***The        following changes are effective beginning April 1,        2007:***

**1.**
**The        second        paragraph after the "Purchase minimums and maximums" table in the "Purchase        and        exchange of shares" section of the Prospectus is amended in its entirety        to read        as follows (not applicable to American Funds money market funds or tax-exempt        funds):**

**2.        **
**The        paragraph immediately after the "Purchase minimums and maximums" table in        the        "Purchase and exchange of shares" section of the Prospectus for The Tax-Exempt        Fund of Maryland and The Tax-Exempt Fund of Virginia is amended in its entirety        to read as follows:**

**"**
**"**

**3.**
**The        paragraph immediately after the "Purchase minimums and maximums" table in        the        "Purchase and exchange of shares" section of the Prospectus for The Tax-Exempt        Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term        Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of California is        amended        in its entirety to read as follows:**

**"**
**"**

**4.**
** **
**The        subsection entitled "Moving between share classes" in the "Purchase and exchange        of shares" section of the Prospectus is amended in its entirety to read as        follows:**

**Moving        between share classes and accounts**

**In        addition, this amended subsection is added to (1) the "Purchase, exchange        and        sale of shares" section of the Retirement Plan Prospectus and (2) the "Purchase        and exchange of shares" section of the Prospectus for American Funds money        market funds.**

**5.**
**The        paragraph immediately under the heading "Reducing your Class A initial sales        charge" in the "Sales charge reductions and waivers" section of the Prospectus        is amended in its entirety to read as follows (not applicable to American        Funds        money market funds):**

**"**
**"**

**6.        **
**The        paragraph immediately under the heading "Concurrent purchases" in the "Sales        charge reductions and waivers" section of the Prospectus is amended in its        entirety to read as follows (not applicable to American Funds money market        funds):**

**7.        **
**The        second        paragraph after the heading "Rights of accumulation" in the "Sales charge        reductions and waivers" section of the Prospectus is amended in its entirety        to        read as follows (not applicable to American Funds money market        funds):**

**8.        **
**The        paragraph immediately under the heading "Rights of accumulation" in the "Sales        charge reductions" section of the Retirement Plan Prospectus is amended in        its        entirety to read as follows (not applicable to American Funds money market        funds):**

*(a)*
*(b)*

**9.        **
**The        paragraph immediately under the heading "Statement of intention" in the "Sales        charge reductions and waivers" section of the Prospectus is amended in its        entirety to read as follows (not applicable to American Funds money market        funds):**

***Prospectus        for American Funds non-tax-exempt funds adds:***
**"**
**"**

**10.**
**The        paragraph immediately above the heading "Transactions by telephone, fax or        the        Internet" in the "How to sell shares" section of the Prospectus, as well        as the        paragraph immediately above the heading "Valuing shares" in the "Purchase,        exchange and sale of shares" section of the Retirement Plan Prospectus, are        amended in their entirety to read as follows:**

***Prospectus        includes the following:***
***Retirement        Plan Prospectus includes the following:***
**"**
**        "**
**"**
**        "**

```
THE FUND PROVIDES SPANISH TRANSLATION IN CONNECTION WITH THE
PUBLIC OFFERING AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR
AND ACCURATE ENGLISH TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS
FOR THE FUND.

/s/ VINCENT P. CORTI
    VINCENT P. CORTI
    SECRETARY
```

***The        following changes are effective beginning April 1,        2007:***

**1.**
**The        second        paragraph after the "Purchase minimums and maximums" table in the "Purchase        and        exchange of shares" section of the Prospectus is amended in its entirety        to read        as follows (not applicable to American Funds money market funds or tax-exempt        funds):**

**2.        **
**The        paragraph immediately after the "Purchase minimums and maximums" table in        the        "Purchase and exchange of shares" section of the Prospectus for The Tax-Exempt        Fund of Maryland and The Tax-Exempt Fund of Virginia is amended in its entirety        to read as follows:**

**"**
**"**

**3.**
**The        paragraph immediately after the "Purchase minimums and maximums" table in        the        "Purchase and exchange of shares" section of the Prospectus for The Tax-Exempt        Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term        Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of California is        amended        in its entirety to read as follows:**

**"**
**"**

**4.**
** **
**The        subsection entitled "Moving between share classes" in the "Purchase and exchange        of shares" section of the Prospectus is amended in its entirety to read as        follows:**

**Moving        between share classes and accounts**

**In        addition, this amended subsection is added to (1) the "Purchase, exchange        and        sale of shares" section of the Retirement Plan Prospectus and (2) the "Purchase        and exchange of shares" section of the Prospectus for American Funds money        market funds.**

