                                                                         |   |       | 14,170,000                                    |                                    |   | 710,767                                                        |   |   | .92 |   |
| Bank                  of                  America Corp.                                                                                                                                 |   |       | 11,867,340                                    |                                    |   | 639,294                                                        |   |   | .82 |   |
| BNP                  Paribas                                                                                                                                                            |   |       | 5,320,270                                     |                                    |   | 584,843                                                        |   |   | .75 |   |
| Banco                  Santander Central Hispano, SA                                                                                                                                    |   |       | 33,432,614                                    |                                    |   | 578,470                                                        |   |   | .75 |   |
| Freddie                  Mac                                                                                                                                                            |   |       | 7,900,000                                     |                                    |   | 545,021                                                        |   |   | .70 |   |
| Washington                  Mutual, Inc.                                                                                                                                                |   |       | 12,000,000                                    |                                    |   | 507,600                                                        |   |   | .65 |   |
| ING                  Groep                  NV                                                                                                                                          |   |       | 9,866,216                                     |                                    |   | 436,974                                                        |   |   | .56 |   |
| National                  City                  Corp.                                                                                                                                   |   |       | 11,619,800                                    |                                    |   | 432,838                                                        |   |   | .56 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 8,183,729                                                      |   |   | 10.53 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 14,833,575                                                     |   |   | 19.09 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Utilities                  - 9.77%**                                                                                                                                                  |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| E.ON                  AG                                                                                                                                                                |   |       | 10,460,000                                    |                                    |   | 1,254,614                                                      |   |   | 1.61 |   |
| Exelon                  Corp.                                                                                                                                                           |   |       | 13,485,000                                    |                                    |   | 835,800                                                        |   |   | 1.08 |   |
| National                  Grid                  PLC                                                                                                                                     |   |       | 61,137,551                                    |                                    |   | 781,148                                                        |   |   | 1.00 |   |
| Veolia                  Environnement                                                                                                                                                   |   |       | 12,546,100                                    |                                    |   | 767,944                                                        |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   | .99 |   |
| Gas                  Natural                  SDG, SA                                                                                                                                   |   |       | 10,120,000                                    |                                    |   | 401,856                                                        |   |   | .52 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 3,549,970                                                      |   |   | 4.57 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 7,591,332                                                      |   |   | 9.77 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Telecommunication                  services - 7.64%**                                                                                                                                 |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| BellSouth                  Corp.                                                                                                                                                        |   |       | 26,003,000                                    |                                    |   | 1,172,735                                                      |   |   | 1.51 |   |
| AT&T                  Inc.                                                                                                                                                          |   |       | 33,519,452                                    |                                    |   | 1,148,041                                                      |   |   | 1.48 |   |
| Koninklijke                  KPN NV                                                                                                                                                     |   |       | 58,237,900                                    |                                    |   | 778,042                                                        |   |   | 1.00 |   |
| Verizon                  Communications Inc.                                                                                                                                            |   |       | 19,410,000                                    |                                    |   | 718,170                                                        |   |   | .92 |   |
| Chunghwa                  Telecom Co., Ltd. (ADR)                                                                                                                                       |   |       | 11,590,952                                    |                                    |   | 211,999                                                        |   |   |   |   |
| Chunghwa                  Telecom Co., Ltd.                                                                                                                                             |   |       | 79,914,960                                    |                                    |   | 136,997                                                        |   |   | .45 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 1,771,099                                                      |   |   | 2.28 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 5,937,083                                                      |   |   | 7.64 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Consumer                  staples - 5.64%**                                                                                                                                           |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Altria                  Group,                  Inc.                                                                                                                                    |   |       | 13,575,500                                    |                                    |   | 1,104,095                                                      |   |   | 1.42 |   |
| UST                  Inc.                                                                                                                                                               |   |       | 8,178,000                                     |                                    |   | 438,014                                                        |   |   | .56 |   |
| Nestlé                  SA                                                                                                                                                         |   |       | 1,150,000                                     |                                    |   | 393,139                                                        |   |   | .51 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 2,447,246                                                      |   |   | 3.15 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 4,382,494                                                      |   |   | 5.64 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Industrials                  - 5.41%**                                                                                                                                                |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| General                  Electric Co.                                                                                                                                                   |   |       | 21,075,000                                    |                                    |   | 739,943                                                        |   |   | .95 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 3,467,492                                                      |   |   | 4.46 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 4,207,435                                                      |   |   | 5.41 |   |
| **Energy                  - 4.54%**                                                                                                                                                     |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Royal                  Dutch                  Shell PLC, Class A (ADR)                                                                                                                  |   |       | 6,828,000                                     |                                    |   | 475,365                                                        |   |   |   |   |
| Royal                  Dutch                  Shell PLC, Class B                                                                                                                        |   |       | 6,997,187                                     |                                    |   | 250,593                                                        |   |   |   |   |
| Royal                  Dutch                  Shell PLC, Class B (ADR)                                                                                                                  |   |       | 1,866,228                                     |                                    |   | 134,368                                                        |   |   |   |   |
| Royal                  Dutch                  Shell PLC, Class A                                                                                                                        |   |       | 3,055,000                                     |                                    |   | 105,836                                                        |   |   | 1.24 |   |
| Husky                  Energy                  Inc.                                                                                                                                     |   |       | 8,065,000                                     |                                    |   | 513,678                                                        |   |   | .66 |   |
| Chevron                  Corp.                                                                                                                                                          |   |       | 5,640,000                                     |                                    |   | 379,008                                                        |   |   | .49 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 1,667,629                                                      |   |   | 2.15 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 3,526,477                                                      |   |   | 4.54 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Consumer                  discretionary - 3.86%**                                                                                                                                     |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Renault                  SA                                                                                                                                                             |   |       | 3,496,000                                     |                                    |   | 408,841                                                        |   |   | .53 |   |
| Greek                  Organization of Football Prognostics SA                                                                                                                          |   |       | 10,207,040                                    |                                    |   | 364,417                                                        |   |   | .47 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 2,224,769                                                      |   |   | 2.86 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 2,998,027                                                      |   |   | 3.86 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Materials                  - 3.22%**                                                                                                                                                  |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Bayer                  AG                                                                                                                                                               |   |       | 7,267,000                                     |                                    |   | 365,808                                                        |   |   | .47 |   |
| China                  Steel                  Corp.                                                                                                                                     |   |       | 402,931,115                                   |                                    |   | 356,276                                                        |   |   | .46 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 1,780,765                                                      |   |   | 2.29 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 2,502,849                                                      |   |   | 3.22 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Health                  care - 2.94%**                                                                                                                                                |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Merck&                  Co., Inc.                                                                                                                                                   |   |       | 15,319,600                                    |                                    |   | 695,816                                                        |   |   | .90 |   |
| Bristol-Myers                  Squibb Co.                                                                                                                                               |   |       | 19,000,000                                    |                                    |   | 470,250                                                        |   |   | .61 |   |
| Abbott                  Laboratories                                                                                                                                                    |   |       | 8,098,700                                     |                                    |   | 384,769                                                        |   |   | .49 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 733,909                                                        |   |   | .94 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 2,284,744                                                      |   |   | 2.94 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Information                  technology - 0.98%**                                                                                                                                     |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Microsoft                  Corp.                                                                                                                                                        |   |       | 15,185,000                                    |                                    |   | 435,961                                                        |   |   | .56 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 327,229                                                        |   |   | .42 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 763,190                                                        |   |   | .98 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Miscellaneous                  - 4.45%**                                                                                                                                              |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Other                  common                  stocks in initial period of acquisition                                                                                                  |   |       |                                          |                                    |   | 3,460,109                                                      |   |   | 4.45 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Total                  common stocks (cost: $38,338,196,000)**                                                                                                                        |   |       |                                          |                                    |   | 52,487,315                                                     |   |   | 67.54 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Preferred                  stocks - 0.38%**                                                                                                                                           |   |       | **Shares**                                    |                                    |   | **Market                  value (000**                         | **)**  |  **Percent                  of****net                  assets** |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Financials                  - 0.38%**                                                                                                                                                 |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Fannie                  Mae,                  Series E, 5.10%                                                                                                                           |   |       | 550,000                                       |                                    | $      | 25,450                                                         |   |   |   |   |
| Fannie                  Mae,                  Series L, 5.125%                                                                                                                          |   |       | 273,350                                       |                                    |   | 12,547                                                         |   |   | .05 |   |
| Bank                  of                  America Corp., Series E, 0% preferred depositary shares (1)                                                                                   |   |       | 1,000,000                                     |                                    |   | 25,050                                                         |   |   | .03 |   |
| HSBC                  Holdings                  PLC 4.61% (undated) (2)(3)                                                                                                              |   |       | 8,000,000                                     |                                    |   | 7,500                                                          |   |   | .01 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 221,655                                                        |   |   | .29 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 292,202                                                        |   |   | .38 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Total                  preferred stocks (cost: $286,139,000)**                                                                                                                        |   |       |                                          |                                    |   | 292,202                                                        |   |   | .38 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Convertible                  securities - 0.47%**                                                                                                                                     |   |       | **Shares**                                    |                                    |   | **Market                  value (000**                         | **)**  |  **Percent                  of****net                  assets** |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Financials                  - 0.12%**                                                                                                                                                 |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Fannie                  Mae                  5.375% convertible preferred                                                                                                               |   |       | 965                                           |                                    | $      | 93,967                                                         |   |   | .12 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Other                  - 0.35%**                                                                                                                                                      |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 269,543                                                        |   |   | .35 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Total                  convertible securities (cost: $331,832,000)**                                                                                                                  |   |       |                                          |                                    |   | 363,510                                                        |   |   | .47 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Bonds                  & notes - 19.28%**                                                                                                                                         |   |       | **Principal****amount                  (000** | **)**                                   |   | **Market                  value (000**                         | **)**  |   | **Percent                  of****net                  assets** |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Mortgage-backed                  obligations (4) - 6.31%**                                                                                                                            |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Fannie                  Mae                  0%-11.00% 2012-2041 (2)                                                                                                                    |   | $          | 784,783                                       |                                    | $      | 777,287                                                        |   |   | 1.00 |   |
