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THE INCOME FUND OF AMERICA, INC.

Part B
Statement of Additional Information

July 30, 2008

This document is not a prospectus but should be read in conjunction with the
current prospectus of The Income Fund of America, Inc. (the "fund" or "IFA")
dated July 30, 2008 or retirement plan prospectus of the fund dated
October 1, 2007. You may obtain a prospectus from your financial adviser or
by writing to the fund at the following address:

The Income Fund of America, Inc.
Attention: Secretary
One Market
Steuart Tower, Suite 1800
San Francisco, California 94105
415/421-9360

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. . . . . . . . . . 11
Management of the fund . . . . . . . . . . . . . . . . . . . . . . 13
Execution of portfolio transactions . . . . . . . . . . . . . . . . 32
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 35
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 38
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 43
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 50
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Shareholder account services and privileges . . . . . . . . . . . . 55
General information . . . . . . . . . . . . . . . . . . . . . . . . 57
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Financial statements

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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

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

OBJECTIVE

. The fund will invest at least 65% of its assets in income-producing
securities.

EQUITY SECURITIES

. The fund will generally invest at least 60% of its assets in equity
securities. However, the composition of the fund's investments in equity,
debt and cash or money market instruments may vary substantially depending
on various factors, including market conditions. At times the fund may be
substantially invested in equity or debt securities (i.e., more than 60%)
or may be solely invested in equity or debt securities (i.e., 100%).

DEBT SECURITIES

. The fund may invest up to 20% of its assets in straight debt securities
(i.e., debt securities that do not have equity conversion or purchase
rights) rated BB or below by Standard & Poor's Corporation (S&P) and Ba or
below by Moody's Investors Service (Moody's) or unrated but determined to
be of equivalent quality by the fund's investment adviser.

INVESTING OUTSIDE THE U.S.

. The fund may invest up to 25% of its assets in equity securities of issuers
domiciled outside the United States and not included in the S&P 500
Composite Index.

. The fund may invest up to 10% of its assets in debt securities of issuers
domiciled outside the United States (must be U.S. dollar denominated).

* * * * * *

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
and may also include securities with equity conversion or purchase rights. The
prices of equity securities fluctuate based on, among other things, events
specific to their issuers and market, economic and other conditions. For
example, prices of these securities can be affected by financial contracts held
by the issuer or third parties (such as derivatives) relating to the security or
other assets or indices.

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

INVESTING IN SMALLER CAPITALIZATION STOCKS -- The fund may invest in the stocks
of smaller capitalization companies (typically companies with market
capitalizations of less than $3.5 billion at the time of purchase). The
investment adviser believes that the issuers of smaller 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 operating histories,
limited markets or financial resources, may be dependent on one or a few key
persons for management 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 their values accrete over
time to face value at maturity. The market prices of debt securities fluctuate
depending on such factors as interest rates, credit quality and maturity. In
general, market prices of debt securities decline when interest rates rise and
increase when interest rates fall.

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

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

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be
sensitive to economic changes, political and corporate developments, and
interest rate changes. In addition, during an economic downturn or
substantial period of rising interest rates, issuers that are highly
leveraged may experience increased financial stress that would adversely
affect their ability to meet projected business goals, to obtain additional
financing and to service their principal and interest payment obligations.
Periods of economic change and uncertainty also can be expected to result
in increased volatility of market prices and yields of certain debt
securities. For example, prices of these securities can be affected by
financial contracts held by the issuer or third parties (such as
derivatives) relating to the security or other assets or indices.

PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
provisions. If an issuer exercises these provisions in a lower interest
rate market, the fund would have to replace the security with a lower
yielding security, resulting in decreased income to

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investors. If the issuer of a debt security defaults on its obligations to
pay interest or principal or is the subject of bankruptcy proceedings, the
fund may incur losses or expenses in seeking recovery of amounts owed to
it.

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

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

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

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

SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS -- The fund may invest in
securities that have a combination of equity and debt characteristics. These
securities may at times behave more like equity than debt or vice versa. Some
types of convertible bonds, preferred stocks or other preferred securities
automatically convert into common stocks or other securities at a stated
conversion ratio and some may be subject to redemption at the option of the
issuer at a predetermined price. 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 values vary in response to many factors,
including the values of the securities into which they are convertible, 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.

The prices and yields of nonconvertible preferred securities or preferred stocks
generally move with changes in interest rates and the issuer's credit quality,
similar to the factors affecting debt securities. Nonconvertible preferred
securities will be treated as debt for fund investment limit purposes.

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

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investment adviser, investing outside the United States also can reduce certain
portfolio risks due to greater diversification opportunities.

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

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

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

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ration (OPIC), the Commodity Credit Corporation (CCC) and the Small
Business Administration (SBA).

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

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

MORTGAGE-BACKED SECURITIES -- These securities may be issued by U.S.
government agencies and government-sponsored entities, such as Ginnie Mae,
Fannie Mae and Freddie Mac, and by private entities. The payment of
interest and principal on mortgage-backed obligations issued by U.S.
government agencies may be guaranteed by the full faith and credit of the
U.S. government (in the case of Ginnie Mae), or may be guaranteed by the
issuer (in the case of Fannie Mae and Freddie Mac). However, these
guarantees do not apply to the market prices and yields of these
securities, which vary with changes in interest rates.

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

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) -- CMOs are also backed by a
pool of mortgages or mortgage loans, which are divided into two or more
separate bond issues. CMOs issued by U.S. government agencies are backed by
agency mortgages, while privately issued CMOs may be backed by either
government agency mortgages or private 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.

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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 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.

INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities and corporations.

The principal amount of an inflation-indexed bond is adjusted in response to
changes in the level of the consumer price index. Repayment of the original bond
principal upon maturity (as adjusted for inflation) is guaranteed in the case of
U.S. Treasury inflation-indexed bonds, and therefore the principal amount of
such bonds cannot be reduced below par even during a period of deflation.
However, the current market value of these bonds is not guaranteed and will
fluctuate, reflecting the rise and fall of yields. In certain jurisdictions
outside the United States the repayment of the original bond principal upon the
maturity of an inflation-indexed bond is not guaranteed, allowing for the amount
of the bond repaid at maturity to be less than par.

The interest rate for inflation-indexed bonds is fixed at issuance as a
percentage of this adjustable principal. Accordingly, the actual interest income
may both rise and fall as the principal amount of the bonds adjusts in response
to movements of the consumer price index. For

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example, typically interest income would rise during a period of inflation and
fall during a period of deflation.

REINSURANCE RELATED NOTES AND BONDS -- The fund may invest in reinsurance
related notes and bonds. These instruments, which are typically issued by
special purpose reinsurance companies, transfer an element of insurance risk to
the note or bond holders. For example, such a note or bond could provide that
the reinsurance company would not be required to repay all or a portion of the
principal value of the note or bond if losses due to a catastrophic event under
the policy (such as a major hurricane) exceed certain dollar thresholds.
Consequently, the fund may lose the entire amount of its investment in such
bonds or notes if such an event occurs and losses exceed certain dollar
thresholds. In this instance, investors would have no recourse against the
insurance company. These instruments may be issued with fixed or variable
interest rates and rated in a variety of credit quality categories by the rating
agencies.

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

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 can
change from time to time. The fund may incur certain additional costs in
disposing of illiquid securities.

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

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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.

LOAN ASSIGNMENTS AND PARTICIPATIONS -- The fund may invest in loans or other
forms of indebtedness that represent interests in amounts owed by corporations
or other borrowers (collectively "borrowers"). The investment adviser defines
debt securities to include investments in loans, such as loan assignments and
participations. Loans may be originated by the borrower in order to address its
working capital needs, as a result of a reorganization of the borrower's assets
and liabilities (recapitalizations), to merge with or acquire another company
(mergers and acquisitions), to take control of another company (leveraged
buy-outs), to provide temporary financing (bridge loans), or for other corporate
purposes. Most corporate loans are variable or floating rate obligations.

Some loans may be secured in whole or in part by assets or other collateral. In
other cases, loans may be unsecured or may become undersecured by the value of
assets or other collateral securing such loan. The greater the value of the
assets securing the loan the more the lender is protected against loss in the
case of nonpayment of principal or interest. Some borrowers may be highly
leveraged which could make loans made to them especially vulnerable to adverse
changes in economic or market conditions and may involve a greater risk of
default.

The investment adviser generally makes investment decisions based on publicly
available information, but may rely on non-public information if necessary.
Borrowers may offer to provide lenders with material, non-public information
regarding a specific loan or the borrower in general. The investment adviser
generally chooses not to receive this information. As a result, the investment
adviser may be at a disadvantage with respect to other investors that may
receive such information. The investment adviser's decision not to receive
material, non-public information may impact the investment adviser's ability to
assess borrowers' requests for amendments or waivers to provisions in the loan
agreement. However, the investment adviser may on a case-by-case basis decide to
receive such information when it deems prudent to do so. In these situations the
investment adviser may be restricted from trading the loan or other debt and
equity securities of the borrower while it is in possession of such material,
non-public information, even if such loan or other security is declining in
value.

The fund normally acquires loan obligations through an assignment from another
lender, or it may acquire loan obligations by purchasing a participation
interest from a lender or other holder of the interest. When the fund purchases
assignments it acquires direct contractual rights against the borrower on the
loan. The fund acquires the right to receive principal and interest payments
directly from the borrower and to enforce its rights as a lender directly
against the borrower. However, because assignments are arranged through private
negotiations between potential assignees and potential assignors, the rights and
obligations acquired by a fund as the purchaser of an assignment may differ
from, and be more limited than, those held by the assigning lender.

Loan participations are loans or other direct debt instruments that are
interests in amounts owed by the borrower to another party. They may represent
amounts owed to lenders or lending syndicates, to suppliers of goods or
services, or to other parties. The fund will have the right to receive payments
of principal, interest and any fees to which it is entitled only from the lender
selling the participation and only upon receipt by the lender of the payments
from the borrower. In connection with purchasing participations, the fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan, nor any

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rights of set-off against the borrower. In addition, the fund may not directly
benefit from any collateral supporting the loan in which it has purchased the
participation and the fund will have to rely on the agent bank or other
financial intermediary to apply appropriate credit remedies. As a result, the
fund will be subject to the credit risk of both the borrower and the lender that
is selling the participation. In the event of the insolvency of the lender
selling a participation, a fund may be treated as a general creditor of the
lender and may not benefit from any set-off between the lender and the borrower.

Loan assignments and participations are generally subject to legal or
contractual restrictions on resale and are not currently listed on any
securities exchange or automatic quotation system. The investment adviser
expects that most loan assignments and participations purchased for the fund
will trade on a secondary market. However, although secondary markets for
investments in loans are growing among institutional investors, there may be a
limited number of investors interested in a specific loan. It is possible that
loan participations, in particular, could be sold only to a limited number of
institutional investors. If there is no active secondary market for a particular
loan, it may be difficult for the investment adviser to sell the fund's interest
in such loan at a price that is acceptable to it and to obtain pricing
information on such loan.

Investments in loan participations and assignments present the possibility that
the fund could be held liable as a co-lender under emerging legal theories of
lender liability. In addition, if the loan is foreclosed, the fund could be part
owner of any collateral and could bear the costs and liabilities of owning and
disposing of the collateral. In addition, some loan participations and
assignments may not be rated by major rating agencies and may not be protected
by the securities laws.

FORWARD COMMITMENT, WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The fund
may enter into commitments to purchase or sell securities at a future date. When
the fund agrees to purchase such securities, it assumes the risk of any decline
in value of the security from the date of the agreement. If the other party to
such a transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could experience a loss.

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

The fund may also enter into "roll" transactions which involve 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 which will be marked to market daily in an amount
sufficient to meet its payment obligations in these transactions.

The Income Fund of America -- Page 10
<PAGE>

* * * * * *

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.

The fund's portfolio turnover rates for the fiscal years ended July 31, 2007 and
2006 were 32% and 35%, respectively. The portfolio turnover rate would equal
100% if each security in a fund's portfolio were replaced once per year. 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.

The fund may not:

1. Act as underwriter of securities issued by other persons.

2. Invest more than 10% of the value of its total assets in securities that
are illiquid.

3. Borrow money, except temporarily for extraordinary or emergency purposes,
in an amount not exceeding 5% of the value of the fund's total assets at the
time of such borrowing.

4. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (this shall not prevent the fund from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business).

5. Purchase or deal in commodities or commodity contracts.

6. Lend any security or make any other loan if, as a result, more than 15% of
its total assets would be lent to third parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements.

The Income Fund of America -- Page 11
<PAGE>

7. Purchase securities of any company for the purpose of exercising control or
management.

8. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.

9. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.

10. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.

11. Purchase any securities of any issuer, except the U.S. government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that this
restriction shall apply only as to 75% of the fund's total assets.

12. Purchase any securities (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 purchase 25% or more of the market value of the total assets
of the fund would be invested in securities of companies in any one industry.

For purposes of Investment Restriction #2, restricted securities are treated as
illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's board of
directors. In addition, the fund may not invest more than 15% of the value of
its net assets in securities that are illiquid. Furthermore, the fund may not
issue senior securities.

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

1. The fund does not currently intend to engage in an ongoing or regular
securities lending program.

2. The fund may not invest in securities of other investment companies, except
as permitted by the 1940 Act.

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

Notwithstanding non-fundamental Investment Restrictions #2 and #3, the fund may
invest in securities of other investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by directors pursuant to an exemptive order granted by the SEC.