**5.**
**The        paragraph immediately under the heading "Reducing your Class A initial sales        charge" in the "Sales charge reductions and waivers" section of the Prospectus        is amended in its entirety to read as follows (not applicable to American        Funds        money market funds):**

**"**
**"**

**6.        **
**The        paragraph immediately under the heading "Concurrent purchases" in the "Sales        charge reductions and waivers" section of the Prospectus is amended in its        entirety to read as follows (not applicable to American Funds money market        funds):**

**7.        **
**The        second        paragraph after the heading "Rights of accumulation" in the "Sales charge        reductions and waivers" section of the Prospectus is amended in its entirety        to        read as follows (not applicable to American Funds money market        funds):**

**8.        **
**The        paragraph immediately under the heading "Rights of accumulation" in the "Sales        charge reductions" section of the Retirement Plan Prospectus is amended in        its        entirety to read as follows (not applicable to American Funds money market        funds):**

*(a)*
*(b)*

**9.        **
**The        paragraph immediately under the heading "Statement of intention" in the "Sales        charge reductions and waivers" section of the Prospectus is amended in its        entirety to read as follows (not applicable to American Funds money market        funds):**

***Prospectus        for American Funds non-tax-exempt funds adds:***
**"**
**"**

**10.**
**The        paragraph immediately above the heading "Transactions by telephone, fax or        the        Internet" in the "How to sell shares" section of the Prospectus, as well        as the        paragraph immediately above the heading "Valuing shares" in the "Purchase,        exchange and sale of shares" section of the Retirement Plan Prospectus, are        amended in their entirety to read as follows:**