| Freddie                  Mac                  6.00% 2036                                                                                                                                |   |       | 351,505                                       |                                    |   | 353,934                                                        |   |   | .46 |   |
| Freddie                  Mac                  0%-7.50% 2015-2036 (2)                                                                                                                    |   |       | 422,697                                       |                                    |   | 402,496                                                        |   |   | .52 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 3,368,253                                                      |   |   | 4.33 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 4,901,970                                                      |   |   | 6.31 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Financials                  - 3.49%**                                                                                                                                                 |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Bank                  of                  America Corp. 3.875%-5.25% 2008-2012                                                                                                          |   |       | 44,400                                        |                                    |   | 43,960                                                         |   |   |   |   |
| MBNA                  Corp.                  5.625% 2007                                                                                                                                |   |       | 26,000                                        |                                    |   | 26,086                                                         |   |   |   |   |
| MBNA                  America                  Bank, National Assn. 5.375% 2008                                                                                                         |   |       | 15,500                                        |                                    |   | 15,509                                                         |   |   |   |   |
| BankAmerica                  Corp. 5.875%-7.125% 2009-2011                                                                                                                              |   |       | 9,250                                         |                                    |   | 9,528                                                          |   |   |   |   |
| BankBoston                  NA                  7.00% 2007                                                                                                                              |   |       | 7,500                                         |                                    |   | 7,576                                                          |   |   | .13 |   |
| Household                  Finance Corp. 4.125%-6.40% 2007-2008                                                                                                                         |   |       | 77,000                                        |                                    |   | 78,041                                                         |   |   |   |   |
| HSBC                  Bank USA                  4.625% 2014 (3)                                                                                                                         |   |       | 16,000                                        |                                    |   | 15,362                                                         |   |   |   |   |
| HSBC                  Finance                  Corp. 5.00% 2015                                                                                                                         |   |       | 4,535                                         |                                    |   | 4,412                                                          |   |   | .13 |   |
| Citigroup                  Inc. 4.125%-5.125% 2010-2014                                                                                                                                 |   |       | 31,000                                        |                                    |   | 30,459                                                         |   |   |   |   |
| Commercial                  Credit Co. 6.625% 2006                                                                                                                                      |   |       | 1,975                                         |                                    |   | 1,976                                                          |   |   | .04 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 2,478,088                                                      |   |   | 3.19 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 2,710,997                                                      |   |   | 3.49 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **U.S.                  government & government agency bonds & notes -                  2.59%**                                                                                 |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| U.S.                  Treasury                  0%-13.25% 2007-2031                                                                                                                     |   |       | 992,910                                       |                                    |   | 1,073,787                                                      |   |   | 1.38 |   |
| Freddie                  Mac                  4.125%-7.00% 2008-2011                                                                                                                    |   |       | 430,000                                       |                                    |   | 440,361                                                        |   |   | .57 |   |
| Fannie                  Mae                  5.25%-7.25% 2007-2012                                                                                                                      |   |       | 240,000                                       |                                    |   | 246,346                                                        |   |   | .32 |   |
| Federal                  Home                  Loan Bank 3.375%-5.625% 2007-2016                                                                                                        |   |       | 142,670                                       |                                    |   | 142,727                                                        |   |   | .18 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 109,518                                                        |   |   | .14 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 2,012,739                                                      |   |   | 2.59 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Asset-backed                  obligations - 1.83%**                                                                                                                                   |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 1,420,908                                                      |   |   | 1.83 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Telecommunication                  services - 0.93%**                                                                                                                                 |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| SBC                  Communications Inc. 4.125%-6.25% 2009-2012                                                                                                                         |   |       | 72,000                                        |                                    |   | 73,610                                                         |   |   |   |   |
| AT&T                  Inc.                  6.80% 2036                                                                                                                              |   |       | 15,000                                        |                                    |   | 16,223                                                         |   |   | .12 |   |
| Koninklijke                  KPN NV 8.00%-8.375% 2010-2030                                                                                                                              |   |       | 28,350                                        |                                    |   | 31,137                                                         |   |   | .04 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 599,312                                                        |   |   | .77 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 720,282                                                        |   |   | .93 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Utilities                  - 0.65%**                                                                                                                                                  |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Exelon                  Corp.                  4.45%-6.75% 2010-2015                                                                                                                    |   |       | 22,000                                        |                                    |   | 21,424                                                         |   |   |   |   |
| Exelon                  Generation Co., LLC 6.95% 2011                                                                                                                                  |   |       | 21,600                                        |                                    |   | 22,911                                                         |   |   |   |   |
| Commonwealth                  Edison Co. 3.70%-5.95% 2008-2016                                                                                                                          |   |       | 7,750                                         |                                    |   | 7,759                                                          |   |   | .07 |   |
| National                  Grid                  PLC 6.30% 2016                                                                                                                          |   |       | 28,225                                        |                                    |   | 29,447                                                         |   |   | .04 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 423,731                                                        |   |   | .54 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 505,272                                                        |   |   | .65 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Industrials                  - 0.53%**                                                                                                                                                |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| General                  Electric Capital Corp. 4.25%-5.00% 2007-2008                                                                                                                   |   |       | 57,500                                        |                                    |   | 57,310                                                         |   |   |   |   |
| General                  Electric Co. 4.50% PINES 2035                                                                                                                                  |   |       | 1,843                                         |                                    |   | 1,692                                                          |   |   | .08 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 352,574                                                        |   |   | .45 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   | 411,576                                                        |   |   | .53 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Other                  - 2.95%**                                                                                                                                                      |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 2,297,111                                                      |   |   | 2.95 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Total                  bonds & notes (cost: $14,979,536,000)**                                                                                                                    |   |       |                                          |                                    |   | 14,980,855                                                     |   |   | 19.28 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Short-term                  securities - 12.48%**                                                                                                                                     |   |       | **Principal****amount                  (000** | **)**                                   |   | **Market                  value (000**                         | **)**  |   | **Percent                  of****net                  assets** |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| Federal                  Home                  Loan Bank 5.07%-5.25% due 11/1/2006-1/24/2007                                                                                            |   | $          | 1,057,397                                     |                                    | $      | 1,053,492                                                      |   |   | 1.36 |   |
| Freddie                  Mac                  5.08%-5.23% due 11/14/2006-4/3/2007                                                                                                       |   |       | 887,780                                       |                                    |   | 880,547                                                        |   |   | 1.13 |   |
| Fannie                  Mae                  5.07%-5.18% due 11/8/2006-3/21/2007                                                                                                        |   |       | 513,360                                       |                                    |   | 509,446                                                        |   |   | .66 |   |
| Bank                  of                  America Corp. 5.22%-5.275% due 11/20/2006-1/31/2007                                                                                           |   |       | 421,000                                       |                                    |   | 418,261                                                        |   |   |   |   |
| Ranger                  Funding Co. LLC 5.25%-5.32% due 11/2-12/12/2006 (3)                                                                                                             |   |       | 61,000                                        |                                    |   | 60,834                                                         |   |   | .62 |   |
| Wal-Mart                  Stores Inc. 5.20%-5.23% due 11/7-12/19/2006 (3)                                                                                                               |   |       | 459,400                                       |                                    |   | 457,199                                                        |   |   | .59 |   |
| U.S.                  Treasury                  Bills 4.805%-4.966% due 11/9-12/21/2006                                                                                                 |   |       | 432,900                                       |                                    |   | 431,180                                                        |   |   | .55 |   |
| CAFCO,                  LLC                  5.23%-5.26% due 12/12/2006-1/18/2007 (3)                                                                                                   |   |       | 200,000                                       |                                    |   | 198,291                                                        |   |   |   |   |
| Ciesco                  LLC                  5.25%-5.26% due 11/6-12/7/2006 (3)                                                                                                         |   |       | 195,415                                       |                                    |   | 194,766                                                        |   |   |   |   |
| Citigroup                  Funding Inc. 5.25%-5.27% due 11/16/2006                                                                                                                      |   |       | 32,000                                        |                                    |   | 31,929                                                         |   |   | .55 |   |
| Federal                  Farm                  Credit Banks 5.05%-5.14% due 11/3-12/27/2006                                                                                             |   |       | 409,800                                       |                                    |   | 408,027                                                        |   |   | .52 |   |
| Variable                  Funding Capital Corp. 5.22%-5.25% due 11/6/2006-1/5/2007 (3)                                                                                                  |   |       | 391,600                                       |                                    |   | 389,839                                                        |   |   | .50 |   |
| Jupiter                  Securitization Co., LLC 5.24%-5.25% due 11/8-12/1/2006 (3)                                                                                                     |   |       | 159,193                                       |                                    |   | 158,533                                                        |   |   |   |   |
| Park                  Avenue                  Receivables Co., LLC 5.24%-5.26% due 11/3-12/5/2006 (3)                                                                                   |   |       | 151,500                                       |                                    |   | 151,060                                                        |   |   |   |   |
| Preferred                  Receivables Funding Corp. 5.26% due 11/15/2006 (3)                                                                                                           |   |       | 80,000                                        |                                    |   | 79,831                                                         |   |   | .50 |   |
| Clipper                  Receivables Co., LLC 5.25%-5.28% due 11/3-12/4/2006 (3)                                                                                                        |   |       | 257,000                                       |                                    |   | 256,496                                                        |   |   |   |   |
| State                  Street                  Corp. 5.23%-5.24% due 11/27-12/5/2006                                                                                                    |   |       | 105,000                                       |                                    |   | 104,495                                                        |   |   | .46 |   |
| General                  Electric Co. 5.23%-5.24% due 12/20-12/28/2006                                                                                                                  |   |       | 140,000                                       |                                    |   | 138,921                                                        |   |   |   |   |
| Edison                  Asset                  Securitization LLC 5.23%-5.24% due 12/22/2006-1/12/2007 (3)                                                                              |   |       | 135,000                                       |                                    |   | 133,689                                                        |   |   |   |   |
| General                  Electric Capital Services, Inc. 5.23%-5.25% due                  11/2-12/6/2006                                                                                |   |       | 80,000                                        |                                    |   | 79,730                                                         |   |   | .45 |   |
| International                  Lease Finance Corp. 5.225%-5.235% due 11/1-12/18/2006                                                                                                    |   |       | 189,500                                       |                                    |   | 188,951                                                        |   |   |   |   |
| AIG                  Funding                  Inc. 5.22%-5.24% due 11/1-12/21/2006                                                                                                      |   |       | 110,000                                       |                                    |   | 109,634                                                        |   |   |   |   |
| American                  General Finance Corp. 5.225% due 12/13/2006                                                                                                                   |   |       | 50,000                                        |                                    |   | 49,701                                                         |   |   | .45 |   |
| HSBC                  Finance                  Corp. 5.20%-5.25% due 11/10-12/12/2006 (5)                                                                                               |   |       | 215,000                                       |                                    |   | 214,026                                                        |   |   | .28 |   |
| Other                  securities                                                                                                                                                       |   |       |                                          |                                    |   | 2,999,670                                                      |   |   | 3.86 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Total                  short-term securities (cost: $9,698,380,000)**                                                                                                                 |   |       |                                          |                                    |   | 9,698,548                                                      |   |   | 12.48 |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Total                  investment securities (cost: $63,634,083,000)**                                                                                                                |   |       |                                          |                                    |   | 77,822,430                                                     |   |   | 100.15 |   |
| **Other                  assets less liabilities**                                                                                                                                      |   |       |                                          |                                    |   | (114,307                                                       | )      |   | (0.15 | ) |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| **Net                  assets**                                                                                                                                                         |   |       |                                          |                                    | $      | 77,708,123                                                     |   |   | 100.00 | % |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| "Miscellaneous"                  securities include holdings in their initial period of acquisition                  that                  have not previously been publicly disclosed. |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |
| "Other                  securities" includes all issues that are not disclosed separately                  in the                  summary investment portfolio.                        |   |       |                                          |                                    |   |                                                           |   |   |   |   |
|                                                                                                                                                                                    |   |       |                                          |                                    |   |                                                           |   |   |   |   |