The Income Fund of America -- Page 12
<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
---------------------------------------------------------------------------------------------------------

Robert A. Fox, 71 Managing General Partner, 7 Chemtura Corporation
Director (1972) Fox Investments LP;
corporate director;
retired President and CEO,
Foster Farms (poultry
producer)
---------------------------------------------------------------------------------------------------------
Leonade D. Jones, 60 Co-founder, VentureThink 6 None
Chairman of the Board LLC (developed and managed
(Independent and e-commerce businesses) and
Non-Executive) (1993) Versura Inc. (education
loan exchange); former
Treasurer, The Washington
Post Company
---------------------------------------------------------------------------------------------------------
John M. Lillie, 71 Former President, Sequoia 2 None
Director, (2003) Associates LLC (investment
firm specializing in
medium-size buyouts);
former CEO, American
President Companies
(container shipping and
transportation services);
former CEO, Lucky Stores;
former CEO, Leslie Salt
---------------------------------------------------------------------------------------------------------
John G. McDonald, 71 Stanford Investors 8 iStar Financial, Inc.;
Director (1976) Professor, Graduate School Plum Creek Timber Co.;
of Business, Stanford Scholastic Corporation;
University Varian, Inc.
---------------------------------------------------------------------------------------------------------
Henry E. Riggs, 73 President Emeritus, Keck 4 None
Director (1989) Graduate Institute of
Applied Life Sciences
---------------------------------------------------------------------------------------------------------
Isaac Stein, 61 President, Waverley 2 Alexza Pharmaceuticals,
Director (2004) Associates (private Inc.; Maxygen, Inc.
investment fund); Chairman
Emeritus of the Board of
Trustees, Stanford
University
---------------------------------------------------------------------------------------------------------
Patricia K. Woolf, Ph.D., Private investor; 6 None
73 corporate director; former
Director (1985) Lecturer, Department of
Molecular Biology,
Princeton University
---------------------------------------------------------------------------------------------------------

The Income Fund of America -- Page 13
<PAGE>

"INTERESTED" DIRECTORS/5/

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

Hilda L. Applbaum, 47 Senior Vice President - 1 None
Vice Chairman of the Board Capital World Investors,
(1998) Capital Research and
Management Company
---------------------------------------------------------------------------------------------------------

The Income Fund of America -- Page 14
<PAGE>

OTHER OFFICERS/6/

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

David C. Barclay, 51 Senior Vice President - Fixed Income, Capital
President (1998) Research and Management Company; Director, The
Capital Group Companies, Inc.*
---------------------------------------------------------------------------------
Abner D. Goldstine, 78 Senior Vice President - Fixed Income, Capital
Senior Vice President Research and Management Company; Director, Capital
(1993) Research and Management Company

---------------------------------------------------------------------------------
Dina N. Perry, 62 Senior Vice President - Capital World Investors,
Senior Vice President Capital Research and Management Company; Director,
(1994) Capital Research and Management Company
---------------------------------------------------------------------------------
Paul F. Roye, 54 Senior Vice President - Fund Business Management
Senior Vice President Group, Capital Research and Management Company;
(2007) Director, American Funds Service Company*; former
Director of Investment Management, United States
Securities and Exchange Commission
---------------------------------------------------------------------------------
Andrew B. Suzman, 41 Senior Vice President - Capital World Investors,
Senior Vice President Capital Research Company*; Director, Capital Research
(2004) Company*
---------------------------------------------------------------------------------
Joanna F. Jonsson, 44 Senior Vice President - Capital World Investors,
Vice President (2006) Capital Research Company*; Director, The Capital
Group Companies, Inc.*; Director, American Funds
Distributors, Inc.*; Director, Capital International
Limited*
---------------------------------------------------------------------------------
Mary E. Sheridan, 58 Vice President - Capital World Investors, Capital
Vice President (2004) Research Company*
---------------------------------------------------------------------------------
John H. Smet, 51 Senior Vice President - Fixed Income, Capital
Vice President (1994) Research and Management Company; Director, American
Funds Distributors, Inc.*
---------------------------------------------------------------------------------
Steven T. Watson, 53 Senior Vice President - Capital World Investors,
Vice President (2006) Capital Research Company*; Director, Capital Research
Company*; Director, The Capital Group Companies,
Inc.*
---------------------------------------------------------------------------------
Patrick F. Quan, 50 Vice President - Fund Business Management Group,
Secretary (1986) Capital Research and Management Company
---------------------------------------------------------------------------------
Jennifer M. Buchheim, 34 Vice President - Fund Business Management Group,
Treasurer (2005) Capital Research and Management Company
---------------------------------------------------------------------------------
R. Marcia Gould, 53 Vice President - Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
(1999)
---------------------------------------------------------------------------------

* Company affiliated with Capital Research and Management Company.

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

/2/ Directors and officers of the fund serve until their resignation, removal or
retirement.
/3/ Funds managed by Capital Research and Management Company, including the
American Funds; American Funds Insurance Series,(R) which is composed of 15
funds and serves as the underlying investment vehicle for certain variable
insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
which is composed of nine funds and is available through tax-deferred
retirement plans and IRAs; and Endowments, which is composed of two portfolios
and is available to certain nonprofit organizations.
/4/ This includes all directorships (other than those in the American Funds or
other funds managed by Capital Research and Management Company) that are held
by each director as a director of a public company or a registered investment
company.

/5/ "Interested persons" of the fund within the meaning of the 1940 Act, on the
basis of their affiliation with the fund's investment adviser, Capital Research
and Management Company, or affiliated entities (including the fund's principal
underwriter).
/6/ All of the officers listed, except Joanna F. Jonsson and Mary E. Sheridan, 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.

The Income Fund of America -- Page 15
<PAGE>

FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2007

AGGREGATE DOLLAR RANGE/1/
OF SHARES
OWNED IN ALL FUNDS
IN THE AMERICAN FUNDS
DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN
NAME SHARES OWNED/2/ BY DIRECTOR
-------------------------------------------------------------------------------

"INDEPENDENT" DIRECTORS
-------------------------------------------------------------------------------
Robert A. Fox Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Leonade D. Jones Over $100,000 Over $100,000
-------------------------------------------------------------------------------
John M. Lillie Over $100,000 Over $100,000
-------------------------------------------------------------------------------
John G. McDonald $10,001 - $50,000 Over $100,000
-------------------------------------------------------------------------------
Henry E. Riggs Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Isaac Stein Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Patricia K. Woolf Over $100,000 Over $100,000
-------------------------------------------------------------------------------
"INTERESTED" DIRECTOR
-------------------------------------------------------------------------------
Hilda L. Applbaum 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/ An independent director may have exposure to the fund through an allocation of
some or all of his or her nonqualified deferred compensation account.

DIRECTOR COMPENSATION -- No compensation is paid by the fund to any officer or
director who is a director, officer or employee of the investment adviser or its
affiliates. The boards of funds advised by the investment adviser typically meet
either individually or jointly with the boards of one or more other such funds
with substantially overlapping board membership (in each case referred to as a
"board cluster"). The fund typically pays each independent director an annual
fee, which ranges from $16,500 to $35,000, based primarily on the total number
of board clusters on which that independent director serves.

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

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

No pension or retirement benefits are accrued as part of fund expenses.
Independent directors may elect, on a voluntary basis, to defer all or a portion
of their fees through a deferred

The Income Fund of America -- Page 16
<PAGE>

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 JULY 31, 2007

TOTAL COMPENSATION (INCLUDING
VOLUNTARILY DEFERRED
AGGREGATE COMPENSATION 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/
--------------------------------------------------------------------------------------------------

Robert A. Fox/3/ $42,850 $282,041
--------------------------------------------------------------------------------------------------
Leonade D. Jones/3/ 63,625 324,875
--------------------------------------------------------------------------------------------------
John M. Lillie 63,750 129,750
--------------------------------------------------------------------------------------------------
John G. McDonald/3/ 49,687 367,000
--------------------------------------------------------------------------------------------------
Henry E. Riggs/3/ 50,771 246,021
--------------------------------------------------------------------------------------------------
Isaac Stein 55,750 113,750
--------------------------------------------------------------------------------------------------
Patricia K. Woolf/3/ 53,292 290,875
--------------------------------------------------------------------------------------------------

/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 July 31, 2007 does not include earnings on amounts deferred in
previous fiscal years. See footnote 3 to this table for more information.
/2/ Funds managed by Capital Research and Management Company, including the
American Funds; American Funds Insurance Series,(R) which is composed of 15
funds and serves as the underlying investment vehicle for certain variable
insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
which is composed of nine funds and is available through tax-deferred
retirement plans and IRAs; and Endowments, which is composed of two portfolios
and is available to certain nonprofit organizations.

/3/ Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) through the 2007
fiscal year for participating directors is as follows: Robert A. Fox
($1,117,832), Leonade D. Jones ($181,591), John G. McDonald ($622,428), Henry
E. Riggs ($617,253) and Patricia K. Woolf ($291,079). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the directors.

As of June 1, 2008, the officers and directors of the fund and their families,
as a group, owned beneficially or of record less than 1% of the outstanding
shares of the fund.

FUND ORGANIZATION AND THE BOARD OF DIRECTORS -- The fund, an open-end,
diversified management investment company, was organized as a Delaware
corporation on March 8, 1969 and reorganized as a Maryland corporation on
December 16, 1983. 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.

The Income Fund of America -- Page 17
<PAGE>

Independent board members are paid certain fees for services rendered to the
fund as described above. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund.

The fund has several different classes of shares. Shares of each class represent
an interest in the same investment portfolio. Each class has pro rata rights as
to voting, redemption, dividends and liquidation, except that each class bears
different distribution expenses and may bear different transfer agent fees and
other expenses properly attributable to the particular class as approved by the
board of directors and set forth in the fund's rule 18f-3 Plan. Each class'
shareholders have exclusive voting rights with respect to the respective class'
rule 12b-1 plans adopted in connection with the distribution of shares and on
other matters in which the interests of one class are different from interests
in another class. Shares of all classes of the fund vote together on matters
that affect all classes in substantially the same manner. Each class votes as a
class on matters that affect that class alone. Note that 529 college savings
plan account owners invested in Class 529 shares are not shareholders of the
fund and, accordingly, do not have the rights of a shareholder, such as the
right to vote proxies relating to fund shares. As the legal owner of the fund's
Class 529 shares, the Virginia College Savings Plan/SM/ will vote any proxies
relating to such fund shares.

The fund does not hold annual meetings of shareholders. However, significant
matters that require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.

The fund's articles of incorporation and by-laws as well as separate
indemnification agreements that the fund has entered into with independent
directors provide in effect that, subject to certain conditions, the fund will
indemnify its officers and directors against liabilities or expenses actually
and reasonably incurred by them relating to their service to the fund. However,
directors are not protected from liability by reason of their willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office.

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

COMMITTEES OF THE BOARD OF DIRECTORS -- The fund has an audit committee
comprised of Robert A. Fox, Leonade D. Jones, John M. Lillie and Isaac Stein,
none of whom is an "interested person" of the fund within the meaning of the
1940 Act. The committee provides oversight regarding the fund's accounting and
financial reporting policies and practices, its internal controls and the
internal controls of the fund's principal service providers. The committee acts
as a liaison between the fund's independent registered public accounting firm
and the full board of directors. Four audit committee meetings were held during
the 2007 fiscal year.

The Income Fund of America -- Page 18
<PAGE>

The fund has a contracts committee comprised of Robert A. Fox, Leonade D. Jones,
John M. Lillie, John G. McDonald, Henry E. Riggs, Isaac Stein and Patricia K.
Woolf, 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 2007 fiscal year.

The fund has a nominating committee comprised of John M. Lillie, John G.
McDonald, Henry E. Riggs and Patricia K. Woolf, 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. Seven nominating committee
meetings were held during the 2007 fiscal year.

The fund has a proxy committee comprised of Robert A. Fox, Leonade D. Jones,
John G. McDonald, Isaac Stein and Patricia K. Woolf, none of whom is an
"interested person" of the fund within the meaning of the 1940 Act. The
committee's functions include establishing and reviewing procedures and policies
for voting proxies of companies held in the fund's portfolio, making
determinations with regard to certain contested proxy voting issues, and
discussing related current issues. Four proxy committee meetings were held
during the 2007 fiscal year.

PROXY VOTING PROCEDURES AND PRINCIPLES -- The fund and its investment adviser
have adopted Proxy Voting Procedures and Principles (the "Principles") with
respect to voting proxies of securities held by the fund, other American Funds,
Endowments and American Funds Insurance Series. The complete text of these
principles is available on the American Funds website at americanfunds.com.
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 appropriate equity investment division of the
investment adviser under authority delegated by those funds' boards. Therefore,
if more than one fund invests in the same company, they may vote differently on
the same proposal.

All U.S. proxies are voted. Proxies for companies outside the U.S. also are
voted, provided there is sufficient time and information available. After a
proxy statement is received, the investment adviser prepares a summary of the
proposals contained in the proxy statement. A discussion of any potential
conflicts of interest also is included in the summary. For proxies of securities
managed by a particular investment division of the investment adviser, the
initial voting recommendation is made by one or more of the division's
investment analysts familiar with the company and industry. A second
recommendation is made by a proxy coordinator (an investment

The Income Fund of America -- Page 19
<PAGE>

analyst with experience in corporate governance and proxy voting matters) within
the appropriate investment division, based on knowledge of these Principles and
familiarity with proxy-related issues. The proxy summary and voting
recommendations are made available to the appropriate proxy voting committee for
a 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 Principles, 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 Principles 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 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 Principles is available upon request, free
of charge, by calling American Funds Service Company or visiting the American
Funds website.

DIRECTOR MATTERS -- The election of a company's slate of nominees for
director generally is 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 also may be
supported.

GOVERNANCE PROVISIONS -- Typically, proposals to declassify a board (elect
all directors annually) are supported based on the belief that this
increases the directors' sense of accountability to shareholders. Proposals
for cumulative voting generally are supported in order to promote
management and board accountability and an opportunity for leadership
change. Proposals designed to make director elections more meaningful,
either by requiring a majority vote or by requiring any director receiving
more withhold votes to tender his or her resignation, generally are
supported.

SHAREHOLDER RIGHTS -- Proposals to repeal an existing poison pill generally
are supported. (There may be certain circumstances, however, when a proxy
voting committee of a fund or an investment division of the investment
adviser believes that a company needs to maintain anti-takeover
protection.) 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 typically are not supported.

The Income Fund of America -- Page 20
<PAGE>

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 generally are voted in favor of
management's recommendations unless circumstances indicate otherwise.