***Prospectus        includes the following:***
***Retirement        Plan Prospectus includes the following:***
**"**
**        "**
**"**
**        "**

```
<PAGE>

                          CAPITAL INCOME BUILDER, INC.

                                     Part B
                      Statement of Additional Information

                              January 1, 2007

                        (as supplemented April 1, 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 . . . . . . . . . . . . . . . .       32
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . .       33
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . .       34
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . .       36
Purchase and exchange of shares . . . . . . . . . . . . . . . . . .       41
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . .       44
Sales charge reductions and waivers . . . . . . . . . . . . . . . .       46
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . .       50
Shareholder account services and privileges . . . . . . . . . . . .       51
General information . . . . . . . . . . . . . . . . . . . . . . . .       53
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       59
Financial statements

                        Capital Income Builder -- Page 1
<PAGE>

                 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

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

INCOME PRODUCING SECURITIES

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

EQUITY SECURITIES

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

DEBT SECURITIES

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

NON-U.S. SECURITIES

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

..    The fund may invest up to 5% of its assets in debt securities of issuers
     domiciled outside the United States.

                        *     *     *     *     *     *

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

          DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

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

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

                        Capital Income Builder -- Page 2
<PAGE>

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 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. The prices of these securities can be adversely affected by the
     outcome of financial contracts (such as derivatives) held by third parties
     relating to various 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.

                        Capital Income Builder -- Page 3
<PAGE>

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

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

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

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

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

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

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

                        Capital Income Builder -- Page 4
<PAGE>

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 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

                        Capital Income Builder -- Page 5
<PAGE>

pools backing these obligations are typically passed through to investors, net
of any fees paid to 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 enhancement 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 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

                        Capital Income Builder -- Page 6
<PAGE>

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

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

FORWARD 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.

                        Capital Income Builder -- Page 7
<PAGE>

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
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

                        Capital Income Builder -- Page 8
<PAGE>

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 securities issued or
guaranteed as to payment of interest and principal by a foreign government or
its agencies or instrumentalities or by a multinational agency;

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

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

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

                        Capital Income Builder -- Page 9
<PAGE>

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

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

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

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

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

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

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

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

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

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

15.  Invest more than 5% of its total assets in securities of companies having,
together with their predecessors, a record of less than three years of
continuous operation;

16.  Write, purchase or sell put options, call options or combinations thereof;

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

                       Capital Income Builder -- Page 10
<PAGE>

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.

                       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, 60        Chairman of the Board,                 6         Ducommun Incorporated
 Director (2005)               President and CEO, Ducommun
                               Incorporated (aerospace
                               components manufacturer)
------------------------------------------------------------------------------------------------------------
 H. Frederick Christie, 73     Private investor; former              21         Ducommun Incorporated;
 Director (1987)               President and CEO, The Mission                   IHOP Corporation;
                               Group (non-utility holding                       Southwest Water Company
                               company, subsidiary of
                               Southern California Edison
                               Company)
------------------------------------------------------------------------------------------------------------
 Robert J. Denison, 65         Chair, First Security                  5         None
 Director (2005)               Management (private
                               investments)
------------------------------------------------------------------------------------------------------------
 Koichi Itoh, 66               Executive Chairman of the              5         None
 Director (2005)               Board, Itoh Building Co., Ltd.
                               (building management); former
                               President, Autosplice KK
                               (electronics)
------------------------------------------------------------------------------------------------------------
 Merit E. Janow, 48            Professor, Columbia                    2         The NASDAQ Stock Market,
 Director (2001)               University, School of                            Inc.
                               International and Public
                               Affairs
------------------------------------------------------------------------------------------------------------
 Mary Myers Kauppila, 52       Private investor; Chairman of          5         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, 71             President, The Lovejoy                 5         None
 Director (1987)               Consulting Group, Inc. (a pro
                               bono consulting group advising
                               nonprofit organizations)
------------------------------------------------------------------------------------------------------------
 Robert J. O'Neill, 70         Planning Director and acting           3         None
 Director (1992)               CEO of the United States
                               Studies Centre, University of
                               Sydney; former Deputy Chairman
                               of the Council and Chairman of
                               the International Advisory
                               Panel, Graduate School of