| **Investments                      in affiliates**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| A                      company is                      considered to be an affiliate of the fund under the Investment                      Company Act                      of 1940 if the fund's holdings in that company represent 5%                      or more of the                      outstanding voting shares of that company. Some of the fund's                      affiliated                      holdings listed below are also among the fund's largest holdings                      and are                      shown in the preceding summary investment portfolio. Affiliated                      companies                      not among the fund's largest holdings are included in the market                      value of                      "Other securities" under their respective industry sectors.                      Further                      details on these holdings and related transactions during the                      year ended                      October 31, 2006, appear                      below: |

| **Company**                                                                               | ** ** | **Beginning                    shares or principal amount** |       | **Purchases** |   | **Sales**   |   | **Ending                    shares or principal amount** |       | **Dividend                    and interest income (000)** |   | **Market                    value of affiliates at 10/31/06 (000)** |   |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|---------------|--------|-------------|--------|----------------------------------------------------------|------------|-----------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                                                      |       |                                                        |       |          |   |        |   |                                                     |       |                                                      |   |                                                                |   |   |   |   |   |   |   |
| UST                    Inc.                                                               |       |                                                        | 6,575,000  |          |   | 1,603,000   |   |                                                     | -          |                                                      |   | 8,178,000                                                           |   | $ | 17,345 |   | $ | 438,014 |   |
| iStar                    Financial, Inc.                                                  |       |                                                        | 7,065,500  |          |   | -           |   |                                                     | -          |                                                      |   | 7,065,500                                                           |   |   | 14,258 |   |   | 327,345 |   |
| iStar                    Financial, Inc. 5.375% 2010                                      |       | $                                                           | 25,675,000 |          |   | -           |   |                                                     | -          |                                                      | $      | 25,675,000                                                          |   |   | 1,393 |   |   | 25,576 |   |
| iStar                    Financial, Inc., Series F, 7.80% cumulative redeemable preferred |       |                                                        | 400,000    |          |   | -           |   |                                                     | -          |                                                      |   | 400,000                                                             |   |   | 780 |   |   | 10,432 |   |
| iStar                    Financial, Inc., Series B, 5.125% 2011                           |       | $                                                           | 10,000,000 |          |   | -           |   |                                                     | -          |                                                      | $      | 10,000,000                                                          |   |   | 501 |   |   | 9,836 |   |
| iStar                    Financial, Inc. 5.80% 2011                                       |       |                                                        | -          |          |   | 7,600,000   |   |                                                     | -          |                                                      | $      | 7,600,000                                                           |   |   | 388 |   |   | 7,665 |   |
| iStar                    Financial, Inc., Series B, 4.875% 2009                           |       | $                                                           | 2,000,000  |          |   | -           |   |                                                     | -          |                                                      | $      | 2,000,000                                                           |   |   | 99 |   |   | 1,976 |   |
| Macquarie                    Infrastructure Group                                         |       |                                                        | -          |          |   | 139,581,612 |   |                                                     | -          |                                                      |   | 139,581,612                                                         |   |   | 13,305 |   |   | 365,257 |   |
| Macquarie                    Airports                                                     |       |                                                        | 59,516,626 |          |   | 47,846,479  |   |                                                     | -          |                                                      |   | 107,363,105                                                         |   |   | 10,836 |   |   | 266,817 |   |
| SBM                    Offshore                    NV                                     |       |                                                        | 2,083,797  |          |   | 6,251,391   |   |                                                     | -          |                                                      |   | 8,335,188                                                           |   |   | 5,180 |   |   | 246,642 |   |
| GS                    Engineering & Construction Co. Ltd.                             |       |                                                        | 2,550,000  |          |   | -           |   |                                                     | -          |                                                      |   | 2,550,000                                                           |   |   | 2,943 |   |   | 198,445 |   |
| CapitaMall                    Trust Management Ltd.                                       |       |                                                        | 89,200,470 |          |   | 11,428,000  |   |                                                     | -          |                                                      |   | 100,628,470                                                         |   |   | 5,250 |   |   | 167,155 |   |
| Macquarie                    Communications Infrastructure Group                          |       |                                                        | -          |          |   | 25,667,933  |   |                                                     | -          |                                                      |   | 25,667,933                                                          |   |   | 4,026 |   |   | 121,617 |   |
| SP                    AusNet                                                              |       |                                                        | -          |          |   | 107,253,698 |   |                                                     | -          |                                                      |   | 107,253,698                                                         |   |   | 2,340 |   |   | 107,947 |   |
| CapitaCommercial                    Trust Management Ltd.                                 |       |                                                        | 58,257,000 |          |   | 19,625,700  |   |                                                     | -          |                                                      |   | 77,882,700                                                          |   |   | 2,689 |   |   | 107,893 |   |
| Taiwan                    Fertilizer Co., Ltd.                                            |       |                                                        | 49,000,000 |          |   | 14,700,000  |   |                                                     | -          |                                                      |   | 63,700,000                                                          |   |   | 3,427 |   |   | 103,453 |   |
| Ascendas                    Real                    Estate Investment Trust               |       |                                                        | 70,189,600 |          |   | 1,953,000   |   |                                                     | -          |                                                      |   | 72,142,600                                                          |   |   | 4,828 |   |   | 100,404 |   |
| Fisher&                    Paykel Healthcare Corp. Ltd.                               |       |                                                        | 33,061,000 |          |   | 150,000     |   |                                                     | -          |                                                      |   | 33,211,000                                                          |   |   | 2,685 |   |   | 93,038 |   |
| Suntec                    Real                    Estate Investment Trust                 |       |                                                        | 64,221,000 |          |   | 28,023,000  |   |                                                     | -          |                                                      |   | 92,244,000                                                          |   |   | 3,107 |   |   | 91,700 |   |
| PaperlinX                    Ltd.                                                         |       |                                                        | 28,987,000 |          |   | -           |   |                                                     | 6,440,000  |                                                      |   | 22,547,000                                                          |   |   | 1,641 |   |   | 71,918 |   |
| Sydney                    Roads                    Group                                  |       |                                                        | -          |          |   | 60,682,071  |   |                                                     | -          |                                                      |   | 60,682,071                                                          |   |   |   |   |   | 53,557 |   |
| Macquarie                    International Infrastructure Fund Ltd.                       |       |                                                        | 52,959,000 |          |   | 30,211,000  |   |                                                     | -          |                                                      |   | 83,170,000                                                          |   |   | 3,670 |   |   | 52,008 |   |
| Fortune                    Real                    Estate Investment Trust                |       |                                                        | 51,199,500 |          |   | 1,063,000   |   |                                                     | -          |                                                      |   | 52,262,500                                                          |   |   | 2,316 |   |   | 39,297 |   |
| Fong's                    Industries Co. Ltd.                                             |       |                                                        | 36,590,000 |          |   | -           |   |                                                     | -          |                                                      |   | 36,590,000                                                          |   |   | 1,083 |   |   | 24,879 |   |
| Allco                    Commercial REIT                                                  |       |                                                        | -          |          |   | 32,100,000  |   |                                                     | -          |                                                      |   | 32,100,000                                                          |   |   | 290 |   |   | 19,764 |   |
| Prosperity                    REIT                                                        |       |                                                        | -          |          |   | 81,325,000  |   |                                                     | -          |                                                      |   | 81,325,000                                                          |   |   | 812 |   |   | 18,815 |   |
| Arthur                    J.                    Gallagher & Co.(6)                    |       |                                                        | 5,069,200  |          |   | -           |   |                                                     | 4,519,200  |                                                      |   | 550,000                                                             |   |   | 5,086 |   |   | - |   |
| Mapletree                    Logistics Trust (6)                                          |       |                                                        | 35,510,000 |          |   | 17,221,000  |   |                                                     | 26,001,000 |                                                      |   | 26,730,000                                                          |   |   | 1,037 |   |   | - |   |
| Transurban                    Group (6)                                                   |       |                                                        | 16,230,502 |          |   | -           |   |                                                     | 9,973,950  |                                                      |   | 6,256,552                                                           |   |   | - |   |   | - |   |
|                                                                                      |       |                                                        |       |          |   |        |   |                                                     |       |                                                      |   |                                                                |   |   |   |   |   |   |   |
|                                                                                      |       |                                                        |       |          |   |        |   |                                                     |       |                                                      |   |                                                                |   | **$** | **111,315** |   | **$** | **3,071,450** |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| The                  following                  footnotes apply to either the individual securities noted or one                  or more                  of the securities aggregated and listed as a single line                  item.                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| (1)                  Security                  did not produce income during the last 12 months.                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |
| (2)                  Coupon                  rate may change periodically.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| (3)                  Purchased                  in a private placement transaction; resale may be limited to qualified                  institutional buyers; resale to the public may require registration.                  The                  total value of all such restricted securities, including those                  in "Other                  securities" in the summary investment portfolio, was $5,953,872,000,                  which                  represented 7.66% of the net assets of the fund. |
| (4)                  Principal                  payments may be made periodically. Therefore, the effective maturity                  date                  may be earlier than the stated maturity date.                                                                                                                                                                                                                                                                                                                   |
| (5)                  This                  security, or a portion of this security, has been segregated to                  cover                  funding requirements on investment transactions settling in the                  future.                                                                                                                                                                                                                                                                                 |
| (6)                  Unaffiliated issuer at 10/31/2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| ADR                  =                  American Depositary Receipts                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| See                  Notes to                  Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |

| **Statement                    of assets and liabilities**                                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   |                                          |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|-----------------------------------|--------|--------|-----------------------------------------------|--------|
| at                    October                    31, 2006                                                                                                                                                                                                                                                                                                       |   | (dollars                    and                    shares in thousands, except per-share amounts) |                              |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |
| **Assets:**                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Investment                    securities at market:                                                                                                                                                                                                                                                                                                             |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Unaffiliated                    issuers (cost: $61,520,115)                                                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   | $      | 74,750,980                                    |   |   |   |   |
| Affiliated                    issuers (cost: $2,113,968)                                                                                                                                                                                                                                                                                                        |   |                                                                                              |                              |   |   | 3,071,450                                     |   | $ | 77,822,430 |   |
| Cash                    denominated in non-U.S. currencies                                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| (cost:                    $7,893)                                                                                                                                                                                                                                                                                                                               |   |                                                                                              |                              |   |   |                                          |   |   | 7,816 |   |
| Cash                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   | 17,735 |   |
| Receivables                    for:                                                                                                                                                                                                                                                                                                                             |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Sales                    of                    investments                                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   | 83,685                                        |   |   |   |   |
| Sales                    of                    fund's shares                                                                                                                                                                                                                                                                                                    |   |                                                                                              |                              |   |   | 250,486                                       |   |   |   |   |
| Dividends                    and                    interest                                                                                                                                                                                                                                                                                                    |   |                                                                                              |                              |   |   | 248,533                                       |   |   | 582,704 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   | 78,430,685 |   |
| **Liabilities:**                                                                                                                                                                                                                                                                                                                                                |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Payables                    for:                                                                                                                                                                                                                                                                                                                                |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Purchases                    of                    investments                                                                                                                                                                                                                                                                                                  |   |                                                                                              |                              |   |   | 345,420                                       |   |   |   |   |
| Repurchases                    of fund's shares                                                                                                                                                                                                                                                                                                                 |   |                                                                                              |                              |   |   | 49,890                                        |   |   |   |   |
| Dividends                    on                    fund's shares                                                                                                                                                                                                                                                                                                |   |                                                                                              |                              |   |   | 269,065                                       |   |   |   |   |
| Investment                    advisory services                                                                                                                                                                                                                                                                                                                 |   |                                                                                              |                              |   |   | 12,616                                        |   |   |   |   |
| Services                    provided by affiliates                                                                                                                                                                                                                                                                                                              |   |                                                                                              |                              |   |   | 38,783                                        |   |   |   |   |
| Deferred                    directors' compensation                                                                                                                                                                                                                                                                                                             |   |                                                                                              |                              |   |   | 1,118                                         |   |   |   |   |
| Other                    fees                    and expenses                                                                                                                                                                                                                                                                                                   |   |                                                                                              |                              |   |   | 5,670                                         |   |   | 722,562 |   |
| **Net                    assets at October 31, 2006**                                                                                                                                                                                                                                                                                                           |   |                                                                                              |                              |   |   |                                          |   | $ | 77,708,123 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Net                    assets consist of:**                                                                                                                                                                                                                                                                                                                   |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Capital                    paid                    in on shares of capital stock                                                                                                                                                                                                                                                                                |   |                                                                                              |                              |   |   |                                          |   | $ | 62,010,243 |   |
| Undistributed                    net investment income                                                                                                                                                                                                                                                                                                          |   |                                                                                              |                              |   |   |                                          |   |   | 436,907 |   |
| Undistributed                    net realized gain                                                                                                                                                                                                                                                                                                              |   |                                                                                              |                              |   |   |                                          |   |   | 1,077,328 |   |
| Net                    unrealized appreciation                                                                                                                                                                                                                                                                                                                  |   |                                                                                              |                              |   |   |                                          |   |   | 14,183,645 |   |
| **Net                    assets at October 31, 2006**                                                                                                                                                                                                                                                                                                           |   |                                                                                              |                              |   |   |                                          |   | $ | 77,708,123 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Total                    authorized capital stock - 2,000,000 shares, $.01 par value (1,297,110                    total shares outstanding)                                                                                                                                                                                                                    |   |                                                                                              |                              |   |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              | Net                  Assets  |   |   | Shares                    outstanding         |   |   | Net                    asset value per                    share* |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Class                    A                                                                                                                                                                                                                                                                                                                                      |   | $                                                                                                 | 58,439,506                        |   |   | 975,476                                       |   | $ | 59.91 |   |
| Class                    B                                                                                                                                                                                                                                                                                                                                      |   |                                                                                              | 4,413,039                         |   |   | 73,663                                        |   |   | 59.91 |   |
| Class                    C                                                                                                                                                                                                                                                                                                                                      |   |                                                                                              | 8,615,984                         |   |   | 143,819                                       |   |   | 59.91 |   |
| Class                    F                                                                                                                                                                                                                                                                                                                                      |   |                                                                                              | 3,493,864                         |   |   | 58,320                                        |   |   | 59.91 |   |
| Class                    529-A                                                                                                                                                                                                                                                                                                                                  |   |                                                                                              | 760,012                           |   |   | 12,686                                        |   |   | 59.91 |   |
| Class                    529-B                                                                                                                                                                                                                                                                                                                                  |   |                                                                                              | 122,534                           |   |   | 2,045                                         |   |   | 59.91 |   |
| Class                    529-C                                                                                                                                                                                                                                                                                                                                  |   |                                                                                              | 305,897                           |   |   | 5,106                                         |   |   | 59.91 |   |
| Class                    529-E                                                                                                                                                                                                                                                                                                                                  |   |                                                                                              | 40,055                            |   |   | 669                                           |   |   | 59.91 |   |
| Class                    529-F                                                                                                                                                                                                                                                                                                                                  |   |                                                                                              | 13,583                            |   |   | 227                                           |   |   | 59.91 |   |
| Class                    R-1                                                                                                                                                                                                                                                                                                                                    |   |                                                                                              | 68,914                            |   |   | 1,150                                         |   |   | 59.91 |   |
| Class                    R-2                                                                                                                                                                                                                                                                                                                                    |   |                                                                                              | 394,864                           |   |   | 6,591                                         |   |   | 59.91 |   |
| Class                    R-3                                                                                                                                                                                                                                                                                                                                    |   |                                                                                              | 453,802                           |   |   | 7,575                                         |   |   | 59.91 |   |
| Class                    R-4                                                                                                                                                                                                                                                                                                                                    |   |                                                                                              | 119,520                           |   |   | 1,995                                         |   |   | 59.91 |   |
| Class                    R-5                                                                                                                                                                                                                                                                                                                                    |   |                                                                                              | 466,549                           |   |   | 7,788                                         |   |   | 59.91 |   |
| *                    Maximum                    offering price and redemption price per share were equal to the                    net asset                    value per share for all share classes, except for Class A and                    529-A, for                    which the maximum offering prices per share were $63.56                    each. |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| See                    Notes to                    Financial Statements                                                                                                                                                                                                                                                                                         |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Statement                    of operations**                                                                                                                                                                                                                                                                                                                  |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| for                    the year                    ended October 31, 2006                                                                                                                                                                                                                                                                                       |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Investment                    income:**                                                                                                                                                                                                                                                                                                                       |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Income:                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                              |                              |   |   |                                          |   |   | (dollars                    in thousands | ) |