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 June 1, 2008. 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 27.36%
Maryland Hts, MO Class B 14.64
----------------------------------------------------------------------------
A G Edwards & Sons Inc. Class A 5.82
Saint Louis, MO Class C 6.49
----------------------------------------------------------------------------
Merrill Lynch Class B 8.48
Jacksonville, FL Class C 17.64
----------------------------------------------------------------------------
First Clearing LLC Class B 7.56
Glen Allen, VA Class C 6.27
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class B 7.08
New York, NY Class C 15.13
----------------------------------------------------------------------------
Charles Schwab & Co. Inc. Class F-1 8.86
San Francisco, CA
----------------------------------------------------------------------------
Prudential Investment Management Service Class F-1 5.22
Newark, NJ
----------------------------------------------------------------------------
Hartford Life Insurance Co. Class R-1 40.69
Hartford, CT Class R-3 10.94
----------------------------------------------------------------------------
ING Life Insurance & Annuity Class R-3 15.17
Hartford, CT
----------------------------------------------------------------------------
Nationwide Trust Company Class R-3 5.14
Columbus, OH Class R-5 8.77
----------------------------------------------------------------------------
Principal Financial Group Class R-4 7.51
Des Moines, IA
----------------------------------------------------------------------------
INTERSIL Class R-5 8.17
Baltimore, MD
----------------------------------------------------------------------------
American Funds 2020 Target Date Retirement Fund Class R-5 5.90
Norfolk, VA
----------------------------------------------------------------------------
KLA TENCOR Class R-5 5.45
Lewisville, TX
----------------------------------------------------------------------------
American Funds 2015 Target Date Retirement Fund Class R-5 5.17
Norfolk, VA
----------------------------------------------------------------------------

The Income Fund of America -- Page 21
<PAGE>

UNLESS OTHERWISE NOTED, REFERENCES IN THIS STATEMENT OF ADDITIONAL INFORMATION
TO CLASS F SHARES, CLASS R SHARES OR CLASS 529 SHARES REFER TO BOTH F SHARE
CLASSES, ALL R SHARE CLASSES OR ALL 529 SHARE CLASSES, RESPECTIVELY.

INVESTMENT ADVISER -- Capital Research and Management Company, the fund's
investment adviser, founded in 1931, maintains research facilities in the United
States and abroad (Los Angeles, San Francisco, New York, Washington, DC, London,
Geneva, Hong Kong, Singapore and Tokyo). These facilities are staffed with
experienced investment professionals. The investment adviser is located at 333
South Hope Street, Los Angeles, CA 90071 and 6455 Irvine Center Drive, Irvine,
CA 92618. It is a wholly owned subsidiary of The Capital Group Companies, Inc.,
a holding company for several investment management subsidiaries. Capital
Research and Management Company manages equity assets through two investment
divisions, Capital World Investors and Capital Research Global Investors, and
manages fixed-income assets through its Fixed Income division. Capital World
Investors and Capital Research Global Investors make investment decisions on an
independent basis.

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

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

Portfolio counselors and investment analysts 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 plans will vary depending on
the individual's portfolio results, contributions to the organization and other
factors.

To encourage a long-term focus, bonuses based on investment results are
calculated by comparing pretax total investment returns to relevant benchmarks
over the most recent year, a four-year rolling average and an eight-year rolling
average with much greater weight placed on the four-year and eight-year rolling
averages. For portfolio counselors, benchmarks may include measures of the
marketplaces in which the fund invests and measures of the results of comparable
mutual funds. For investment analysts, benchmarks may include relevant market

The Income Fund of America -- Page 22
<PAGE>

measures and appropriate industry or sector indexes reflecting their areas of
expertise. Capital Research and Management Company makes periodic subjective
assessments of analysts' contributions to the investment process and this is an
element of their overall compensation. The investment results of the fund's
portfolio counselors may be measured against one or more of the following
benchmarks, depending on his or her investment focus: Lipper Income Funds Index,
Credit Suisse First Boston High Yield Bond Index, Lipper High Current Yield Bond
Funds Average and Lehman Brothers U.S. Aggregate Index.

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 JULY 31, 2007:

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

Hilda L. Applbaum $100,001 - 2 $ 59.3 None None
$500,000
----------------------------------------------------------------------------------------------
David C. Barclay Over 4 $162.4 4 $1.36 13 $2.68
$1,000,000
----------------------------------------------------------------------------------------------
Abner D. $500,001 - 4 $147.4 None None
Goldstine $1,000,000
----------------------------------------------------------------------------------------------
Dina N. Perry $100,001 - 3 $162.7 1 $1.00 None
$500,000
----------------------------------------------------------------------------------------------
Andrew B. Suzman Over 1 $101.1 None None
$1,000,000
----------------------------------------------------------------------------------------------
Joanna F. Jonsson $100,001 - 1 $ 57.8 1 $0.09 None
$500,000
----------------------------------------------------------------------------------------------
John H. Smet $50,001 - 7 $201.7 None 3 $2.46
$100,000
----------------------------------------------------------------------------------------------
Steven T. Watson $50,001 - 2 $159.2 None None
$100,000
----------------------------------------------------------------------------------------------
Grant L. $50,001 - None None None
Cambridge $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.

The Income Fund of America -- Page 23
<PAGE>

/2/ Indicates fund(s) where the portfolio counselor also has significant
responsibilities for the day to day management of the fund(s). Assets noted are
the total net assets of the registered investment companies and are not
indicative of the total assets managed by the individual, which is a
substantially lower amount. No fund has an advisory fee that is based on the
performance of the fund.
/3/ Represents funds advised or sub-advised by Capital Research and Management
Company and sold outside the United States and/ or fixed-income assets in
institutional accounts managed by investment adviser subsidiaries of Capital
Group International, Inc., an affiliate of Capital Research and Management
Company. Assets noted are the total net assets of the funds or accounts and are
not indicative of the total assets managed by the individual, which is a
substantially lower amount. No fund or account has an advisory fee that is
based on the performance of the fund or account.
/4/ Reflects other professionally managed accounts held at companies affiliated
with Capital Research and Management Company. Personal brokerage accounts of
portfolio counselors and their families are not reflected.

INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the investment adviser will
continue in effect until December 31, 2008, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (a) the board of directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (b) the vote of a majority of directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the investment adviser has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written notice to the other party, and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).

In addition to providing investment advisory services, the investment adviser
furnishes the services and pays the compensation and travel expenses of persons
to perform the fund's executive, administrative, clerical and bookkeeping
functions, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies and postage used at
the fund's offices. The fund pays all expenses not assumed by the investment
adviser, including, but not limited to: custodian, stock transfer and dividend
disbursing fees and expenses; shareholder recordkeeping and administrative
expenses; costs of the designing, printing and mailing of reports, prospectuses,
proxy statements and notices to its shareholders; 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 and does not include gains or
losses from sales of capital assets.

The management fee is based upon the annual rates of 0.25% on the first $500
million of the fund's daily net assets, 0.23% on daily net assets in excess of
$500 million but not exceeding $1 billion, 0.21% on daily net assets in excess
of $1 billion but not exceeding $1.5 billion, 0.19% on daily net assets in
excess of $1.5 billion but not exceeding $2.5 billion, 0.17% on daily net assets
in excess of $2.5 billion but not exceeding $4 billion, 0.16% on daily net
assets in excess of $4 billion but not exceeding $6.5 billion, 0.15% on daily
net assets in excess of $6.5 billion but not exceeding $10.5 billion, 0.144% on
daily net assets in excess of $10.5 billion but not exceeding $13 billion,
0.141% on daily net assets in excess of $13 billion but not exceeding $17
billion, 0.138% on daily net assets in excess of $17 billion but not exceeding
$21 billion, 0.135% on daily

The Income Fund of America -- Page 24
<PAGE>

net assets in excess of $21 billion but not exceeding $27 billion, 0.133% on
daily net assets in excess of $27 billion but not exceeding $34 billion, 0.131%
on daily net assets in excess of $34 billion but not exceeding $44 billion,
0.129% on daily net assets in excess of $44 billion but not exceeding $55
billion, 0.127% on daily net assets in excess of $55 billion but not exceeding
$71 billion, and 0.125% on daily net assets in excess of $71 billion but not
exceeding $89 billion, 0.123% on daily net assets in excess of $89 billion, plus
2.25% of the fund's gross investment income for the preceding month.

The Agreement provides for a management fee reduction to the extent that the
annual ordinary operating expenses of the fund's Class A shares exceed 1 1/2% of
the first $30 million of the net assets of the fund and 1% of the average net
assets in excess thereof. Expenses which are not subject to these limitations
are interest, taxes and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses. To the extent the fund's management fee must be waived due to Class
A share expense ratios exceeding the expense limitations described above,
management fees will be reduced similarly for all classes of shares of the fund,
or other Class A fees will be waived in lieu of management fees.

For the fiscal years ended July 31, 2007, 2006 and 2005, the investment adviser
was entitled to receive from the fund management fees of $193,966,000,
$157,792,000 and $131,860,000, respectively. After giving effect to the
management fee waiver described below, the fund paid the investment adviser
management fees of $174,569,000 (a reduction of $19,397,000), $142,013,000 (a
reduction of $15,779,000) and $123,455,000 (a reduction of $8,405,000) for the
fiscal years ended July 31, 2007, 2006 and 2005, respectively.

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

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
December 31, 2008, unless sooner terminated, and may be renewed from year to
year thereafter, provided that any such renewal has been specifically approved
at least annually by the vote of a majority of directors who are not parties to
the Administrative Agreement or interested persons (as defined in the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. The fund may terminate the Administrative Agreement at any
time by vote of a majority of independent directors. The investment adviser has
the right to terminate the Administrative Agreement upon 60 days' written notice
to the fund. The Administrative Agreement automatically terminates in the event
of its assignment (as defined in the 1940 Act).

Under the Administrative Agreement, the investment adviser provides certain
transfer agent and administrative services for shareholders of the fund's Class
C and F shares, and Class R and 529 shares. The investment adviser may contract
with third parties, including American Funds Service Company/(R)/, the fund's
Transfer Agent, to provide some of these services. Services include, but are not
limited to, shareholder account maintenance, transaction processing, tax

The Income Fund of America -- Page 25
<PAGE>

information reporting and shareholder and fund communications. In addition, the
investment adviser monitors, coordinates, oversees and assists with the
activities performed by third parties providing such services. For Class 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 July 31, 2007, the total fees paid by the investment
adviser were $107,000.

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, based principally on the number of accounts serviced, contained in a
Shareholder Services Agreement between the fund and American Funds Service
Company.

During the 2007 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

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

CLASS C $9,143,000
--------------------------------------------------------------------------------
CLASS F-1 2,430,000
--------------------------------------------------------------------------------
CLASS 529-A 446,000
--------------------------------------------------------------------------------
CLASS 529-B 98,000
--------------------------------------------------------------------------------
CLASS 529-C 215,000
--------------------------------------------------------------------------------
CLASS 529-E 22,000
--------------------------------------------------------------------------------
CLASS 529-F-1 11,000
--------------------------------------------------------------------------------
CLASS R-1 88,000
--------------------------------------------------------------------------------
CLASS R-2 2,052,000
--------------------------------------------------------------------------------
CLASS R-3 1,478,000
--------------------------------------------------------------------------------
CLASS R-4 509,000
--------------------------------------------------------------------------------
CLASS R-5 232,000
--------------------------------------------------------------------------------

PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION -- American Funds
Distributors/(R)/, Inc. (the "Principal Underwriter") is the principal
underwriter of the fund's shares. The Principal Underwriter is located at 333
South Hope Street, Los Angeles, CA 90071; 6455 Irvine Center

The Income Fund of America -- Page 26
<PAGE>

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

The Principal Underwriter receives revenues relating to sales of the fund's
shares, as follows:

. For Class A and 529-A shares, the Principal Underwriter receives
commission revenue consisting of the balance 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 its
rights to the 0.75% distribution-related portion of the 12b-1 fees
paid by the fund, as well as any contingent deferred sales charges, to
a third party. The Principal Underwriter compensates investment
dealers for sales of Class B and 529-B shares out of the proceeds of
this sale and keeps any amounts remaining after this compensation is
paid.

. For Class C and 529-C shares, the Principal Underwriter receives any
contingent deferred sales charges that apply during the first year
after purchase.

In addition, the fund reimburses the Principal Underwriter for advancing
immediate service fees to qualified dealers and advisers upon the sale of Class
B, 529-B, C and 529-C shares. The fund also reimburses the Principal Underwriter
for service fees (and, in the case of Class 529-E shares, commissions) paid on a
quarterly basis to qualified dealers and advisers in connection with investments
in Class F-1, 529-F-1, 529-E, R-1, R-2, R-3 and R-4 shares.

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

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

CLASS A 2007 $45,058,000 $193,258,000
2006 30,657,000 132,403,000
2005 42,979,000 188,156,000
------------------------------------------------------------------------------------------
CLASS B 2007 2,586,000 17,915,000
2006 2,217,000 13,356,000
2005 3,899,000 26,188,000
------------------------------------------------------------------------------------------
CLASS C 2007 -- 20,465,000
2006 4,427,000 11,810,000
2005 934,000 17,670,000
------------------------------------------------------------------------------------------
CLASS 529-A 2007 846,000 3,843,000
2006 621,000 2,871,000
2005 648,000 3,012,000
------------------------------------------------------------------------------------------
CLASS 529-B 2007 71,000 471,000
2006 70,000 432,000
2005 104,000 620,000
------------------------------------------------------------------------------------------
CLASS 529-C 2007 -- 700,000
2006 42,000 448,000
2005 -- 475,000
------------------------------------------------------------------------------------------

The Income Fund of America -- Page 27
<PAGE>

Plans of distribution -- The fund has adopted plans of distribution (the
"Plans") pursuant to rule 12b-1 under the 1940 Act. The Plans permit the fund to
expend 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.

Each Plan is specific to a particular share class of the fund. As the fund has
not adopted a Plan for Class F-2 or Class R-5, no 12b-1 fees are paid from Class
F-2 or Class R-5 share assets and the following disclosure is not applicable to
these share classes.

Payments under the Plans may be made for service-related and/or
distribution-related expenses. Service-related expenses include paying service
fees to qualified dealers. Distribution-related expenses include commissions
paid to qualified dealers. The amounts actually paid under the Plans for the
past fiscal year, expressed as a percentage of the fund's average daily net
assets attributable to the applicable share class, are disclosed in the
prospectus under "Fees and expenses of the fund." Further information regarding
the amounts available under each Plan is in the "Plans of Distribution" section
of the prospectus.

Following is a brief description of the Plans:

CLASS A AND 529-A -- For Class A and 529-A shares, up to 0.25% of the
fund's average daily net assets attributable to such shares is reimbursed
to the Principal Underwriter for paying service-related expenses, and the
balance available under the applicable Plan may be paid to the Principal
Underwriter for distribution-related expenses. The fund may annually expend
up to 0.25% for Class A shares and up to 0.50% for Class 529-A shares under
the applicable Plan.