                               Government, University of
                               Sydney, Australia; Member of
                               the Board of Directors, The
                               Lowy Institute for
                               International Policy Studies,
                               Sydney, Australia; 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, 80        Retired; former Chairman of            2         None
 Director (1992)               the Board and CEO, Ford Motor
                               Company
------------------------------------------------------------------------------------------------------------
 Stefanie Powers, 64           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, 57            President and Professor of             2         None
 Director (2001)               Anthropology, The University
                               of Tulsa; former President and
                               Professor of Archaeology,
                               Claremont Graduate University
------------------------------------------------------------------------------------------------------------
 Charles Wolf, Jr., 82         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>

"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,/6/ 50     Senior Vice President and              2         None
 Vice Chairman of the         Director, Capital Research and
 Board (1992)                 Management Company
-----------------------------------------------------------------------------------------------------------
 Catherine M. Ward, 59        Senior Vice President and              1         None
 Director (1987)              Director, Capital Research and
                              Management Company; Director,
                              American Funds Service
                              Company*; Director, Capital
                              Group Research, Inc.*
-----------------------------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 13
<PAGE>

OTHER OFFICERS/7/

 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, 50     Senior Vice President and Director, Capital Research
 President (1996)        and Management Company
-------------------------------------------------------------------------------
 Mark R. Macdonald, 47   Senior Vice President and Director, Capital Research
 Executive Vice          and Management Company
 President (2001)
-------------------------------------------------------------------------------
 Darcy B. Kopcho, 53     Senior Vice President and Director, Capital Research
 Senior Vice             and Management Company
 President (2006)
-------------------------------------------------------------------------------
 Michael Cohen, 45       Vice President and Director, Capital Research
 Vice President          Company*
 (2006)
-------------------------------------------------------------------------------
 David A. Hoag, 41       Senior Vice President, Capital Research Company*
 Vice President
 (2006)
-------------------------------------------------------------------------------
 David M. Riley, 39      Senior Vice President, Capital Research Company*
 Vice President
 (2006)
-------------------------------------------------------------------------------
 Vincent P. Corti, 50    Vice President - Fund Business Management Group,
 Secretary (1987)        Capital Research and Management Company
-------------------------------------------------------------------------------
 Sheryl F. Johnson, 38   Vice President - Fund Business Management Group,
 Treasurer (2003)        Capital Research and Management Company
-------------------------------------------------------------------------------
 Jeffrey P. Regal, 35    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/  An "independent" director refers to a director who is not an "interested
     person" 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 comprised of 15
     funds and serves as the underlying investment vehicle for certain variable
     insurance contracts, and Endowments, which is comprised of two portfolios and
     whose shareholders are limited 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," 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/  James B. Lovelace is the son of Jon B. Lovelace, Jr.
/7/  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             Over $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 elected 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 other funds (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 fees for
meetings of the board and its committees. Board chairs receive additional
fees for their services.

Independent directors also receive attendance fees for certain joint meetings
and information sessions with directors and trustees of other funds advised by
the investment adviser. The fund

                       Capital Income Builder -- Page 16
<PAGE>

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. Berenato/3/           $28,332                          $214,500
------------------------------------------------------------------------------------------
 H. Frederick Christie/3/         31,989                           379,750
------------------------------------------------------------------------------------------
 Robert J. Denison                30,375                           152,500
------------------------------------------------------------------------------------------
 Koichi Itoh/3/                   28,750                           147,500
------------------------------------------------------------------------------------------
 Merit E. Janow                   45,200                            93,500
------------------------------------------------------------------------------------------
 Mary Myers Kauppila/3/           45,100                           218,500
------------------------------------------------------------------------------------------
 Gail L. Neale                    29,625                           147,000
------------------------------------------------------------------------------------------
 Robert J. O'Neill                44,700                           101,000
------------------------------------------------------------------------------------------
 Donald E. Petersen/3/            38,950                            79,500
------------------------------------------------------------------------------------------
 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 comprised of 15
     funds and serves as the underlying investment vehicle for certain variable
     insurance contracts, and Endowments, which is comprised of two portfolios and
     whose shareholders are limited to certain nonprofit organizations.
/3/  Since the deferred compensation plan's adoption, the total amount of deferred
     compensation accrued by the fund (plus earnings thereon) through the 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.

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.

                       Capital Income Builder -- Page 17
<PAGE>

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

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

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

The fund has several different classes of shares. Shares of each class represent
an interest in the same investment portfolio. Each class has pro rata rights as
to voting, redemption, dividends and liquidation, except that each class bears
different distribution expenses and may bear different transfer agent fees and
other expenses properly attributable to the particular class as approved by the
board of directors and set forth in the fund's rule 18f-3 Plan. Each class'
shareholders have exclusive voting rights with respect to the respective class'
rule 12b-1 plans adopted in connection with the distribution of shares and on
other matters in which the interests of one class are different from interests
in another class. Shares of all classes of the fund vote together on matters
that affect all classes in substantially the same manner. Each class votes as a
class on matters that affect that class alone. Note that CollegeAmerica/(R)/
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.

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

                       Capital Income Builder -- Page 18
<PAGE>