| Dividends                    (net of non-U.S. tax of $119,402; also includes                                                                                                                                                                                                                                                                                    |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| $108,934                    from                    affiliates)                                                                                                                                                                                                                                                                                                 |   |                                                                                              |                              |   | $      | 1,814,740                                     |   |   |   |   |
| Interest                    (includes $2,381 from affiliates)                                                                                                                                                                                                                                                                                                   |   |                                                                                              |                              |   |   | 1,026,033                                     |   | $ | 2,840,773 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Fees                    and                    expenses*:                                                                                                                                                                                                                                                                                                       |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Investment                    advisory services                                                                                                                                                                                                                                                                                                                 |   |                                                                                              |                              |   |   | 164,654                                       |   |   |   |   |
| Distribution                    services                                                                                                                                                                                                                                                                                                                        |   |                                                                                              |                              |   |   | 235,846                                       |   |   |   |   |
| Transfer                    agent services                                                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   | 37,461                                        |   |   |   |   |
| Administrative                    services                                                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   | 15,929                                        |   |   |   |   |
| Reports                    to                    shareholders                                                                                                                                                                                                                                                                                                   |   |                                                                                              |                              |   |   | 3,068                                         |   |   |   |   |
| Registration                    statement and prospectus                                                                                                                                                                                                                                                                                                        |   |                                                                                              |                              |   |   | 3,457                                         |   |   |   |   |
| Postage,                    stationery and supplies                                                                                                                                                                                                                                                                                                             |   |                                                                                              |                              |   |   | 3,064                                         |   |   |   |   |
| Directors'                    compensation                                                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   | 588                                           |   |   |   |   |
| Auditing                    and                    legal                                                                                                                                                                                                                                                                                                        |   |                                                                                              |                              |   |   | 212                                           |   |   |   |   |
| Custodian                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                              |                              |   |   | 8,001                                         |   |   |   |   |
| State                    and                    local taxes                                                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   |   | 443                                           |   |   |   |   |
| Other                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                              |                              |   |   | 194                                           |   |   |   |   |
| Total                    fees                    and expenses before reimbursements/waivers                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   |   | 472,917                                       |   |   |   |   |
| Less                    reimbursements/waivers of fees and expenses:                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Investment                    advisory services                                                                                                                                                                                                                                                                                                                 |   |                                                                                              |                              |   |   | 16,480                                        |   |   |   |   |
| Administrative                    services                                                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   | 326                                           |   |   |   |   |
| Total                    fees                    and expenses after reimbursements/waivers                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   |                                          |   |   | 456,111 |   |
| Net                    investment income                                                                                                                                                                                                                                                                                                                        |   |                                                                                              |                              |   |   |                                          |   |   | 2,384,662 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Net                    realized gain and unrealized**                                                                                                                                                                                                                                                                                                         |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **appreciation                    on investments and non-U.S. currency:**                                                                                                                                                                                                                                                                                       |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Net                    realized                    gain on:                                                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Investments                    (including $10,654 net gain from affiliates)                                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   |   | 1,602,655                                     |   |   |   |   |
| Non-U.S.                    currency transactions                                                                                                                                                                                                                                                                                                               |   |                                                                                              |                              |   |   | 1,919                                         |   |   | 1,604,574 |   |
| Net                    unrealized appreciation on:                                                                                                                                                                                                                                                                                                              |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Investments                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   |   | 7,905,435                                     |   |   |   |   |
| Non-U.S.                    currency translations                                                                                                                                                                                                                                                                                                               |   |                                                                                              |                              |   |   | 245                                           |   |   | 7,905,680 |   |
| Net                    realized                    gain and unrealized appreciation                                                                                                                                                                                                                                                                             |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| on                    investments and non-U.S. currency                                                                                                                                                                                                                                                                                                         |   |                                                                                              |                              |   |   |                                          |   |   | 9,510,254 |   |
| **Net                    increase in net assets resulting**                                                                                                                                                                                                                                                                                                     |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **from                    operations**                                                                                                                                                                                                                                                                                                                          |   |                                                                                              |                              |   |   |                                          |   | $ | 11,894,916 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| *                    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 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   | 2006                                          |   |   | 2005 |   |
| **Operations:**                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Net                    investment income                                                                                                                                                                                                                                                                                                                        |   |                                                                                              |                              |   | $      | 2,384,662                                     |   | $ | 1,724,849 |   |
| Net                    realized                    gain on investments and                                                                                                                                                                                                                                                                                      |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| non-U.S.                    currency transactions                                                                                                                                                                                                                                                                                                               |   |                                                                                              |                              |   |   | 1,604,574                                     |   |   | 799,961 |   |
| Net                    unrealized appreciation                                                                                                                                                                                                                                                                                                                  |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| on                    investments and non-U.S. currency translations                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   | 7,905,680                                     |   |   | 1,043,786 |   |
| Net                    increase                    in net assets                                                                                                                                                                                                                                                                                                |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| resulting                    from operations                                                                                                                                                                                                                                                                                                                    |   |                                                                                              |                              |   |   | 11,894,916                                    |   |   | 3,568,596 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Dividends                    and distributions paid or accrued to**                                                                                                                                                                                                                                                                                           |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **shareholders:**                                                                                                                                                                                                                                                                                                                                               |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Dividends                    from net investment income and non-U.S. currency gain                                                                                                                                                                                                                                                                              |   |                                                                                              |                              |   |   | (2,412,497                                    | )      |   | (1,578,505 | ) |
| Distributions                    from net realized gain                                                                                                                                                                                                                                                                                                         |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| on                    investments                                                                                                                                                                                                                                                                                                                               |   |                                                                                              |                              |   |   | (740,369                                      | )      |   | (675,038 | ) |
| Total                    dividends and distributions paid or accrued                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| to                    shareholders                                                                                                                                                                                                                                                                                                                              |   |                                                                                              |                              |   |   | (3,152,866                                    | )      |   | (2,253,543 | ) |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Capital                    share transactions**                                                                                                                                                                                                                                                                                                               |   |                                                                                              |                              |   |   | 13,615,480                                    |   |   | 17,572,318 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Total                    increase in net assets**                                                                                                                                                                                                                                                                                                             |   |                                                                                              |                              |   |   | 22,357,530                                    |   |   | 18,887,371 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| **Net                    assets:**                                                                                                                                                                                                                                                                                                                              |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| Beginning                    of                    year                                                                                                                                                                                                                                                                                                         |   |                                                                                              |                              |   |   | 55,350,593                                    |   |   | 36,463,222 |   |
| End                    of year                    (including undistributed net investment                                                                                                                                                                                                                                                                       |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| income:                    $436,907 and $317,444, respectively)                                                                                                                                                                                                                                                                                                 |   |                                                                                              |                              |   | $      | 77,708,123                                    |   | $ | 55,350,593 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                              |                              |   |   |                                          |   |   |   |   |
| See                    Notes to                    Financial Statements                                                                                                                                                                                                                                                                                         |   |                                                                                              |                              |   |   |                                          |   |   |   |   |