The Income Fund of America -- Page 28
<PAGE>

Distribution-related expenses for Class A and 529-A shares include dealer
commissions and wholesaler compensation paid on sales of shares of $1
million or more purchased without a sales charge. Commissions on these "no
load" purchases (which are described in further detail under the "Sales
Charges" section of this statement of additional information) in excess of
the Class A and 529-A Plan limitations and not reimbursed to the Principal
Underwriter during the most recent fiscal quarter are recoverable for five
quarters, provided that the reimbursement of such commissions does not
cause the fund to exceed the annual expense limit. After five quarters,
these commissions are not recoverable.

CLASS B AND 529-B -- The Plans for Class B and 529-B shares provide for
payments to the Principal Underwriter of up to 0.25% of the fund's average
daily net assets attributable to such shares for paying service-related
expenses and 0.75% for distribution-related expenses, which include the
financing of commissions paid to qualified dealers.

OTHER SHARE CLASSES (CLASS C, 529-C, F-1, 529-F-1, 529-E, R-1, R-2, R-3 AND
R-4) -- The Plans for each of the other share classes that have adopted
Plans provide for payments to the Principal Underwriter for paying
service-related and distribution-related expenses of up to the following
amounts of the fund's average daily net assets attributable to such shares:

TOTAL
SERVICE DISTRIBUTION ALLOWABLE
RELATED RELATED UNDER
SHARE CLASS PAYMENTS/1/ PAYMENTS/1/ THE PLANS/2/
----------------------------------------------------------------------------------

Class C 0.25% 0.75% 1.00%
----------------------------------------------------------------------------------
Class 529-C 0.25 0.75 1.00
----------------------------------------------------------------------------------
Class F-1 0.25 -- 0.50
----------------------------------------------------------------------------------
Class 529-F-1 0.25 -- 0.50
----------------------------------------------------------------------------------
Class 529-E 0.25 0.25 0.75
----------------------------------------------------------------------------------
Class R-1 0.25 0.75 1.00
----------------------------------------------------------------------------------
Class R-2 0.25 0.50 1.00
----------------------------------------------------------------------------------
Class R-3 0.25 0.25 0.75
----------------------------------------------------------------------------------
Class R-4 0.25 -- 0.50
----------------------------------------------------------------------------------

/1/ Amounts in these columns represent the amounts approved by the board of
directors under the applicable Plan.
/2/ The fund may annually expend the amounts set forth in this column under
the current Plans with the approval of the board of directors.

The Income Fund of America -- Page 29
<PAGE>

During the 2007 fiscal year, 12b-1 expenses accrued and paid, and if applicable,
unpaid, were:

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

CLASS A $148,828,000 $19,458,000
------------------------------------------------------------------------------
CLASS B 49,263,000 5,190,000
------------------------------------------------------------------------------
CLASS C 80,425,000 11,504,000
------------------------------------------------------------------------------
CLASS F-1 6,546,000 1,358,000
------------------------------------------------------------------------------
CLASS 529-A 1,220,000 221,000
------------------------------------------------------------------------------
CLASS 529-B 1,077,000 123,000
------------------------------------------------------------------------------
CLASS 529-C 2,485,000 412,000
------------------------------------------------------------------------------
CLASS 529-E 143,000 26,000
------------------------------------------------------------------------------
CLASS 529-F-1 -- --
------------------------------------------------------------------------------
CLASS R-1 564,000 123,000
------------------------------------------------------------------------------
CLASS R-2 3,547,000 642,000
------------------------------------------------------------------------------
CLASS R-3 3,950,000 757,000
------------------------------------------------------------------------------
CLASS R-4 882,000 194,000
------------------------------------------------------------------------------

Approval of the Plans -- 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. In addition, the
selection and nomination of independent directors of the fund are committed to
the discretion of the independent directors during the existence of the Plans.

Potential benefits of the Plans to the fund include quality shareholder
services, savings to the fund in transfer agency costs, and benefits to the
investment process from growth or stability of assets. The Plans may not be
amended to materially increase the amount spent for distribution without
shareholder approval. Plan expenses are reviewed quarterly by the board of
directors and the Plans must be renewed annually by the board of directors.

OTHER COMPENSATION TO DEALERS -- As of July 2008, the top dealers (or their
affiliates) that American Funds Distributors anticipates will receive additional
compensation (as described in the prospectus) include:

AIG Advisors Group
Advantage Capital Corporation
AIG Financial Advisors, Inc.
American General Securities Incorporated
FSC Securities Corporation
Royal Alliance Associates, Inc.
AXA Advisors, LLC

The Income Fund of America -- Page 30
<PAGE>

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.
JJB Hilliard/PNC Bank
J.J.B. Hilliard, W.L. Lyons, Inc.
PNC Bank, National Association
PNC Investments LLC
Lincoln Financial Advisors Corporation
LPL Group
Associated Securities Corp.
LPL Financial Corporation
Mutual Service Corporation
Uvest Investment Services
Waterstone Financial Group, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Metlife Enterprises
Metlife Securities Inc.
New England Securities
Walnut Street Securities, Inc.
MML Investors Services, Inc.
Morgan Keegan & Company, Inc.
Morgan Stanley & Co., Incorporated
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
Park Avenue Securities LLC
Princor Financial Services Corporation
Raymond James Group

The Income Fund of America -- Page 31
<PAGE>

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
Legg Mason
U.S. Bancorp Investments, Inc.
UBS Financial Services Inc.
Wachovia Group
A. G. Edwards, a Division of Wachovia Securities, LLC
First Clearing LLC
Wachovia Securities Financial Network, LLC
Wachovia Securities Investment Services Group
Wachovia Securities Latin American Channel
Wachovia Securities Private Client Group
Wells Fargo Investments, LLC

EXECUTION OF PORTFOLIO TRANSACTIONS

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

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

The investment adviser may execute portfolio transactions with broker-dealers
who provide certain brokerage and/or investment research services to it, but
only when in the investment adviser's judgment the broker-dealer is capable of
providing best execution for that transaction.

The Income Fund of America -- Page 32
<PAGE>

The receipt of these services permits the investment adviser to supplement its
own research and analysis and makes available the views of, and information
from, individuals and the research staffs of other firms. Such views and
information may be provided in the form of written reports, telephone contacts
and meetings with securities analysts. These services may include, among other
things, reports and other communications with respect to individual companies,
industries, countries and regions, economic, political and legal developments,
as well as scheduling meetings with corporate executives and seminars and
conferences related to relevant subject matters. The investment adviser
considers these services to be supplemental to its own internal research efforts
and therefore the receipt of investment research from broker-dealers does not
tend to reduce the expenses involved in the investment adviser's research
efforts. If broker-dealers were to discontinue providing such services it is
unlikely the investment adviser would attempt to replicate them on its own, in
part because they would then no longer provide an independent, supplemental
viewpoint. Nonetheless, if it were to attempt to do so, the investment adviser
would incur substantial additional costs. Research services that the investment
adviser receives from broker-dealers may be used by the investment adviser in
servicing the fund and other funds and accounts that it advises; however, not
all such services will necessarily benefit the fund.

The investment adviser may pay commissions in excess of what other
broker-dealers might have charged - including on an execution-only basis - for
certain portfolio transactions in recognition of brokerage and/or investment
research services provided by a broker-dealer. In this regard, the investment
adviser has adopted a brokerage allocation procedure consistent with the
requirements of Section 28(e) of the U.S. Securities Exchange Act of 1934.
Section 28(e) permits an investment adviser to cause an account to pay a higher
commission to a broker-dealer that provides certain brokerage and/or investment
research services to the investment adviser, if the investment adviser makes a
good faith determination that such commissions are reasonable in relation to the
value of the services provided by such broker-dealer to the investment adviser
in terms of that particular transaction or the investment adviser's overall
responsibility to the fund and other accounts that it advises. Certain brokerage
and/or investment research services may not necessarily benefit all accounts
paying commissions to each such broker-dealer; therefore, the investment adviser
assesses the reasonableness of commissions in light of the total brokerage and
investment research services provided by each particular broker-dealer.

In accordance with its internal brokerage allocation procedure, each equity
investment division of the investment adviser periodically assesses the
brokerage and investment research services provided by each broker-dealer from
which it receives such services. Using its judgment, each equity investment
division of the investment adviser then creates lists with suggested levels of
commissions for particular broker-dealers and provides those lists to its
trading desks. Neither the investment adviser nor the fund incurs any obligation
to any broker-dealer to pay for research by generating trading commissions. The
actual level of business received by any broker-dealer may be less than the
suggested level of commissions and can, and often does, exceed the suggested
level in the normal course of business. As part of its ongoing relationships
with broker-dealers, the investment adviser routinely meets with firms,
typically at the firm's request, to discuss the level and quality of the
brokerage and research services provided, as well as the perceived value and
cost of such services. In valuing the brokerage and investment research services
the investment adviser receives from broker-dealers for its good faith
determination of reasonableness, the investment adviser does not attribute a
dollar value to such services, but rather takes various factors into
consideration, including the quantity, quality and usefulness of the services to
the investment adviser.

The Income Fund of America -- Page 33
<PAGE>

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

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

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

Brokerage commissions paid on portfolio transactions for the fiscal years ended
July 31, 2007, 2006 and 2005 amounted to $28,442,000, $30,226,000 and
$23,408,000, respectively.

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

At the end of the fund's most recent fiscal year, the fund's regular
broker-dealers included Wachovia Securities Private Client Group, Citigroup
Global Markets Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Lehman Brothers, Goldman Sachs & Co. and State Street Bank
and Trust Co. As of the fund's most recent fiscal year-end, the fund held equity
securities of Wachovia Corporation in the amount of $198,282,000; Citigroup Inc.
in the amount of $1,325,592,000 and JPMorgan Chase & Co. in the amount of
$167,238,000. As of that date the fund held debt securities of Citigroup Inc. in
the amount of $12,383,000; JPMorgan Chase & Co. in the amount of $260,358,000;
Merrill Lynch in the amount of $28,684,000;

The Income Fund of America -- Page 34
<PAGE>

Lehman Brothers Holdings in the amount of $27,475,000; Goldman Sachs Group Inc.
in the amount of $8,683,000 and State Street Corp. in the amount of $49,986,000.

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

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

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

The Income Fund of America -- Page 35
<PAGE>

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 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 p.m., the fund's share price would still be determined
as of 4 p.m. New York time. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day; Martin Luther King, Jr.
Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day;
Thanksgiving; and Christmas Day. Each share class of the fund has a separately
calculated net asset value (and share price).

All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset values per
share for each share class are determined, as indicated below. The fund follows
standard industry practice by typically reflecting changes in its holdings of
portfolio securities on the first business day following a portfolio trade.

1. Equity securities, including depositary receipts, are valued at the
official closing price of, or the last reported sale price on, the exchange or
market on which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any sales, at the last available
bid price. Prices for each security are taken from the principal exchange or
market in which the security trades. Fixed-income securities are valued at
prices obtained from an independent pricing service, when such prices are
available; however, in circumstances where the investment adviser deems it
appropriate to do so, such securities will be valued at the mean quoted bid and
asked prices (or bid prices, if asked prices are not available) or at prices for
securities of comparable maturity, quality and type. The pricing services base
bond prices on, among other things, an evaluation of the yield curve as of
approximately 3 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.

The Income Fund of America -- Page 36
<PAGE>

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 currencies other than U.S.
dollars are translated prior to the next determination of the net asset value of
the fund's shares into U.S. dollars at the prevailing market rates.

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

The valuation committee has adopted guidelines and procedures (consistent with
SEC rules and guidance) to ensure that certain basic principles and factors are
considered when making all fair value determinations. As a general principle,
securities lacking readily available market quotations, or that have quotations
that are considered unreliable by the investment adviser, are valued in good
faith by the valuation committee based upon what the fund might reasonably
expect to receive upon their current sale. The valuation committee considers all
indications of value available to it in determining the fair value to be
assigned to a particular security, including, without limitation, the type and
cost of the security, contractual or legal restrictions on resale of the
security, relevant financial or business developments of the issuer, actively
traded similar or related securities, conversion or exchange rights on the
security, related corporate actions, significant events occurring after the
close of trading in the security and changes in overall market conditions. The
valuation committee employs additional fair value procedures to address issues
related to equity holdings of applicable fund portfolios outside the United
States. Securities owned by these funds trade in markets that open and close at
different times, reflecting time zone differences. If significant events occur
after the close of a market (and before these fund's net asset values are next
determined) which affect the value of portfolio securities, appropriate
adjustments from closing market prices may be made to reflect these events.
Events of this type could include, for example, earthquakes and other natural
disasters or significant price changes in other markets (e.g., U.S. stock
markets).

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

The Income Fund of America -- Page 37
<PAGE>

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

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

TAXES AND DISTRIBUTIONS

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

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

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

The Income Fund of America -- Page 38
<PAGE>

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

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

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

DIVIDENDS -- The fund intends to follow the practice of distributing
substantially all of its investment company taxable income. Investment
company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and
certain foreign currency gains, if any, less expenses and certain foreign
currency losses. To the extent the fund invests in stock of domestic and
certain foreign corporations and meets the applicable holding period
requirement, it may receive "qualified dividends". The fund will designate
the amount of "qualified dividends" to its shareholders in a notice sent
within 60 days of the close of its fiscal year and will report "qualified
dividends" to shareholders on Form 1099-DIV.

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

If the fund invests in stock of certain passive foreign investment
companies, the fund may be subject to U.S. federal income taxation on a
portion of any "excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the fund's holding period for
the stock. The distribution or gain so allocated to any taxable year of the
fund, other than the taxable year of the excess distribution or
disposition, would be taxed to the fund at the highest ordinary income rate
in effect for such year, and the tax would be further increased by an
interest charge to reflect the value of the tax deferral deemed to have
resulted from the ownership of the foreign company's stock. Any amount of
distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the

The Income Fund of America -- Page 39
<PAGE>

fund's investment company taxable income and, accordingly, would not be
taxable to the fund to the extent distributed by the fund as a dividend to
its shareholders.

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

Dividends from domestic corporations are expected to comprise some portion
of the fund's gross income. To the extent that such dividends constitute
any of the fund's gross income, a portion of the income distributions of
the fund may be eligible for the deduction for dividends received by
corporations. Corporate shareholders will be informed of the portion of
dividends that so qualifies. The dividends-received deduction is reduced to
the extent that either the fund shares, or the underlying shares of stock
held by the fund, with respect to which dividends are received, are treated
as debt-financed under federal income tax law, and is eliminated if the
shares are deemed to have been held by the shareholder or the fund, as the
case may be, for less than 46 days during the 91-day period beginning on
the date that is 45 days before the date on which the shares become
ex-dividend. Capital gain distributions are not eligible for the
dividends-received deduction.