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 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

                       Capital Income Builder -- Page 19
<PAGE>

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 are voted by a committee of the investment adviser under
authority delegated by those funds' boards. Therefore, if more than one fund
invests in the same company, they may vote differently on the same proposal.

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

                       Capital Income Builder -- Page 20
<PAGE>

     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 135 South State College Boulevard,
Brea, CA 92821. It is a wholly owned subsidiary of The Capital Group Companies,
Inc., a holding company for several investment management subsidiaries. The
investment adviser manages equity assets for the American Funds through two
divisions. These divisions generally function separately from each other with
respect to investment research activities and they make investment decisions for
the funds on a separate basis.

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

COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. In addition, Capital Research and Management Company's investment
analysts may make investment decisions with respect to a portion of a fund's
portfolio within their research coverage. Portfolio counselors and investment
analysts may also 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, 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 -- Page 22
<PAGE>

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. Lovelace        Over           2      $106.6      1      $0.05         None
                       $1,000,000
---------------------------------------------------------------------------------------------
 Joyce E. Gordon          Over           2      $106.6         None              None
                       $1,000,000
---------------------------------------------------------------------------------------------
 Mark R. Macdonald        Over           5      $189.5         None              None
                       $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. Armour     $500,001 -        3      $116.0         None              None
                       $1,000,000
---------------------------------------------------------------------------------------------
 Steven T. Watson      $50,001 -         3      $211.5         None              None
                        $100,000
---------------------------------------------------------------------------------------------

/1/  Ownership disclosure is made using the following ranges: None; $1 - $10,000;
     $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
     $1,000,000; and Over $1,000,000. The amounts listed include shares owned
     through The Capital Group Companies, Inc. retirement plan and 401(k) plan.
/2/  Indicates fund(s) where the portfolio counselor also has significant
     responsibilities for the day to day management of the fund(s). Assets noted are
     the total net assets of the registered investment companies and are not
     indicative of the total assets managed by the individual, which is a
     substantially lower amount. 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.

                       Capital Income Builder -- Page 23
<PAGE>

INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the investment adviser will
continue in effect until October 31, 2007, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (a) the board of directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (b) the vote of a majority of directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, 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; 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
-----------------------------------------------------------------------------

                       Capital Income Builder -- Page 24
<PAGE>

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

                              Monthly gross income

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

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

Assuming net assets of $30 billion and gross investment income levels of 3%, 4%,
5%, 6% and 7%, management fees would be 0.24%, 0.27%, 0.30%, 0.32% and 0.35%,
respectively.

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

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

                       Capital Income Builder -- Page 25
<PAGE>

Agreement. Beginning April 1, 2005, this waiver increased to 10% of the
management fees that the investment adviser is otherwise entitled to receive. 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, 2007, unless sooner terminated, and may be renewed from year to year
thereafter, provided that any such renewal has been specifically approved at
least annually by the vote of a majority of directors who are not parties to the
Administrative Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The fund may terminate the Administrative Agreement at any time
by vote of a majority of independent directors. The investment adviser has the
right to terminate the Administrative Agreement upon 60 days' written notice to
the fund. The Administrative Agreement automatically terminates in the event of
its assignment (as defined in the 1940 Act).

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

                       Capital Income Builder -- Page 26
<PAGE>

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

PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION -- American Funds Distributors,
Inc. (the "Principal Underwriter") is the principal underwriter of the fund's
shares. The Principal Underwriter is located at 333 South Hope Street, Los
Angeles, CA 90071; 135 South State College Boulevard, Brea, CA 92821; 15370
Barranca Parkway, 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.

                       Capital Income Builder -- Page 27
<PAGE>

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

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

                       Capital Income Builder -- Page 28
<PAGE>

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 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 0.50% of
the average daily net assets attributable to Class R-4 shares. The fund has not
adopted a Plan for Class R-5 shares; accordingly, no 12b-1 fees are paid from
Class R-5 share assets.

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

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

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%

                       Capital Income Builder -- Page 29
<PAGE>

is paid to the Principal Underwriter for paying distribution-related expenses,
including commissions paid to qualified dealers.

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

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

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

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

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

As of the end of the 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
--------------------------------------------------------------------------------------

                       Capital Income Builder -- Page 30
<PAGE>

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.
     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.

                       Capital Income Builder -- Page 31
<PAGE>

     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
     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

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

Brokerage commissions paid on portfolio transactions, including investment
dealer concessions on underwritings, if applicable, for the fiscal years ended
October 31, 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

                       Capital Income Builder -- Page 32
<PAGE>

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.

                        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 require
portfolio holdings information for legitimate business and fund oversight
purposes, may receive the information earlier.

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

Subject to board policies, the authority to disclose a fund's portfolio
holdings, and to establish policies with respect to such disclosure, resides
with the appropriate investment-related