| 1.                     | **Organization                    and significant accounting                    policies** |
|----------------------------------|--------------------------------------------------------------------------------------------|

**Organization**

** **

| **Share                      class**                                       | **Initial                      sales charge**         | **Contingent                      deferred sales****charge****upon                      redemption**                                                                                                          | **Conversion                      feature**                                                                                                    |
|----------------------------------------------------------------------------|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|
| Class                      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                                                                                                                                           |
| Class                      B and                      529-B                | None                                                  | Declines                      from                      5% to 0% for redemptions within six years of purchase                                                                                                 | Class                      B and                      529-B convert to Class 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                                                                                                                                           |
| Class                      F and                      529-F                | None                                                  | None                                                                                                                                                                                                          | None                                                                                                                                           |
| Class                      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 - **
** **

| 2.                     | **Non-U.S.                    investments** |
|----------------------------------|---------------------------------------------|

**Investment            risk **
** **

**Taxation**

**Federal            income taxation and distributions**

**Distributions**

** **

| Undistributed                      ordinary income                          |   |   | $1,101,511      |
|-----------------------------------------------------------------------------|--------|--------|-----------------|
| Undistributed                      long-term capital gain                   |   |   | 1,090,666       |
| Gross                      unrealized appreciation on investment securities |   |   | 14,099,565      |
| Gross                      unrealized depreciation on investment securities |   |   | <318,977> |
| Net                      unrealized appreciation on investment securities   |   |   | 13,780,588      |
| Cost                      of                      investment securities     |   |   | 64,041,842      |