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

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

Dividend and interest income received by the fund from sources outside the
United States may be subject to withholding and other taxes imposed by such
foreign jurisdictions. Tax conventions between certain countries and the
United States, however, may reduce or eliminate these foreign taxes. Some
foreign countries impose taxes on capital gains with respect to investments
by foreign investors.

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

The Income Fund of America -- Page 40
<PAGE>

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

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

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

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

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

Redemptions of shares, including exchanges for shares of other American Funds,
may result in federal, state and local tax consequences (gain or loss) to the
shareholder.

If a shareholder exchanges or otherwise disposes of shares of the fund within 90
days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously incurred
in acquiring the fund's shares will not be taken into account (to the extent
such previous sales charges do not exceed the reduction in sales charges) for
the purposes of determining the amount of gain or loss on the exchange, but will
be treated as having been incurred in the acquisition of such other fund(s).

The Income Fund of America -- Page 41
<PAGE>

Any loss realized on a redemption or exchange of shares of the fund will be
disallowed to the extent substantially identical shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of. Any loss disallowed under this rule will be added to the
shareholder's tax basis in the new shares purchased.

The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of a regulated investment company may
be subject to backup withholding of federal income tax in the case of non-exempt
U.S. shareholders who fail to furnish the investment company with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. Withholding may also be required if the fund
is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

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

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

The Income Fund of America -- Page 42
<PAGE>

UNLESS OTHERWISE NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C
OR F-1 SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR
529-F-1 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 statement of additional
information for more information regarding this service.

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

The Income Fund of America -- Page 43
<PAGE>

BY WIRE -- If you are making a wire transfer, instruct your bank to wire
funds to:

Wells Fargo Bank
ABA Routing No. 121000248
Account No. 4600-076178

Your bank should include the following information when wiring funds:

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

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

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

OTHER PURCHASE INFORMATION -- The Principal Underwriter will not knowingly sell
shares of the fund directly or indirectly to any person or entity, where, after
the sale, such person or entity would own beneficially directly or indirectly
more than 4.5% of the outstanding shares of the fund without the consent of a
majority of the fund's board.

Class 529 shares may be purchased only through CollegeAmerica by investors
establishing qualified higher education savings accounts. Class 529-E shares may
be purchased only by investors participating in CollegeAmerica through an
eligible employer plan. Class R-5 shares are also available to clients of the
Personal Investment Management group of Capital Guardian Trust Company who do
not have an intermediary associated with their accounts and without regard to
the $1 million purchase minimum. In addition, the American Funds state
tax-exempt funds are qualified for sale only in certain jurisdictions, and
tax-exempt funds in general should 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 Income Fund of America -- Page 44
<PAGE>

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

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

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

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

EXCHANGES -- You may only exchange shares into other American Funds within the
same share class. However, exchanges from Class A shares of The Cash Management
Trust of America may be made to Class B or C shares of other American Funds for
dollar cost averaging purposes. Exchanges are not permitted from Class A shares
of The Cash Management Trust of America to Class B or C shares of Intermediate
Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America and
Short-Term Bond Fund of America. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and no sales charge generally
applies. However, exchanges of shares from American Funds money market funds are
subject to applicable sales charges on the fund being purchased, unless the
money market fund shares were acquired by an exchange from a fund having a sales
charge, or by reinvestment or cross-reinvestment of dividends or capital gain
distributions. Exchanges of Class F shares generally may only be made through
fee-based programs of investment firms that have special agreements with the
fund's distributor and certain registered investment advisers.

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" in this statement of additional
information. 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" in this
statement of additional information).

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 Income Fund of America -- Page 45
<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

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

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

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

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

EXCHANGING CLASS F SHARES FOR CLASS A SHARES -- You can exchange Class F
shares held in a qualified fee-based program for Class A shares without
paying an initial Class A sales charge if all of the following requirements
are met: (a) you are leaving or have left the fee-based program, (b) you
have held the Class F shares in the program for at least one year, and (c)
you notify American Funds Service Company of your request. If you have
already redeemed your Class F shares, the foregoing requirements apply and
you must purchase Class A shares within 90 days after redeeming your Class
F shares to receive the Class A shares without paying an initial Class A
sales charge.

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

EXCHANGING CLASS A SHARES FOR CLASS F SHARES -- If you are part of a
qualified fee-based program and you wish to exchange your Class A shares
for Class F shares to be held in the program, any Class A sales charges
(including contingent deferred sales charges) that you paid or are payable
will not be credited back to your account.

The Income Fund of America -- Page 46
<PAGE>

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

EXCHANGING CLASS F-1 SHARES FOR CLASS F-2 SHARES -- If you are part of a
qualified fee-based program that offers Class F-2 shares, you may exchange
your Class F-1 shares for Class F-2 shares to be held in the program.

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

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

SALES CHARGES

CLASS A PURCHASES

PURCHASES BY CERTAIN 403(B) PLANS

Individual 403(b) plans may be treated similarly to employer-sponsored
plans for Class A sales charge purposes (i.e., individual participant
accounts are eligible to be aggregated together) if: (a) the American Funds
are principal investment options; (b) the employer facilitates the
enrollment process by, for example, allowing for onsite group enrollment
meetings held during working hours; and (c) there is only one dealer firm
assigned to the plans.

PURCHASES BY SEP PLANS AND SIMPLE IRA PLANS

Participant accounts in a Simplified Employee Pension (SEP) plan or a
Savings Incentive Match Plan for Employees of Small Employers IRA (SIMPLE
IRA) plan will be aggregated together for Class A sales charge purposes if
the SEP plan or SIMPLE IRA plan was established after November 15, 2004 by
an employer adopting a prototype plan produced by American Funds
Distributors, Inc. In the case where the employer adopts any other plan
(including, but not limited to, an IRS model agreement), each participant's
account in the plan will be aggregated with the participant's own personal
investments that qualify under the aggregation policy. A SEP plan or SIMPLE
IRA plan with a certain method of aggregating participant accounts as of
November 15, 2004 may continue with that method so long as the employer has
not modified the plan document since that date.

The Income Fund of America -- Page 47
<PAGE>

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 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;

(9) wholesalers and full-time employees directly supporting wholesalers
involved in the distribution of insurance company separate accounts
whose underlying

The Income Fund of America -- Page 48
<PAGE>

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 initial sales charges. These purchases consist of purchases of $1
million or more, purchases by employer-sponsored defined contribution-type
retirement plans investing $1 million or more or with 100 or more eligible
employees, and purchases made at net asset value by certain retirement plans,
endowments and foundations with assets of $50 million or more. Commissions on
such investments (other than IRA rollover assets that roll over at no sales
charge under the fund's IRA rollover policy as described in the prospectus) are
paid to dealers at the following rates: 1.00% on amounts of less than $4
million, 0.50% on amounts of at least $4 million but less than $10 million and
0.25% on amounts of at least $10 million. Commissions are based on cumulative
investments over the life of the account with no adjustment for redemptions,
transfers, or market declines. For example, if a shareholder has accumulated
investments in excess of $4 million (but less than $10 million) and subsequently
redeems all or a portion of the account(s), purchases following the redemption
will generate a dealer commission of 0.50%.

The Income Fund of America -- Page 49
<PAGE>

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

SALES CHARGE REDUCTIONS AND WAIVERS

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

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

The Statement period starts on the date on which your first purchase made
toward satisfying the Statement is processed. The market value of your
existing holdings eligible to be aggregated (see below) as of the day
immediately before the start of the Statement period may be credited toward
satisfying the Statement.

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

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

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

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

The Income Fund of America -- Page 50
<PAGE>

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

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

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

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

. individual-type employee benefit plans, such as an IRA, individual
403(b) plan (see exception in "Purchases by certain 403(b) plans"
under "Sales charges") or single-participant Keogh-type plan;

. SEP plans and SIMPLE IRA plans established after November 15, 2004 by
an employer adopting any plan document other than a prototype plan
produced by American Funds Distributors, Inc.;

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

. trust accounts established by you or your immediate family (for trusts
with only one primary beneficiary, upon the trustor's death the trust
account may be aggregated with such beneficiary's own accounts; for
trusts with multiple primary beneficiaries, upon the trustor's death
the trustees of the trust may instruct American Funds Service Company
to establish separate trust accounts for each primary beneficiary;
each primary beneficiary's separate trust account may then be
aggregated with such beneficiary's own accounts);

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

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

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

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

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

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

The Income Fund of America -- Page 51
<PAGE>

. 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;

. 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; or

. for a SEP or SIMPLE IRA plan established after November 15, 2004 by an
employer adopting a prototype plan produced by American Funds
Distributors, Inc.

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 holdings in Endowments and applicable holdings
in the American Funds Target Date Retirement Series. Shares of money market
funds purchased through an exchange, reinvestment or cross-reinvestment
from a fund having a sales charge also qualify. However, direct purchases
of American Funds money market funds are excluded. If you currently have
individual holdings in American Legacy variable annuity contracts or
variable life insurance policies that were established on or before March
31, 2007, you may continue to combine purchases made under such contracts
and policies to reduce your Class A sales charge.

RIGHTS OF ACCUMULATION -- Subject to the limitations described in the
aggregation policy, you may take into account your accumulated holdings in
all share classes of the American Funds, as well as your holdings in
Endowments and applicable holdings in the American Funds Target Date
Retirement Series, to determine your sales charge on investments in
accounts eligible to be aggregated. Direct purchases of American Funds
money market funds are excluded. Subject to your investment dealer's or
recordkeeper's capabilities, your accumulated holdings will be calculated
as the higher of (a) the current value of your existing holdings (the
"market value") or (b) the amount you invested (including reinvested
dividends and capital gains, but excluding capital appreciation) less any
withdrawals (the "cost value"). Depending on the entity on whose books your
account is held, the value of your holdings in that account may not be
eligible for calculation at cost value. For example, accounts held in
nominee or street name may not be eligible for calculation at cost value
and instead may be calculated at market value for purposes of rights of
accumulation.

The value of all of your holdings in accounts established in calendar year
2005 or earlier will be assigned an initial cost value equal to the market
value of those holdings as of the last business day of 2005. Thereafter,
the cost value of such accounts will increase or

The Income Fund of America -- Page 52
<PAGE>

decrease according to actual investments or withdrawals. You must contact
your financial adviser or American Funds Service Company if you have
additional information that is relevant to the calculation of the value of
your holdings.

When determining your American Funds Class A sales charge, if your
investment is not in an employer-sponsored retirement plan, you may also
continue to take into account the market value (as of the day prior to your
American Funds investment) of your individual holdings in various American
Legacy variable annuity contracts and variable life insurance policies that
were established on or before March 31, 2007. An employer-sponsored
retirement plan may also continue to take into account the market value of
its investments in American Legacy Retirement Investment Plans that were
established on or before March 31, 2007.

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

If you make a gift of American Funds Class A shares, upon your request, you
may purchase the shares at the sales charge discount allowed under rights
of accumulation of all of your American Funds and applicable American
Legacy accounts.

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

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

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

. Redemptions through an automatic withdrawal plan ("AWP") (see
"Automatic withdrawals" under "Shareholder account services and
privileges" in this statement of additional information). For each AWP
payment, assets that are not subject to a CDSC, such as appreciation
on shares and shares acquired through reinvestment of dividends and/or
capital gain distributions, will be redeemed first and will count
toward the 12% limit. If there is an insufficient amount of assets not
subject to a CDSC to cover a particular AWP payment, shares subject to
the lowest CDSC will be redeemed next until the 12% limit is reached.
Any dividends and/or capital gain distributions taken in cash by a
shareholder who receives

The Income Fund of America -- Page 53
<PAGE>

payments through an AWP will also count toward the 12% limit. In the
case of an AWP, the 12% limit is calculated at the time an automatic
redemption is first made, and is recalculated at the time each
additional automatic redemption is made. Shareholders who establish an
AWP should be aware that the amount of a payment not subject to a CDSC
may vary over time depending on fluctuations in the value of their
accounts. This privilege may be revised or terminated at any time.

For purposes of this paragraph, "account" means:

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

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

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

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

SELLING SHARES

The methods for selling (redeeming) shares are described more fully in the
prospectus. If you wish to sell your shares by contacting American Funds Service
Company directly, any such request must be signed by the registered
shareholders. To contact American Funds Service Company via overnight mail or
courier service, see "Purchase and exchange of shares."

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

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

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

Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 10
business days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as

The Income Fund of America -- Page 54
<PAGE>

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

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

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

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

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

The Income Fund of America -- Page 55
<PAGE>

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

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

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

AMERICAN FUNDSLINE AND AMERICANFUNDS.COM -- You may check your share balance,
the price of your shares or your most recent account transaction; redeem shares
(up to $75,000 per American Funds shareholder each day) from nonretirement plan
accounts; or exchange shares around the clock with American FundsLine or using
americanfunds.com. To use American FundsLine, call 800/325-3590 from a
TouchTone(TM) telephone. Redemptions and exchanges through American FundsLine
and americanfunds.com are subject to the conditions noted above and in
"Telephone and Internet purchases, redemptions and exchanges" below. You will
need your fund number (see the list of the American Funds under "General
information -- fund numbers"), personal identification number (generally the
last four digits of your Social Security number or other tax identification
number associated with your account) and account number.

The Income Fund of America -- Page 56
<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 liabilities (including attorney fees) that may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these services. However, you may elect to opt
out of these services by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, it and/or the fund may
be liable for losses due to unauthorized or fraudulent instructions. In the
event that shareholders are unable to reach the fund by telephone because of
technical difficulties, market conditions or a natural disaster, redemption and
exchange requests may be made in writing only.

CHECKWRITING -- You may establish check writing privileges for Class A shares
(but not Class 529-A shares) of American Funds money market funds upon meeting
the fund's initial purchase minimum of $1,000. This can be done by using an
account application. If you request check writing privileges, you will be
provided with checks that you may use to draw against your account. These checks
may be made payable to anyone you designate and must be signed by the authorized
number of registered shareholders exactly as indicated on your account
application.