                       Capital Income Builder -- Page 33
<PAGE>

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.

                                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.

                       Capital Income Builder -- Page 34
<PAGE>

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 principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by the
investment adviser.

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

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

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

The valuation committee has adopted guidelines and procedures (consistent with
SEC rules and guidance) to ensure that certain basic principles and factors are
considered when making all fair value determinations. As a general principle,
securities lacking readily available market quotations, or that have quotations
that are considered unreliable 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 investing substantial portions 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

                       Capital Income Builder -- Page 35
<PAGE>

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.

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

                            TAXES AND DISTRIBUTIONS

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

To be treated as a regulated investment company under Subchapter M of the Code,
the fund must also (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, net income from certain
publicly traded partnerships and gains from the sale or other disposition of
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
the business of investing in such securities or currencies, and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the fund's assets is represented by cash, U.S. government
securities and securities of other regulated investment companies, and other
securities (for purposes of this calculation, generally limited in respect of
any one issuer, to an amount not greater than 5% of the market value of the
fund's assets and 10% of the outstanding voting securities of such issuer) and
(ii) not more than 25% of the value of its assets is invested in the securities
of (other than U.S. government securities or the securities of other regulated
investment companies) any one issuer; two or more issuers which the fund
controls and which are determined to be engaged in the same or similar trades or
businesses; or the securities of certain publicly traded partnerships.

                       Capital Income Builder -- Page 36
<PAGE>

Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (a) 98% of ordinary income (generally net investment income)
for the calendar year, (b) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year) and
(c) the sum of any untaxed, undistributed net investment income and net capital
gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (a) amounts actually distributed
by the fund from its current year's ordinary income and capital gain net income
and (b) any amount on which the fund pays income tax during the periods
described above. Although the fund intends to distribute its net investment
income and net capital gains so as to avoid excise tax liability, the fund may
determine that it is in the interest of shareholders to distribute a lesser
amount.

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

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

Distributions of investment company taxable income and net realized capital
gains to  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,

                       Capital Income Builder -- Page 37
<PAGE>

     referred to under the Code as Section 988 gains or losses, may increase or
     decrease the amount of the fund's investment company taxable income to be
     distributed to its shareholders as ordinary income.

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

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

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

                       Capital Income Builder -- Page 38
<PAGE>

     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 carry forward of
     the fund.

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

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

     DIVIDENDS -- Fund dividends are taxable to shareholders as ordinary income.
     All or a portion of a fund's dividend distribution may be a "qualified
     dividend." If the fund meets the applicable holding period requirement, it
     will distribute dividends derived from qualified corporation dividends to
     shareholders as qualified dividends. Interest income from bonds and money
     market instruments and nonqualified foreign dividends will be distributed
     to shareholders as nonqualified fund dividends. The fund will report on
     Form 1099-DIV the amount of each shareholder's dividend that may be treated
     as a qualified dividend. If a shareholder meets the requisite holding
     period requirement, qualified dividends are taxable at a maximum rate of
     15%.

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

                       Capital Income Builder -- Page 39
<PAGE>

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).

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 40
<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 41
<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.

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 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:

                       Capital Income Builder -- Page 42
<PAGE>

     .    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.  However, in the case where
the entity maintaining these accounts aggregates the accounts' purchase orders
for fund shares, such accounts are not required to meet the minimum amount for
subsequent purchases.

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 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 are not permitted. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and no sales charge generally
applies. However, exchanges of shares from American Funds money market funds are
subject to applicable sales charges on the fund being purchased, unless the
money market fund shares were acquired by an exchange from a fund having a sales
charge, or by reinvestment or cross-reinvestment of dividends or capital gain
distributions. Exchanges of Class F shares generally may only be made through
fee-based programs of investment firms that have special agreements with the
fund's distributor and certain registered investment advisers.

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

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

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.

The fund, through its transfer agent, American Funds Service Company,
maintains surveillance procedures to detect frequent trading in fund
shares. Under these procedures, various analytics are used to evaluate
factors that may be indicative of frequent trading. For example,
transactions in fund shares that exceed certain monetary thresholds may be
scrutinized. American Funds Service Company also may review transactions
that occur close in time to other transactions in the same account or in
multiple accounts under common ownership or influence. Trading activity
that is identified through these procedures or as a result of any other
information available to the fund will be evaluated to determine whether
such activity might constitute frequent trading. These procedures may be
modified from time to time as appropriate to improve the detection of
frequent trading, to facilitate monitoring for frequent trading in
particular retirement plans or other accounts, and to comply with
applicable laws.

In addition to the fund's broad ability to restrict potentially harmful
trading, the fund's board of directors has adopted a "purchase blocking
policy," under which any shareholder redeeming shares (including
redemptions that are part of an exchange transaction) having a value of
$5,000 or more from the fund will be precluded from investing in the
fund (including investments that are part of an exchange transaction)
for 30 calendar days after the redemption transaction. Under the fund's
purchase blocking policy, certain purchases will not be prevented and
certain redemptions will not trigger a purchase block, such as: systematic