|                                             |   | **Year                        ended October 31, 2006** | ** ** | **Year                        ended October 31, 2005** | ** ** |
|--------------------------------------------------|--------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** ****Share                        class** |   | **Ordinary                        income**             |       | **Long-term****capital                        gains**  |       | **Total                        distributions****paid                        or accrued** |   | **Ordinary                        income** |   | **Long-term****capital                        gains** |   | **Total                        distributions****paid                        or acc**rued |   |
|                                             |   |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Class                        A                   |   | $                                                      | 1,907,778  |                                                   | $          | 565,399 |   | $ | 2,473,177 |   |   | 1,269,069 |   |   | 524,577 |   | $ | 1,793,646 |   |
| Class                        B                   |   |                                                   | 118,215    |                                                   |       | 44,775 |   |   | 162,990 |   |   | 81,617 |   |   | 45,419 |   |   | 127,036 |   |
| Class                        C                   |   |                                                   | 211,780    |                                                   |       | 78,754 |   |   | 290,534 |   |   | 127,857 |   |   | 65,805 |   |   | 193,662 |   |
| Class                        F                   |   |                                                   | 99,428     |                                                   |       | 28,534 |   |   | 127,962 |   |   | 58,914 |   |   | 22,306 |   |   | 81,220 |   |
| Class                        529-A               |   |                                                   | 22,604     |                                                   |       | 6,326 |   |   | 28,930 |   |   | 12,159 |   |   | 4,587 |   |   | 16,746 |   |
| Class                        529-B               |   |                                                   | 2,995      |                                                   |       | 1,128 |   |   | 4,123 |   |   | 1,802 |   |   | 1,013 |   |   | 2,815 |   |
| Class                        529-C               |   |                                                   | 7,190      |                                                   |       | 2,616 |   |   | 9,806 |   |   | 3,993 |   |   | 2,113 |   |   | 6,106 |   |
| Class                        529-E               |   |                                                   | 1,123      |                                                   |       | 343 |   |   | 1,466 |   |   | 632 |   |   | 274 |   |   | 906 |   |
| Class                        529-F               |   |                                                   | 386        |                                                   |       | 93 |   |   | 479 |   |   | 157 |   |   | 52 |   |   | 209 |   |
| Class                        R-1                 |   |                                                   | 1,459      |                                                   |       | 493 |   |   | 1,952 |   |   | 582 |   |   | 222 |   |   | 804 |   |
| Class                        R-2                 |   |                                                   | 9,250      |                                                   |       | 3,281 |   |   | 12,531 |   |   | 4,972 |   |   | 2,421 |   |   | 7,393 |   |
| Class                        R-3                 |   |                                                   | 11,998     |                                                   |       | 3,731 |   |   | 15,729 |   |   | 6,057 |   |   | 2,337 |   |   | 8,394 |   |
| Class                        R-4                 |   |                                                   | 3,357      |                                                   |       | 966 |   |   | 4,323 |   |   | 1,588 |   |   | 353 |   |   | 1,941 |   |
| Class                        R-5                 |   |                                                   | 14,934     |                                                   |       | 3,930 |   |   | 18,864 |   |   | 9,106 |   |   | 3,559 |   |   | 12,665 |   |
| Total                                            |   | $                                                      | 2,412,497  |                                                   | $          | 740,369 |   | $ | 3,152,866 |   | $ | 1,578,505 |   | $ | 675,038 |   | $ | 2,253,543 |   |

**Fees            and            transactions with related parties**

**.**

**Investment            advisory services**

**Class-specific            fees and expenses - **
** **

**Distribution            services **

| **Share                      class**                             | **Currently                      approved limits** | **Plan                      limits** |
|------------------------------------------------------------------|----------------------------------------------------|--------------------------------------|
| Class                      A                                     | 0.30%                                              | 0.30%                                |
| Class                      529-A                                 | 0.30                                               | 0.50                                 |
| Class                      B and                      529-B      | 1.00                                               | 1.00                                 |
| Class                      C,                      529-C and R-1 | 1.00                                               | 1.00                                 |
| Class                      R-2                                   | 0.75                                               | 1.00                                 |
| Class                      529-E                      and R-3    | 0.50                                               | 0.75                                 |
| Class                      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                          | $111,629                                         | $34,302                                                                                                                                | Not                      applicable              | Not                      applicable | Not                      applicable |
| Class                      B                          | 38,228                                           | 3,159                                                                                                                                  | Not                      applicable              | Not                      applicable | Not                      applicable |
| Class                      C                          | 69,974                                           |       Included                      in                      administrative                      services | $7,636                                           | $1,128 | Not                      applicable |
| Class                      F                          | 6,551                                            | 2,061                                                                                                                                  | 352                                              | Not                      applicable |
| Class                      529-A                      | 1,064                                            | 406                                                                                                                                    | 68                                               | $598 |
| Class                      529-B                      | 1,013                                            | 69                                                                                                                                     | 36                                               | 101 |
| Class                      529-C                      | 2,432                                            | 165                                                                                                                                    | 64                                               | 244 |
| Class                      529-E                      | 162                                              | 22                                                                                                                                     | 4                                                | 33 |
| Class                      529-F                      | -                                                | 7                                                                                                                                      | 1                                                | 10 |
| Class                      R-1                        | 492                                              | 58                                                                                                                                     | 21                                               | Not                      applicable |
| Class                      R-2                        | 2,334                                            | 459                                                                                                                                    | 1,157                                            | Not                      applicable |
| Class                      R-3                        | 1,745                                            | 477                                                                                                                                    | 239                                              | Not                      applicable |
| Class                      R-4                        | 222                                              | 127                                                                                                                                    | 9                                                | Not                      applicable |
| Class                      R-5                        | Not                      applicable              | 369                                                                                                                                    | 8                                                | Not                      applicable  |
| Total                                                 | $235,846                                         | $37,461                                                                                                                                | $11,856                                          | $3,087 | $986 |

**Deferred            directors’compensation**
** **

**Affiliated            officers and directors **

**Capital            share transactions**

| Share                        class                                                                    |   | Sales* |       | Reinvestments                        of dividends and distributions |   | Repurchases* |   | Net                        increase |      |
|-------------------------------------------------------------------------------------------------------|--------|--------|------------|---------------------------------------------------------------------|--------|--------------|--------|-------------------------------------|-----------|
|                                                                                                  |   | Amount |       | Shares                                                              |   | Amount       |   | Shares                              |      | Amount |   | Shares |   | Amount |   | Shares |   |
| Year                        ended                        October 31, 2006                             |   |   |       |                                                                |   |         |   |                                |      |   |   |   |   |   |   |   |   |
| Class                        A                                                                        |   | $      | 12,051,851 |                                                                |   | 216,172      |   | $                                   | 2,227,691 |   |   | 40,899 |   | $ | (4,774,295 | ) |   | (86,126 | ) | $ | 9,505,247 |   |   | 170,945 |   |
| Class                        B                                                                        |   |   | 745,843    |                                                                |   | 13,369       |   |                                | 147,793   |   |   | 2,721 |   |   | (363,419 | ) |   | (6,539 | ) |   | 530,217 |   |   | 9,551 |   |
| Class                        C                                                                        |   |   | 2,360,565  |                                                                |   | 42,203       |   |                                | 255,760   |   |   | 4,707 |   |   | (813,512 | ) |   | (14,674 | ) |   | 1,802,813 |   |   | 32,236 |   |
| Class                        F                                                                        |   |   | 1,325,582  |                                                                |   | 23,593       |   |                                | 100,515   |   |   | 1,844 |   |   | (432,593 | ) |   | (7,826 | ) |   | 993,504 |   |   | 17,611 |   |
| Class                        529-A                                                                    |   |   | 230,263    |                                                                |   | 4,143        |   |                                | 27,938    |   |   | 512 |   |   | (37,240 | ) |   | (671 | ) |   | 220,961 |   |   | 3,984 |   |
| Class                        529-B                                                                    |   |   | 26,559     |                                                                |   | 478          |   |                                | 4,035     |   |   | 74 |   |   | (4,859 | ) |   | (88 | ) |   | 25,735 |   |   | 464 |   |
| Class                        529-C                                                                    |   |   | 92,893     |                                                                |   | 1,669        |   |                                | 9,534     |   |   | 175 |   |   | (21,396 | ) |   | (385 | ) |   | 81,031 |   |   | 1,459 |   |
| Class                        529-E                                                                    |   |   | 11,986     |                                                                |   | 217          |   |                                | 1,420     |   |   | 26 |   |   | (2,834 | ) |   | (51 | ) |   | 10,572 |   |   | 192 |   |
| Class                        529-F                                                                    |   |   | 6,492      |                                                                |   | 117          |   |                                | 450       |   |   | 8 |   |   | (1,074 | ) |   | (19 | ) |   | 5,868 |   |   | 106 |   |
| Class                        R-1                                                                      |   |   | 36,332     |                                                                |   | 653          |   |                                | 1,821     |   |   | 33 |   |   | (9,694 | ) |   | (177 | ) |   | 28,459 |   |   | 509 |   |
| Class                        R-2                                                                      |   |   | 170,976    |                                                                |   | 3,073        |   |                                | 12,055    |   |   | 222 |   |   | (71,208 | ) |   | (1,282 | ) |   | 111,823 |   |   | 2,013 |   |
| Class                        R-3                                                                      |   |   | 204,823    |                                                                |   | 3,681        |   |                                | 15,117    |   |   | 277 |   |   | (81,900 | ) |   | (1,481 | ) |   | 138,040 |   |   | 2,477 |   |
| Class                        R-4                                                                      |   |   | 67,367     |                                                                |   | 1,212        |   |                                | 4,132     |   |   | 76 |   |   | (34,482 | ) |   | (625 | ) |   | 37,017 |   |   | 663 |   |
| Class                        R-5                                                                      |   |   | 141,763    |                                                                |   | 2,547        |   |                                | 14,781    |   |   | 271 |   |   | (32,351 | ) |   | (582 | ) |   | 124,193 |   |   | 2,236 |   |
|                                                                                                  |   |   |       |                                                                |   |         |   |                                |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                        net                        increase (decrease)                           |   | $      | 17,473,295 |                                                                |   | 313,127      |   | $                                   | 2,823,042 |   |   | 51,845 |   | $ | (6,680,857 | ) |   | (120,526 | ) | $ | 13,615,480 |   |   | 244,446 |   |
|                                                                                                  |   |   |       |                                                                |   |         |   |                                |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |
|                                                                                                  |   |   |       |                                                                |   |         |   |                                |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| *                        Includes                        exchanges between share classes of the fund. |   |   |       |                                                                |   |         |   |                                |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