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

While payment of redemptions normally will be in cash, the fund's articles of
incorporation permit payment of the redemption price wholly or partly in
securities or other property included in the assets belonging to the fund if, in
the opinion of the fund's board of directors, conditions exist which make
payment wholly in cash unwise or undesirable.

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 securities of

The Income Fund of America -- Page 57
<PAGE>

issuers outside the U.S., the Custodian may hold these securities pursuant to
subcustodial arrangements in banks outside the U.S. or branches of U.S. banks
outside the U.S.

TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the investment adviser, maintains the records of shareholder accounts, processes
purchases and redemptions of the fund's shares, acts as dividend and capital
gain distribution disbursing agent, and performs other related shareholder
service functions. The principal office of American Funds Service Company is
located at 6455 Irvine Center Drive, Irvine, CA 92618. American Funds Service
Company was paid a fee of $35,842,000 for Class A shares and $3,158,000 for
Class B shares for the 2007 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 -- Deloitte & Touche LLP, 695 Town
Center Drive, Costa Mesa, California 92626, 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 audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their
report appearing herein. Such financial statements have been so included in
reliance upon the report of such firm given upon their authority 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 -- Paul, Hastings, Janofsky & Walker LLP, 515 South
Flower Street, Los Angeles, CA 90071, serves as independent legal counsel
("counsel") for the fund and for independent directors in their capacities as
such. Certain legal matters in connection with certain capital shares offered by
the prospectus have been passed upon for the fund by Paul, Hastings, Janofsky &
Walker LLP and DLA Piper US LLP, Baltimore, Maryland. A determination with
respect to the independence of the fund's 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 July 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, Deloitte & Touche 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

The Income Fund of America -- Page 58
<PAGE>

reports and proxy statements. To receive additional copies of a prospectus,
report or proxy statement, shareholders should contact the Transfer Agent.

Shareholders may also elect to receive updated prospectuses, annual reports and
semi-annual reports electronically by signing up for electronic delivery on our
website, americanfunds.com. Upon opting in to the electronic delivery of updated
prospectuses and other reports, a shareholder will no longer automatically
receive such documents in paper form by mail. A shareholder who elects
electronic delivery is able to cancel this service at any time and return to
receiving updated prospectuses and other reports in paper form by mail.

Prospectuses, annual reports and semi-annual reports that are mailed to
shareholders by the American Funds organization are printed with ink containing
soy and/or vegetable oil on paper containing recycled fibers.

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

LEGAL PROCEEDINGS -- On February 16, 2005, the NASD (now the Financial Industry
Regulatory Authority, or FINRA) 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, a
FINRA Hearing Panel ruled against the Principal Underwriter and imposed a $5
million fine. On April 30, 2008, FINRA's National Adjudicatory Council affirmed
the decision by FINRA's Hearing Panel. The Principal Underwriter has appealed
this decision to the Securities and Exchange Commission.

The investment adviser and Principal Underwriter believe that the likelihood
that this matter could have a material adverse effect on the fund or on the
ability of the investment adviser or Principal Underwriter to perform their
contracts with the fund is remote. In addition, class action lawsuits have been
filed in the U.S. District Court, Central District of California, relating to
this and other matters. The investment adviser believes that these suits are
without merit and will defend itself vigorously.

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- JANUARY 31, 2008

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $18.61
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). . . . . . . . . . . . . . . . $19.75

The Income Fund of America -- Page 59
<PAGE>

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

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

The Income Fund of America -- Page 60
<PAGE>

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

FUND NUMBERS
-------------------------------------------------
FUND CLASS A CLASS B CLASS C CLASS F-1 CLASS F-2
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . 002 202 302 402 602
American Balanced Fund/(R)/ 011 211 311 411 611
American Mutual Fund/(R)/ . 003 203 303 403 603
Capital Income Builder/(R)/ 012 212 312 412 612
Capital World Growth and
Income Fund/SM/ . . . . . . 033 233 333 433 633
EuroPacific Growth Fund/(R)/ 016 216 316 416 616
Fundamental Investors/SM/ . 010 210 310 410 610
The Growth Fund of
America/(R)/. . . . . . . . 005 205 305 405 605
The Income Fund of
America/(R)/. . . . . . . . 006 206 306 406 606
The Investment Company of
America/(R)/. . . . . . . . 004 204 304 404 604
The New Economy Fund/(R)/ . 014 214 314 414 614
New Perspective Fund/(R)/ . 007 207 307 407 607
New World Fund/SM/ . . . . 036 236 336 436 636
SMALLCAP World Fund/(R)/ . 035 235 335 435 635
Washington Mutual Investors
Fund/SM/ . . . . . . . . . 001 201 301 401 601
BOND FUNDS
American High-Income
Municipal Bond Fund/(R)/ . 040 240 340 440 640
American High-Income
Trust/SM/ . . . . . . . . . 021 221 321 421 621
The Bond Fund of America/SM/ 008 208 308 408 608
Capital World Bond Fund/(R)/ 031 231 331 431 631
Intermediate Bond Fund of
America/SM/ . . . . . . . . 023 223 323 423 623
Limited Term Tax-Exempt Bond
Fund of America/SM/ . . . . 043 243 343 443 643
Short-Term Bond Fund of
America/SM/ . . . . . . . . 048 248 348 448 648
The Tax-Exempt Bond Fund of
America/(R)/. . . . . . . . 019 219 319 419 619
The Tax-Exempt Fund of
California/(R)/*. . . . . . 020 220 320 420 620
The Tax-Exempt Fund of
Maryland/(R)/*. . . . . . . 024 224 324 424 624
The Tax-Exempt Fund of
Virginia/(R)/*. . . . . . . 025 225 325 425 625
U.S. Government Securities
Fund/SM/. . . . . . . . . . 022 222 322 422 622
MONEY MARKET FUNDS
The Cash Management Trust of
America/(R)/. . . . . . . . 009 209 309 409 609
The Tax-Exempt Money Fund of
America/SM/ . . . . . . . . 039 N/A N/A N/A N/A
The U.S. Treasury Money Fund
of America/SM/ . . . . . . 049 N/A N/A N/A N/A
___________
*Qualified for sale only in certain jurisdictions.

The Income Fund of America -- Page 61
<PAGE>

FUND NUMBERS
----------------------------------------------
CLASS CLASS CLASS CLASS CLASS
FUND 529-A 529-B 529-C 529-E 529-F-1
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . 1002 1202 1302 1502 1402
American Balanced Fund . . . . 1011 1211 1311 1511 1411
American Mutual Fund . . . . . 1003 1203 1303 1503 1403
Capital Income Builder . . . . 1012 1212 1312 1512 1412
Capital World Growth and Income
Fund . . . . . . . . . . . . . 1033 1233 1333 1533 1433
EuroPacific Growth Fund . . . 1016 1216 1316 1516 1416
Fundamental Investors . . . . 1010 1210 1310 1510 1410
The Growth Fund of America . . 1005 1205 1305 1505 1405
The Income Fund of America . . 1006 1206 1306 1506 1406
The Investment Company of
America. . . . . . . . . . . . 1004 1204 1304 1504 1404
The New Economy Fund . . . . . 1014 1214 1314 1514 1414
New Perspective Fund . . . . . 1007 1207 1307 1507 1407
New World Fund . . . . . . . . 1036 1236 1336 1536 1436
SMALLCAP World Fund . . . . . 1035 1235 1335 1535 1435
Washington Mutual Investors
Fund . . . . . . . . . . . . . 1001 1201 1301 1501 1401
BOND FUNDS
American High-Income Trust . . 1021 1221 1321 1521 1421
The Bond Fund of America . . . 1008 1208 1308 1508 1408
Capital World Bond Fund . . . 1031 1231 1331 1531 1431
Intermediate Bond Fund of
America. . . . . . . . . . . . 1023 1223 1323 1523 1423
Short-Term Bond Fund of America 1048 1248 1348 1548 1448
U.S. Government Securities Fund 1022 1222 1322 1522 1422
MONEY MARKET FUND
The Cash Management Trust of
America. . . . . . . . . . . . 1009 1209 1309 1509 1409

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

STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . . . . 2102 2202 2302 2402 2502
American Balanced Fund . . . . . . . 2111 2211 2311 2411 2511
American Mutual Fund . . . . . . . . 2103 2203 2303 2403 2503
Capital Income Builder . . . . . . . 2112 2212 2312 2412 2512
Capital World Growth and Income Fund 2133 2233 2333 2433 2533
EuroPacific Growth Fund . . . . . . 2116 2216 2316 2416 2516
Fundamental Investors . . . . . . . 2110 2210 2310 2410 2510
The Growth Fund of America . . . . . 2105 2205 2305 2405 2505
The Income Fund of America . . . . . 2106 2206 2306 2406 2506
The Investment Company of America . 2104 2204 2304 2404 2504
The New Economy Fund . . . . . . . . 2114 2214 2314 2414 2514
New Perspective Fund . . . . . . . . 2107 2207 2307 2407 2507
New World Fund . . . . . . . . . . . 2136 2236 2336 2436 2536
SMALLCAP World Fund . . . . . . . . 2135 2235 2335 2435 2535
Washington Mutual Investors Fund . . 2101 2201 2301 2401 2501
BOND FUNDS
American High-Income Municipal Bond
Fund . . . . . . . . . . . . . . . . N/A N/A N/A N/A 2540
American High-Income Trust . . . . . 2121 2221 2321 2421 2521
The Bond Fund of America . . . . . . 2108 2208 2308 2408 2508
Capital World Bond Fund . . . . . . 2131 2231 2331 2431 2531
Intermediate Bond Fund of America . 2123 2223 2323 2423 2523
Limited Term Tax-Exempt Bond Fund of
America. . . . . . . . . . . . . . . N/A N/A N/A N/A 2543
Short-Term Bond Fund of America. . . 2148 2248 2348 2448 2548
The Tax-Exempt Bond Fund of America N/A N/A N/A N/A 2519
The Tax-Exempt Fund of California* . N/A N/A N/A N/A 2520
The Tax-Exempt Fund of Maryland* . . N/A N/A N/A N/A 2524
The Tax-Exempt Fund of Virginia* . . N/A N/A N/A N/A 2525
U.S. Government Securities Fund . . 2122 2222 2322 2422 2522
MONEY MARKET FUNDS
The Cash Management Trust of America 2109 2209 2309 2409 2509
The Tax-Exempt Money Fund of America N/A N/A N/A N/A 2539
The U.S. Treasury Money Fund of
America . . . . . . . . . . . . . . 2149 2249 2349 2449 2549
___________
*Qualified for sale only in certain
jurisdictions.

The Income Fund of America -- Page 62
<PAGE>

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

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

The Income Fund of America -- Page 63
<PAGE>

APPENDIX

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

DESCRIPTION OF BOND RATINGS

MOODY'S
LONG-TERM RATING DEFINITIONS

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

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.

The Income Fund of America -- Page 64
<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.

The Income Fund of America -- Page 65
<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.

The Income Fund of America -- Page 66

....

[logo – American Funds®]

The Income Fund of America®

Investment portfolio

January 31, 2008		unaudited

		Market value
Common stocks — 62.70%	Shares	(000)

FINANCIALS — 12.36%
Wells Fargo & Co.	29,140,000	$991,051
Citigroup Inc.	31,685,000	894,151
Bank of America Corp.	17,046,550	756,015
Lloyds TSB Group PLC1	60,959,000	536,627
Fannie Mae	15,406,200	521,654
Washington Mutual, Inc.	24,300,000	484,056
U.S. Bancorp	11,541,400	391,831
Société Générale1	3,146,500	389,897
Equity Residential, shares of beneficial interest	10,092,800	377,572
PNC Financial Services Group, Inc.	4,660,000	305,789
Kimco Realty Corp.	7,967,866	285,329
Unibail-Rodamco, non-registered shares1	1,200,000	284,253
JPMorgan Chase & Co.	5,000,000	237,750
National City Corp.	12,857,749	228,739
Fifth Third Bancorp	7,500,000	203,250
SunTrust Banks, Inc.	2,800,000	193,060
St. George Bank Ltd.1	7,330,432	186,142
iStar Financial, Inc.2	6,919,750	184,619
Fidelity National Financial, Inc.	9,110,250	179,381
ING Groep NV, depository receipts1	5,376,202	174,804
Boston Properties, Inc.	1,800,000	165,456
AMP Ltd.1	20,680,000	158,532
Developers Diversified Realty Corp.	3,755,000	154,518
AMB Property Corp.	2,950,000	149,270
Banco Itaú Holding Financeira SA, preferred nominative	6,545,000	147,211
CapitalSource Inc.	8,828,441	144,875
American Capital Strategies, Ltd.	4,020,000	141,383
Hospitality Properties Trust	4,100,000	139,195
Arthur J. Gallagher & Co.2	5,403,700	137,308
Insurance Australia Group Ltd.1	38,472,784	130,578
Banco Santander, SA1	6,030,828	105,650
Allied Capital Corp.	4,629,520	102,451
Wachovia Corp.	2,600,000	101,218
DnB NOR ASA1	7,500,000	97,833
HRPT Properties Trust	10,749,400	85,458
Popular, Inc.	5,826,395	78,773
Unibanco-União de Bancos Brasileiros SA, units (GDR)	599,000	78,349
HCP, Inc.	2,442,300	74,270
Boardwalk REIT	1,793,200	71,088
Itaúsa — Investimentos Itaú SA, preferred nominative	9,967,138	57,449
Standard Bank Group Ltd.1	4,660,000	55,931
Singapore Exchange Ltd.1	7,600,000	53,239
XL Capital Ltd., Class A	1,175,000	52,875
First Midwest Bancorp, Inc.	1,500,000	46,800
Cousins Properties Inc.	666,525	17,730
Sunstone Hotel Investors, Inc.	500,000	8,320
		10,361,730

TELECOMMUNICATION SERVICES — 9.39%
AT&T Inc.	62,127,371	2,391,283
Verizon Communications Inc.	40,189,000	1,560,941
Koninklijke KPN NV1	56,820,000	1,029,987
Vodafone Group PLC1	293,165,000	1,028,697
France Télécom SA1	13,364,947	471,434
Telekomunikacja Polska SA1	31,055,000	297,553
Telstra Corp. Ltd., installment receipts1	95,368,954	242,568
Telstra Corp. Ltd.1	7,500,000	29,527
Chunghwa Telecom Co., Ltd. (ADR)	7,749,450	162,971
Chunghwa Telecom Co., Ltd.1	43,659,060	93,834
Bell Aliant Regional Communications Income Fund2	6,405,000	180,199
SunCom Wireless Holdings, Inc., Class A2,3,4	4,732,277	126,399
StarHub Ltd1	45,306,250	94,956
Singapore Telecommunications Ltd.1	30,000,000	77,971
SK Telecom Co., Ltd. (ADR)	2,775,000	68,903
Sprint Nextel Corp., Series 1	760,501	8,008
Embarq Corp.	38,025	1,723
American Tower Corp., Class A4	42,271	1,586
XO Holdings, Inc.4	9,158	18
		7,868,558