redemptions and purchases where the entity maintaining the shareholder
account is able to identify the transaction as a systematic redemption or
purchase; purchases and redemptions of shares having a value of less than
$5,000; transactions in Class 529 shares; purchases and redemptions
resulting from reallocations by American Funds Target Date Retirement
Series; retirement plan contributions, loans and distributions (including
hardship withdrawals) identified as such on the retirement plan
recordkeeper's system; and purchase transactions involving transfers of
assets, rollovers, Roth IRA conversions and IRA recharacterizations, where
the entity maintaining the shareholder account is able to identify the
transaction as one of these types of transactions.

The fund reserves the right to waive the purchase blocking policy in those
instances where American Funds Service Company determines that its
surveillance procedures are adequate to detect frequent trading in fund
shares.

American Funds Service Company will work with certain intermediaries (such
as investment dealers holding shareholder accounts in street name,
retirement plan recordkeepers, insurance company separate accounts and bank
trust companies) to apply their procedures which American Funds Service
Company believes are reasonably designed to enforce the frequent trading
policies of the fund. You should refer to disclosures provided by the
intermediaries with which you have an account to determine the specific
trading restrictions that apply to you.

If American Funds Service Company identifies any activity that may
constitute frequent trading, it reserves the right to contact the
intermediary and request that the intermediary either provide information
regarding an account owner's transactions or restrict the account owner's
trading. If American Funds Service Company is not satisfied that the
intermediary has taken appropriate action, American Funds Service Company
may terminate the intermediary's ability to transact in fund shares.

There is no guarantee that all instances of frequent trading in fund shares
will be prevented.

Notwithstanding the fund's surveillance procedures and purchase blocking
policy, all transactions in fund shares remain subject to the fund's and
American Funds Distributors' right to restrict potentially abusive trading
generally (including the types of transactions described above that will
not be prevented or trigger a block under the purchase blocking policy).

                       Capital Income Builder -- Page 43
<PAGE>

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

MOVING BETWEEN SHARE CLASSES

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

     MOVING FROM CLASS B TO CLASS A SHARES -- Under the right of reinvestment
     policy as described in the prospectus, if you redeem Class B shares during
     the contingent deferred sales charge period, you may reinvest the proceeds
     in Class A shares without paying a Class A sales charge if you notify
     American Funds Service Company and the reinvestment occurs within 90 days
     after the date of redemption and is made into the same account from which
     you redeemed the shares. If you redeem your 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.

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

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

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

     MOVING FROM CLASS A TO CLASS R SHARES -- Provided it is eligible to invest
     in Class R shares, a retirement plan currently invested in Class A shares
     may redeem its shares and purchase Class R shares with the redemption
     proceeds. Any Class A sales charges that the retirement plan previously
     paid will not be credited back to the plan's account.

     NON-REPORTABLE TRANSACTIONS -- As described above, automatic conversions
     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 or vice
     versa, 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 44
<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 45
<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 to $4 million, 0.50% on amounts over $4
million to $10 million and 0.25% on amounts over $10 million. Commissions are
based on cumulative investments and are not annually reset.

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

                      SALES CHARGE REDUCTIONS AND WAIVERS

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

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

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

                       Capital Income Builder -- Page 46
<PAGE>

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

     If you make an American Funds purchase under a statement of intention prior
     to April 1, 2007, purchases of American Legacy variable annuity contracts
     and variable life insurance policies may also be credited toward completion
     of that statement of intention.

     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

                       Capital Income Builder -- Page 47
<PAGE>

          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

     .    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.

     RIGHTS OF ACCUMULATION -- Subject to the limitations described in the
     aggregation policy, you may take into account your accumulated holdings in
     all share classes of the American Funds, as well as your holdings in
     Endowments, to determine your sales charge on investments in accounts
     eligible to be aggregated. Subject to your investment

                       Capital Income Builder -- Page 48
<PAGE>

     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 are not eligible for calculation at cost value and
     instead will be calculated at market value for purposes of rights of
     accumulation.

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

     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 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 a systematic withdrawal plan (SWP) (see "Automatic
          withdrawals" under "Shareholder account services and privileges"
          below). For each SWP payment, assets that are not subject to a CDSC,
          such as appreciation on shares and shares acquired through
          reinvestment of dividends and/or capital gain distributions, will be
          redeemed first and will count toward the 12% limit. If there is an
          insufficient amount of assets not subject to a CDSC to cover a

                       Capital Income Builder -- Page 49
<PAGE>

          particular SWP payment, shares subject to the lowest CDSC will be
          redeemed next until the 12% limit is reached. Any dividends and/or
          capital gain distributions taken in cash by a shareholder who receives
          payments through a SWP will also count toward the 12% limit. In the
          case of a SWP, the 12% limit is calculated at the time a systematic
          redemption is first made, and is recalculated at the time each
          additional systematic redemption is made. Shareholders who establish a
          SWP should be aware that the amount of a payment not subject to a CDSC
          may vary over time depending on fluctuations in the value of their
          accounts. This privilege may be revised or terminated at any time.

     For purposes of this paragraph, "account" means:

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

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

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

CDSC waivers are allowed only in the cases listed here and in the prospectus.
For example, CDSC waivers will not be allowed on redemptions of Class 529-B and
529-C shares due to termination of CollegeAmerica; a determination by the
Internal Revenue Service that CollegeAmerica does not qualify as a qualified
tuition program under the Code; proposal or enactment of law that eliminates or
limits the tax-favored status of CollegeAmerica; or 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 National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution. The Transfer Agent reserves the
right to require a signature guarantee on any redemptions.

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

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

                       Capital Income Builder -- Page 50
<PAGE>

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.