**Investment            transactions**

| **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                        10/31/2006               |   | $                                                                                  | 52.58  |                                                                                                                                                                     | $      | 2.13                                                                                                                |   | $                                                                              | 8.06   |                                                          | $      | 10.19                                                     |   | $                                                        | (2.17  | )                                                                            | $      | (.69                                                           | )      | $                                                                                     | (2.86  | )      | $      | 59.91                                                                                                                                                                                                                                                         |   |   | 20.00  | %                                                                                                                                                                                                                                                                                       | $      | 58,439 |   |   |   |   |   | .58 | % |   |   |   |   | .55 | % |   |   |   |   | 3.82 | % |
| 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 |   |
| **Class                        B:**                                               |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 1.69                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 9.75                                                      |   |                                                     | (1.73  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.42  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 19.07  |                                                                                                                                                                                                                                                                                    |   | 4,413 |   |   |   |   |   | 1.37 |   |   |   |   |   | 1.34 |   |   |   |   |   | 3.04 |   |
| 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 |   |
| **Class                        C:**                                               |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 1.67                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 9.73                                                      |   |                                                     | (1.71  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.40  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 19.02  |                                                                                                                                                                                                                                                                                    |   | 8,616 |   |   |   |   |   | 1.41 |   |   |   |   |   | 1.38 |   |   |   |   |   | 2.99 |   |
| 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 |   |
| **Class                        F:**                                               |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 2.11                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 10.17                                                     |   |                                                     | (2.15  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.84  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 19.94  |                                                                                                                                                                                                                                                                                    |   | 3,494 |   |   |   |   |   | .62 |   |   |   |   |   | .60 |   |   |   |   |   | 3.76 |   |
| 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 |   |
| **Class                        529-A:**                                           |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 2.10                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 10.16                                                     |   |                                                     | (2.14  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.83  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 19.92  |                                                                                                                                                                                                                                                                                    |   | 760 |   |   |   |   |   | .64 |   |   |   |   |   | .61 |   |   |   |   |   | 3.77 |   |
| 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 |   |
| **Class                        529-B:**                                           |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 1.63                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 9.69                                                      |   |                                                     | (1.67  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.36  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 18.93  |                                                                                                                                                                                                                                                                                    |   | 122 |   |   |   |   |   | 1.49 |   |   |   |   |   | 1.46 |   |   |   |   |   | 2.93 |   |
| 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 |   |
| **Class                        529-C:**                                           |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 1.63                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 9.69                                                      |   |                                                     | (1.67  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.36  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 18.94  |                                                                                                                                                                                                                                                                                    |   | 306 |   |   |   |   |   | 1.47 |   |   |   |   |   | 1.45 |   |   |   |   |   | 2.94 |   |
| 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 |   |
| **Class                        529-E:**                                           |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 1.92                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 9.98                                                      |   |                                                     | (1.96  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.65  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 19.55  |                                                                                                                                                                                                                                                                                    |   | 40 |   |   |   |   |   | .96 |   |   |   |   |   | .94 |   |   |   |   |   | 3.45 |   |
| 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 |   |
| **Class                        529-F:**                                           |   |                                                                               |   |                                                                                                                                                                     |   |                                                                                                                |   |                                                                           |   |                                                          |   |                                                      |   |                                                     |   |                                                                         |   |                                                           |   |                                                                                  |   |   |   |                                                                                                                                                                                                                                                          |   |   |   |                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year                        ended                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 2.20                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 10.26                                                     |   |                                                     | (2.24  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.93  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 20.12  |                                                                                                                                                                                                                                                                                    |   | 14 |   |   |   |   |   | .46 |   |   |   |   |   | .44 |   |   |   |   |   | 3.95 |   |
| 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                        10/31/2006               |   | $                                                                                  | 52.58  |                                                                                                                                                                     | $      | 1.65                                                                                                                |   | $                                                                              | 8.06   |                                                          | $      | 9.71                                                      |   | $                                                        | (1.69  | )                                                                            | $      | (.69                                                           | )      | $                                                                                     | (2.38  | )      | $      | 59.91                                                                                                                                                                                                                                                         |   |   | 18.98  | %                                                                                                                                                                                                                                                                                       | $      | 69 |   |   |   |   |   | 1.44 | % |   |   |   |   | 1.41 | % |   |   |   |   | 2.96 | % |
| 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                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 1.65                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 9.71                                                      |   |                                                     | (1.69  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.38  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 18.98  |                                                                                                                                                                                                                                                                                    |   | 395 |   |   |   |   |   | 1.55 |   |   |   |   |   | 1.42 |   |   |   |   |   | 2.97 |   |
| 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                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 1.91                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 9.97                                                      |   |                                                     | (1.95  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.64  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 19.51  |                                                                                                                                                                                                                                                                                    |   | 454 |   |   |   |   |   | .98 |   |   |   |   |   | .96 |   |   |   |   |   | 3.42 |   |
| 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                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 2.07                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 10.13                                                     |   |                                                     | (2.11  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.80  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 19.88  |                                                                                                                                                                                                                                                                                    |   | 119 |   |   |   |   |   | .68 |   |   |   |   |   | .66 |   |   |   |   |   | 3.68 |   |
| 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                        10/31/2006               |   |                                                                               | 52.58  |                                                                                                                                                                     |   | 2.24                                                                                                                |   |                                                                           | 8.06   |                                                          |   | 10.30                                                     |   |                                                     | (2.28  | )                                                                            |   | (.69                                                           | )      |                                                                                  | (2.97  | )      |   | 59.91                                                                                                                                                                                                                                                         |   |   | 20.23  |                                                                                                                                                                                                                                                                                    |   | 467 |   |   |   |   |   | .38 |   |   |   |   |   | .36 |   |   |   |   |   | 4.03 |   |
| 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 |
|--------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------|
|                                                               |   |   |   | 2006                                                    |   |   | 2005 |   | 2004 |   | 2003 |   | 2002 |
|                                                               |   |   |   |                                                    |   |   |   |   |   |   |   |   |   |
| Portfolio                  turnover rate for all classes of shares |   |   |   | 26%                                                     |   |   | 20% |   | 24% |   | 27% |   | 36% |
|                                                               |   |   |   |                                                    |   |   |   |   |   |   |   |   |   |

| (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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

| Tax                    information | **unaudited** |
|------------------------------------|---------------|

| Long-term                        capital gains                                       |   | $                        740,369,000 |
|--------------------------------------------------------------------------------------|--------|--------------------------------------|
| Qualified                        dividend income                                     |   | 1,846,903,000                        |
| Corporate                        dividends received deduction                        |   | 684,224,000                          |
| U.S.                        government income that may be exempt from state taxation |   | 132,246,000                          |

**Individual            shareholders should refer to their Form 1099 or other tax information,            which            will be mailed in January 2007, to determine the **
***calendar            year***
**            amounts to            be included on their 2006 tax returns. Shareholders should consult their            tax            advisers**