UTILITIES — 7.14%
E.ON AG1	4,175,000	766,578
SUEZ SA1	9,323,500	569,399
RWE AG1	4,070,000	498,492
Entergy Corp.	4,378,005	473,612
Duke Energy Corp.	20,080,000	374,693
Exelon Corp.	4,300,000	327,617
Ameren Corp.	7,000,000	313,670
Enel SpA1	26,418,000	294,303
DTE Energy Co.	6,500,000	277,225
Southern Co.	6,880,000	250,088
Public Service Enterprise Group Inc.	2,417,000	232,032
Equitable Resources, Inc.	4,050,000	225,787
Hongkong Electric Holdings Ltd.1	37,986,000	216,872
American Electric Power Co., Inc.	4,250,000	182,028
Consolidated Edison, Inc.	3,880,000	169,090
FirstEnergy Corp.	2,240,000	159,533
NiSource Inc.	5,804,600	110,229
Progress Energy, Inc.	2,314,900	104,564
PPL Corp.	2,000,000	97,840
CLP Holdings Ltd.1	9,250,000	73,798
MDU Resources Group, Inc.	2,655,000	68,818
Dominion Resources, Inc.	1,000,000	43,000
Ratchaburi Electricity Generating Holding PCL1	31,800,000	41,809
Electricity Generating PCL1	10,695,972	32,014
Electricity Generating PCL, nonvoting depositary receipt1	1,366,500	4,090
Northeast Utilities	1,214,500	33,666
Xcel Energy Inc.	1,500,000	31,185
Glow Energy PCL1	14,640,000	14,778
		5,986,810

INDUSTRIALS — 6.28%
General Electric Co.	45,885,000	$1,624,788
Waste Management, Inc.	14,950,000	484,978
Emerson Electric Co.	9,370,000	476,371
Deutsche Post AG1	12,271,400	398,271
Schneider Electric SA1	3,081,038	356,861
Sandvik AB1	23,580,000	339,587
Atlas Copco AB, Class A1	20,350,000	291,379
Masco Corp.	10,253,200	235,106
R.R. Donnelley & Sons Co.	5,245,400	183,012
Cooper Industries, Ltd., Class A	3,800,000	169,252
Macquarie Korea Infrastructure Fund1,2	21,023,070	153,815
Hubbell Inc., Class B	3,213,100	153,200
PACCAR Inc	2,708,550	127,085
Brambles Ltd.1	9,053,000	88,063
Avery Dennison Corp.	1,498,182	77,636
SembCorp Industries Ltd1	16,689,500	54,997
Singapore Technologies Engineering Ltd.1	15,281,000	36,434
Bidvest Group Ltd.1	740,000	10,104
UAL Corp.	59,995	2,277
		5,263,216

CONSUMER STAPLES — 5.65%
H.J. Heinz Co.2	20,596,700	876,596
Altria Group, Inc.	10,530,000	798,385
Kraft Foods Inc., Class A	23,426,892	685,471
Coca-Cola Co.	10,775,000	637,557
Diageo PLC1	17,950,000	361,066
Unilever NV (New York registered)	4,551,750	148,023
Unilever NV, depository receipts1	3,855,000	125,278
General Mills, Inc.	4,341,800	237,106
Kimberly-Clark Corp.	3,450,000	226,492
ConAgra Foods, Inc.	9,962,600	214,495
UST Inc.	2,000,000	103,920
Goodman Fielder Ltd.1,2	67,000,000	102,490
SABMiller PLC1	4,311,000	93,164
Reynolds American Inc.	1,212,432	76,783
Woolworths Ltd.1	1,750,000	45,685
		4,732,511

ENERGY — 4.71%
Chevron Corp.	22,675,000	1,916,038
TOTAL SA (ADR)	3,640,000	264,919
TOTAL SA1	3,390,000	245,581
Royal Dutch Shell PLC, Class A (ADR)	4,087,200	291,867
Royal Dutch Shell PLC, Class B1	3,297,147	114,047
Royal Dutch Shell PLC, Class B (ADR)	598,199	41,365
Marathon Oil Corp.	7,790,000	364,962
Spectra Energy Corp	13,721,414	313,397
Occidental Petroleum Corp.	3,000,000	203,610
Exxon Mobil Corp.	1,385,000	119,664
Banpu PCL1	3,177,100	41,939
Centennial Coal Co. Ltd.1	8,916,417	28,451
		3,945,840

HEALTH CARE — 4.41%
Bristol-Myers Squibb Co.	45,465,500	1,054,345
Merck & Co., Inc.	22,275,000	1,030,887
Eli Lilly and Co.	14,715,000	758,117
Pfizer Inc	24,050,000	562,529
Abbott Laboratories	3,500,000	197,050
Brookdale Senior Living Inc.	4,011,300	89,532
Clarent Hospital Corp.1,2,4	484,684	97
		3,692,557

CONSUMER DISCRETIONARY — 3.66%
McDonald’s Corp.	13,600,300	728,296
Esprit Holdings Ltd.1	40,949,000	532,659
Carnival Corp., units	8,150,000	362,594
Vivendi SA1	5,680,000	228,279
General Motors Corp.	7,442,559	210,699
CBS Corp., Class B	7,000,000	176,330
VF Corp.	2,040,000	157,835
Leggett & Platt, Inc.	6,500,000	123,630
DSG International PLC1	74,250,000	112,523
Kesa Electricals PLC1	16,003,258	76,953
Regal Entertainment Group, Class A	4,022,000	74,568
Polaris Industries Inc.	1,707,000	74,152
H & M Hennes & Mauritz AB, Class B1	1,300,000	70,387
Idearc Inc.	3,292,500	53,536
Kingfisher PLC1	12,121,628	35,449
Marks and Spencer Group PLC1	3,195,000	28,189
Macquarie Media Group1	6,055,676	20,611
		3,066,690

MATERIALS — 3.64%
Weyerhaeuser Co.2	10,728,000	726,500
E.I. du Pont de Nemours and Co.	14,869,200	671,790
International Paper Co.	16,023,820	516,768
Dow Chemical Co.	8,980,000	347,167
MeadWestvaco Corp.2	11,500,696	322,020
PPG Industries, Inc.	2,185,000	144,407
RPM International, Inc.	5,385,000	116,531
Alcoa Inc.	3,036,400	100,505
UPM-Kymmene Oyj1	4,100,000	77,522
Freeport-McMoRan Copper & Gold Inc.	300,000	26,709
		3,049,919

INFORMATION TECHNOLOGY — 1.23%
Microchip Technology Inc.2	14,128,000	450,825
Microsoft Corp.	6,600,000	215,160
Lite-On Technology Corp.1	107,917,127	161,628
Acer Inc.1	75,363,750	119,167
Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)	5,500,000	51,040
Quanta Computer Inc.1	23,460,000	27,580
Micron Technology, Inc.4,5	339,328	2,385
ZiLOG, Inc.4	455,000	1,656
		1,029,441

MISCELLANEOUS — 4.23%
Other common stocks in initial period of acquisition		3,548,772


Total common stocks (cost: $45,991,830,000)		52,546,044

		unaudited

		Market value
Preferred stocks — 1.24%	Shares	(000)

FINANCIALS — 0.90%
SB Treasury Co. LLC, Series A, 9.40% noncumulative5,6	114,214,000	$ 116,464
Sumitomo Mitsui Banking Corp. 6.078%5,6	31,750,000	29,524
Fuji JGB Investment LLC, Series A, 9.87% noncumulative5,6	65,750,000	66,572
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative5,6	31,300,000	31,687
MUFG Capital Finance 1 Ltd. 6.346% noncumulative6	68,580,000	65,490
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative5,6	11,185,000	11,363
Vornado Realty Trust, Series I, 6.625%	3,380,000	75,577
Fannie Mae, Series O, 7.00%5,6	1,475,000	73,475
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up5,6	25,000,000	27,386
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up5,6	10,000,000	12,911
Shinsei Finance II (Cayman) Ltd. 7.16% noncumulative5,6	45,950,000	36,975
Santander Finance Preferred S.A., Unipersonal, 6.50%	1,524,000	34,100
Chuo Mitsui Trust and Banking Co., Ltd. 5.506%5,6	36,590,000	33,909
Public Storage, Inc., Series F, 6.45%	1,000,000	22,210
Public Storage, Inc., Series V, 7.50% cumulative depositary shares	400,000	10,020
IndyMac Bancorp, Inc., Series A, 8.50% noncumulative5	2,948,000	23,584
National Bank of Canada, Series A, 8.35% exchangeable depositary shares	520,000	12,802
Standard Chartered PLC 7.014% noncumulative redeemable preference shares5,6	13,000,000	12,360
XL Capital Ltd., Series E, 6.50%6	14,750,000	11,668
Royal Bank of Scotland Group PLC 5.512% noncumulative trust6	10,000,000	9,390
BNP Paribas Capital Trust 9.003% noncumulative trust5,6	8,000,000	8,673
iStar Financial, Inc., Series F, 7.80% cumulative redeemable2	400,000	7,800
CBG Florida REIT Corp., Series A, Class A, 7.114%1,5,6	9,000,000	7,290
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares5,6	6,500,000	7,054
Resona Preferred Global Securities (Cayman) Ltd. 7.191%5,6	3,925,000	3,899
		752,183

MISCELLANEOUS — 0.34%
Other preferred stocks in initial period of acquisition		286,668


Total preferred stocks (cost: $1,101,677,000)		1,038,851



Warrants — 0.00%

TELECOMMUNICATION SERVICES — 0.00%
XO Holdings, Inc., Series A, warrants, expire 20104	18,316	3
XO Holdings, Inc., Series C, warrants, expire 20104	13,738	1
XO Holdings, Inc., Series B, warrants, expire 20104	13,738	0
Allegiance Telecom, Inc., warrants, expire 20081,4,5	20,000	0
GT Group Telecom Inc., warrants, expire 20101,4,5	15,000	0

Total warrants (cost: $816,000)		4


	Shares or
Convertible securities — 2.85%	principal amount

FINANCIALS — 0.75%
Citigroup Inc., Series J, 7.00%, noncumulative convertible preferred depositary shares1,3,4	3,570,000	192,959
Fannie Mae, Series 2004-1, 5.375% convertible preferred	1,738	140,778
Countrywide Financial Corp., Series A, 1.743% convertible debentures 20375,6	$140,000,000	128,436
Metropolitan Life Insurance Co., Class B, 6.375% convertible preferred 2008	4,000,000 units	116,520
XL Capital Ltd. 7.00% convertible preferred 2009	2,810,000 units	48,163
		626,856

		unaudited

	Shares or	Market value
Convertible securities	principal amount	(000)

HEALTH CARE — 0.58%
Schering-Plough Corp., 6.00% convertible preferred 2010	925,000	$ 177,221
Mylan Inc. 6.50% convertible preferred 2010	138,000	145,900
Medtronic, Inc. 1.625% convertible notes 2013	$45,500,000	47,946
Medtronic, Inc. 1.50% convertible notes 2011	$69,900,000	73,744
Teva Pharmaceutical Industries Ltd., Series D, 1.75% convertible debenture 2026	$20,000,000	23,100
Incyte Corp. 3.50% convertible notes 20115	$15,000,000	17,063
		484,974

MATERIALS — 0.46%
Cia. Vale do Rio Doce, Class A, 5.50 % convertible preferred 2010	800,000	48,000
Cia. Vale do Rio Doce, Series 1, 5.50% convertible preferred 2010	2,590,000	156,695
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred	25,000	48,825
Freeport-McMoRan Copper & Gold Inc. 6.75% convertible preferred 2010	1,000,000	132,800
		386,320

INDUSTRIALS — 0.19%
UAL Corp. 4.50% convertible notes 20215	$72,600,000	94,721
Allied Waste Industries, Inc., Series D, 6.25% convertible preferred 2008	240,000	61,920
		156,641

UTILITIES — 0.18%
PG&E Corp. 9.50% convertible notes 2010	$28,000,000	80,675
NRG Energy, Inc. 5.75% convertible preferred 2009	200,000	67,328
AES Trust VII 6.00% convertible preferred 2008	125,000	6,250
		154,253

TELECOMMUNICATION SERVICES — 0.14%
Qwest Communications International Inc. 3.50% convertible debenture 2025	$100,000,000	119,875


INFORMATION TECHNOLOGY — 0.14%
Advanced Micro Devices, Inc. 6.00% convertible notes 2015	$92,245,000	67,569
Nortel Networks Corp. 4.25% convertible notes 20085	$14,999,000	14,868
Nortel Networks Corp. 4.25% convertible notes 2008	$30,000,000	29,738
Fairchild Semiconductor Corp. 5.00% convertible notes 20081	$2,500,000	2,500
		114,675

ENERGY — 0.12%
El Paso Corp. 4.99% convertible preferred5	75,000	102,700


CONSUMER DISCRETIONARY — 0.11%
Ford Motor Co. 4.25% convertible notes 2036	$50,000,000	50,188
Amazon.com, Inc. 4.75% convertible debentures 2009	$36,967,000	41,680
		91,868

CONSUMER STAPLES — 0.08%
Bunge Ltd. 4.875% convertible preferred	500,000	71,324


MISCELLANEOUS — 0.10%
Other convertible securities in initial period of acquisition		81,750


Total convertible securities (cost: $2,218,084,000)		2,391,236


		unaudited

	Principal amount	Market value
Bonds & notes — 26.15%	(000)	(000)