                  SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

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

AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make
monthly or quarterly investments in the American Funds through automatic debits
from your bank account. To set up a plan, you must fill out an account
application and specify the amount that you would like to invest ($50 minimum
per fund; $25 minimum per fund in the case of employer-sponsored 529 accounts)
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:

                       Capital Income Builder -- Page 51
<PAGE>

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

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

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

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

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

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

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

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

                       Capital Income Builder -- Page 52
<PAGE>

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

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

CHECKWRITING -- You may establish check writing privileges for Class A shares
(but not Class 529-A shares) of American Funds money market funds. This can be
done by using an account application. If you request check writing privileges,
you will be provided with checks that you may use to draw against your account.
These checks may be made payable to anyone you designate and must be signed by
the authorized number of registered shareholders exactly as indicated on your
account application.

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

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

                              GENERAL INFORMATION

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

TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the investment adviser, maintains the records of shareholder accounts, processes
purchases and redemptions of the fund's shares, acts as dividend and capital
gain distribution disbursing agent, and performs other related shareholder
service functions. The principal office of American Funds

                       Capital Income Builder -- Page 53
<PAGE>

Service Company is located at 135 South State College Boulevard, Brea, CA
92821-5823. 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 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

                       Capital Income Builder -- Page 54
<PAGE>

of duplicate confirmation statements; annual recertification of compliance with
codes of ethics; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.

LEGAL PROCEEDINGS -- On February 16, 2005, the NASD filed an administrative
complaint against the Principal Underwriter. The complaint alleges violations of
certain NASD rules by the Principal Underwriter with respect to the selection of
broker-dealer firms that buy and sell securities for mutual fund investment
portfolios. The complaint seeks sanctions, restitution and disgorgement. On
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. The SEC is conducting a related investigation
as of the date of this statement of additional information. The investment
adviser and Principal Underwriter are cooperating fully. In addition, 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."

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

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

                       Capital Income Builder -- Page 55
<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 56
<PAGE>

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

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

                       Capital Income Builder -- Page 57
<PAGE>

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

STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . . . .    2102    2202    2302    2402     2502
American Balanced Fund . . . . . . .    2111    2211    2311    2411     2511
American Mutual Fund . . . . . . . .    2103    2203    2303    2403     2503
Capital Income Builder . . . . . . .    2112    2212    2312    2412     2512
Capital World Growth and Income Fund    2133    2233    2333    2433     2533
EuroPacific Growth Fund  . . . . . .    2116    2216    2316    2416     2516
Fundamental Investors  . . . . . . .    2110    2210    2310    2410     2510
The Growth Fund of America . . . . .    2105    2205    2305    2405     2505
The Income Fund of America . . . . .    2106    2206    2306    2406     2506
The Investment Company of America  .    2104    2204    2304    2404     2504
The New Economy Fund . . . . . . . .    2114    2214    2314    2414     2514
New Perspective Fund . . . . . . . .    2107    2207    2307    2407     2507
New World Fund . . . . . . . . . . .    2136    2236    2336    2436     2536
SMALLCAP World Fund  . . . . . . . .    2135    2235    2335    2435     2535
Washington Mutual Investors Fund . .    2101    2201    2301    2401     2501
BOND FUNDS
American High-Income Municipal Bond
Fund . . . . . . . . . . . . . . . .     N/A     N/A     N/A     N/A     2540
American High-Income Trust . . . . .    2121    2221    2321    2421     2521
The Bond Fund of America . . . . . .    2108    2208    2308    2408     2508
Capital World Bond Fund  . . . . . .    2131    2231    2331    2431     2531
Intermediate Bond Fund of America  .    2123    2223    2323    2423     2523
Limited Term Tax-Exempt Bond Fund of
America. . . . . . . . . . . . . . .     N/A     N/A     N/A     N/A     2543
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 58
<PAGE>

                                    APPENDIX

                    DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S
COMMERCIAL PAPER RATINGS (HIGHEST THREE RATINGS)

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

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

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

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

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

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

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

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

                       Capital Income Builder -- Page 59
<PAGE>

                          DESCRIPTION OF BOND RATINGS

MOODY'S
LONG-TERM RATING DEFINITIONS

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

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

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

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

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

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

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

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

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

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

                       Capital Income Builder -- Page 60
<PAGE>

STANDARD & POOR'S
LONG-TERM ISSUE CREDIT RATINGS

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

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

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

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

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

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

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

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

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

                       Capital Income Builder -- Page 61
<PAGE>

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

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

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

                       Capital Income Builder -- Page 62
```

|                                                                                                                                                                                                  |                                                                                      |                                                         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|--------------------------------------------------------------|
| 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**