MORTGAGE-BACKED OBLIGATIONS7 — 4.73%
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010	$ 36,750	$ 40,153
Fannie Mae 9.00% 2010	83	85
Fannie Mae 4.89% 2012	10,000	10,253
Fannie Mae 4.00% 2015	5,668	5,707
Fannie Mae 7.00% 2016	186	198
Fannie Mae 5.00% 2018	14,850	15,094
Fannie Mae 5.50% 2018	12,554	12,906
Fannie Mae 10.00% 2018	243	282
Fannie Mae 5.50% 2020	34,246	35,130
Fannie Mae 6.00% 2021	1,638	1,695
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022	24,362	24,280
Fannie Mae 9.50% 2022	248	283
Fannie Mae 7.50% 2023	56	61
Fannie Mae 7.50% 2023	12	13
Fannie Mae 10.00% 2025	161	187
Fannie Mae, Series 2001-4, Class GA, 10.242% 20256	892	1,019
Fannie Mae, Series 2001-4, Class NA, 11.895% 20256	77	87
Fannie Mae 6.00% 2026	19,923	20,556
Fannie Mae 6.00% 2027	73,046	75,184
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028	767	828
Fannie Mae 7.50% 2031	325	357
Fannie Mae, Series 2001-20, Class E, 9.619% 20316	736	831
Fannie Mae 5.50% 2033	60,041	60,991
Fannie Mae 4.554% 20356	5,873	5,971
Fannie Mae 5.50% 2035	27,308	27,706
Fannie Mae 5.50% 2035	16,264	16,490
Fannie Mae 5.50% 2035	7,357	7,464
Fannie Mae 6.50% 2035	495	517
Fannie Mae 7.00% 2035	7,642	8,054
Fannie Mae 5.50% 2036	3,758	3,809
Fannie Mae, Series 2006-43, Class PX, 6.00% 2036	8,609	8,906
Fannie Mae 6.50% 2036	18,807	19,427
Fannie Mae 5.50% 2037	104,756	106,184
Fannie Mae, Series 2007-33, Class HE, 5.50% 2037	25,178	25,745
Fannie Mae 5.50% 2037	19,038	19,297
Fannie Mae 5.612% 20376	16,954	17,460
Fannie Mae 5.695% 20376	19,569	20,075
Fannie Mae 6.00% 2037	29,398	30,173
Fannie Mae 6.00% 2037	26,944	27,655
Fannie Mae 6.00% 20371	21,637	22,055
Fannie Mae, Series 2007-24, Class P, 6.00% 2037	19,099	19,835
Fannie Mae 6.00% 2037	17,936	18,409
Fannie Mae 6.00% 2037	10,821	11,107
Fannie Mae 6.00% 2037	2,483	2,536
Fannie Mae 6.50% 2037	60,491	62,486
Fannie Mae 6.50% 2037	19,441	20,210
Fannie Mae 6.50% 20371	14,973	15,422
Fannie Mae 6.50% 2037	14,311	14,783
Fannie Mae 6.50% 2037	7,875	8,130
Fannie Mae 6.50% 2037	6,860	7,131
Fannie Mae 6.50% 2037	4,358	4,530
Fannie Mae 6.808% 20376	1,858	1,920
Fannie Mae 7.00% 2037	42,251	44,188
Fannie Mae 7.00% 2037	37,127	39,131
Fannie Mae 7.00% 2037	16,011	16,891
Fannie Mae 7.00% 2037	15,784	16,488
Fannie Mae 7.00% 2037	12,148	$12,705
Fannie Mae 7.00% 2037	12,105	12,660
Fannie Mae 7.00% 2037	10,617	11,200
Fannie Mae 7.00% 2037	9,134	9,553
Fannie Mae 7.00% 20371	4,850	5,059
Fannie Mae 7.00% 20371	4,129	4,308
Fannie Mae 7.00% 2037	1,869	1,954
Fannie Mae 7.00% 2037	1,370	1,444
Fannie Mae 7.50% 2037	25,288	26,709
Fannie Mae 7.50% 2037	5,213	5,506
Fannie Mae 7.50% 2037	3,730	3,939
Fannie Mae 7.50% 2037	1,601	1,691
Fannie Mae 7.50% 20371	1,594	1,674
Fannie Mae 7.50% 20371	747	784
Fannie Mae 8.00% 2037	2,035	2,105
Fannie Mae 8.00% 2037	1,486	1,537
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041	1,494	1,636
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041	1,033	1,098
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042	1,650	1,782
Fannie Mae 6.50% 2047	6,992	7,192
Fannie Mae 6.50% 2047	6,286	6,465
Fannie Mae 6.50% 2047	5,950	6,120
Fannie Mae 6.50% 2047	5,435	5,590
Fannie Mae 6.50% 2047	4,360	4,484
Fannie Mae 6.50% 2047	2,638	2,713
Fannie Mae 6.50% 2047	1,418	1,458
Fannie Mae 6.50% 2047	1,043	1,073
Fannie Mae 7.00% 2047	6,322	6,584
Fannie Mae 7.00% 2047	4,004	4,170
Fannie Mae 7.00% 2047	3,579	3,728
Fannie Mae 7.00% 2047	3,172	3,303
Fannie Mae 7.00% 2047	1,929	2,009
Countrywide Alternative Loan Trust, Series 2006-J3, Class 2-A-1, 4.75% 2020	7,212	7,231
Countrywide Alternative Loan Trust, Series 2005-49CB, Class A-1, 5.50% 2035	100,215	99,798
Countrywide Alternative Loan Trust, Series 2005-46CB, Class A-8, 5.50% 2035	19,473	19,309
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035	14,614	13,732
Countrywide Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50% 2035	6,822	6,822
Countrywide Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50% 2035	6,652	6,697
Countrywide Alternative Loan Trust, Series 2005-23CB, Class A-15, 5.50% 2035	6,780	6,573
Countrywide Alternative Loan Trust, Series 2005-62, Class 2-A-1, 5.662% 20356	4,730	4,477
Countrywide Alternative Loan Trust, Series 2005-50CB, Class 3-A-1, 6.00% 2035	13,475	13,254
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035	9,152	8,995
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035	4,330	4,319
Countrywide Alternative Loan Trust, Series 2006-6CB, Class 1-A-1, 5.50% 2036	8,087	8,079
Countrywide Alternative Loan Trust, Series 2007-J1, Class 3-A-4, 5.755% 20361,6	20,000	17,154
Countrywide Alternative Loan Trust, Series 2006-24CB, Class A-1, 6.00% 2036	13,918	13,964
Countrywide Alternative Loan Trust, Series 2006-16CB, Class A-2, 6.00% 2036	4,948	4,938
Countrywide Alternative Loan Trust, Series 2007-8CB, Class A-1, 5.50% 20371	26,798	26,809
Countrywide Alternative Loan Trust, Series 2007-2CB, Class 1-A-9, 5.75% 2037	16,581	16,101
Countrywide Alternative Loan Trust, Series 2007-HY4, Class 3-A-1, 5.878% 20476	32,303	29,843
Countrywide Alternative Loan Trust, Series 2007-HY4, Class 4-A-1, 5.963% 20476	17,719	16,207
Freddie Mac, Series SF02, Class GC, 2.64% 2009	128	128
Freddie Mac 8.50% 2009	21	21
Freddie Mac 8.50% 2010	36	38
Freddie Mac 5.00% 2018	9,144	9,292
Freddie Mac 5.50% 2018	4,526	4,649
Freddie Mac 11.00% 2018	201	230
Freddie Mac, Series 2890, Class KT, 4.50% 2019	25,425	24,516
Freddie Mac 5.50% 2019	12,399	12,728
Freddie Mac, Series 178, Class Z, 9.25% 2021	82	82
Freddie Mac, Series 2289, Class NB, 11.46% 20226	180	208
Freddie Mac 6.00% 2026	5,521	5,699
Freddie Mac 6.00% 2027	9,174	9,447
Freddie Mac 4.643% 20356	7,710	7,842
Freddie Mac 5.00% 2035	12,804	12,752
Freddie Mac, Series 3061, Class PN, 5.50% 2035	6,018	6,218
Freddie Mac 5.00% 2036	10,912	10,862
Freddie Mac, Series 3257, Class PA, 5.50% 2036	24,148	24,931
Freddie Mac 7.00% 2036	1,690	1,768
Freddie Mac 5.00% 2037	3,390	3,374
Freddie Mac 5.438% 20376	12,000	12,209
Freddie Mac, Series 3286, Class JN, 5.50% 2037	32,511	33,241
Freddie Mac, Series 3312, Class PA, 5.50% 2037	24,782	25,339
Freddie Mac, Series 3318, Class JT, 5.50% 2037	18,038	18,434
Freddie Mac 6.00% 2037	47,412	48,625
Freddie Mac, Series 3271, Class OA, 6.00% 2037	23,790	25,082
Freddie Mac 6.50% 2037	9,656	10,035
Freddie Mac 5.932% 20386	7,252	7,371
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S8, Class A-2, 5.00% 2018	60,567	60,354
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S10, Class A-2, 5.00% 2018	37,998	37,863
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S6, Class II-A-1, 5.00% 2018	13,622	13,576
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR1, Class A-6, 4.694% 20336	411	408
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY5, Class 3-A1, 5.825% 20376	47,010	47,049
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY7, Class 2-A1, 5.877% 20376	19,637	19,953
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY7, Class 4-A2, 5.877% 20376	39,400	39,431
WaMu Mortgage Pass-Through Certificates Trust, Series 2005-AR15, Class A-1-A, 3.636% 20456	11,597	10,908
CS First Boston Mortgage Securities Corp., Series 2005-7, Class III-A-1, 5.00% 2020	6,168	6,114
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034	3,237	3,222
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034	337	337
CS First Boston Mortgage Securities Corp., Series 2005-6, Class VI-A-1, 6.00% 20351	6,687	6,586
CS First Boston Mortgage Securities Corp., Series 2001-CP4, Class A-4, 6.18% 20351	4,375	4,622
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035	5,342	5,383
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035	10,012	10,414
CS First Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal only, 0% 20361,5	19,715	14,941
CS First Boston Mortgage Securities Corp., Series 2004-C5, Class A-2, 4.183% 2037	10,000	9,845
CS First Boston Mortgage Securities Corp., Series 2005-C3, Class A-AB, 4.614% 20371	10,000	10,014
CS First Boston Mortgage Securities Corp., Series 2007-2, Class 3-A-4, 5.50% 2037	23,283	21,466
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037	6,910	7,183
CS First Boston Mortgage Securities Corp., Series 2007-5, Class 1-A-9, 7.00% 20371	20,261	20,198
CS First Boston Mortgage Securities Corp., Series 2005-C5, Class A-2, 5.10% 20386	8,000	7,966
CS First Boston Mortgage Securities Corp., Series 2007-7, Class 1-A-2, 6.50% 20381	5,667	5,225
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-2FX, 5.207% 20406	3,050	3,046
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20401,6	10,900	11,039
Residential Accredit Loans, Inc., Series 2003-QS16, Class A-1, 5.00% 2018	12,863	12,802
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 2019	10,472	10,422
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 20341	7,443	7,175
Residential Accredit Loans, Inc., Series 2005-QS13, Class I-A-5, 5.50% 2035	11,764	11,636
Residential Accredit Loans, Inc., Series 2005-QS9, Class A-6, 5.50% 2035	100	93
Residential Accredit Loans, Inc., Series 2005-QS10, Class I-A, 6.00% 2035	8,560	8,467
Residential Accredit Loans, Inc., Series 2007-QS9, Class A-33, 6.50% 2037	58,036	58,851
Residential Accredit Loans, Inc., Series 2007-QS7, Class II-A-1, 6.75% 2037	15,440	15,734
Residential Accredit Loans, Inc., Series 2007-QS11, Class A-1, 7.00% 20371	16,973	16,846
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class II-A-4, 6.00% 2037	14,000	13,620
Wells Fargo Alternative Loan Trust, Series 2007-PA4, Class III-A-1, 6.088% 20376	16,814	17,057
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class III-A-1, 6.25% 2037	33,915	34,137
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class IV-A-1, 6.50% 2037	46,848	47,507
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class V-A-1, 7.00% 2037	23,491	24,101
CHL Mortgage Pass-Through Trust, Series 2003-35, Class 1-A-1, 4.75% 2018	6,418	6,361
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.837% 20336	1,089	1,079
CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.636% 20346	4,016	4,009
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.616% 20351,6	6,685	6,224
CHL Mortgage Pass-Through Trust, Series 2007-HY5, Class 3-A-1, 6.219% 20376	20,330	20,495
CHL Mortgage Pass-Through Trust, Series 2007-HY5, Class 1-A-1, 5.951% 20476	42,812	43,565
CHL Mortgage Pass-Through Trust, Series 2007-HY4, Class 1-A-1, 6.105% 20471,6	23,790	23,784
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-CIBC5, Class A-1, 4.372% 2037	4,120	4,092
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-2, 4.739% 2037	1,959	1,947
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC11, Class A-2, 5.016% 2037	14,040	14,012
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-C1, Class A-3, 4.719% 2038	7,000	6,924
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039	1,837	1,820
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-C3, Class A-2, 4.223% 2042	11,687	11,497
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042	3,155	3,135
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-CIBC14, Class A-4, 5.481% 20446	3,840	3,851
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A-4, 6.065% 20456	27,700	28,861
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046	20,000	19,881
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20371,5	7,250	7,144
American Tower Trust I, Series 2007-1A, Class B, 5.537% 20371,5	20,000	19,330
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20371,5	37,375	34,691
American Tower Trust I, Series 2007-1A, Class E, 6.249% 20371,5	20,500	18,401
American Tower Trust I, Series 2007-1A, Class F, 6.639% 20371,5	5,550	4,965
Wells Fargo Mortgage-backed Securities Trust, Series 2003-13, Class A-1, 4.50% 2018	16,002	15,772
Wells Fargo Mortgage-backed Securities Trust, Series 2003-16, Class I-A-1, 4.75% 2018	7,696	7,628
Wells Fargo Mortgage-backed Securities Trust, Series 2004-7, Class II-A-1, 4.50% 2019	22,916	22,585
Wells Fargo Mortgage-backed Securities Trust, Series 2006-1, Class A-3, 5.00% 2021	12,982	12,932
Wells Fargo Mortgage-backed Securities Trust, Series 2003-3, Class II-A-1, 5.25% 2033	6,816	6,833
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR15, Class A-1, 5.655% 20366	15,288	15,384
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 20355	10,000	9,988
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 20355	37,750	37,489
Crown Castle Towers LLC, Series 2006-1, Class E, 6.065% 20361,5	9,000	8,526
Crown Castle Towers LLC, Series 2006-1, Class F, 6.650% 20361,5	16,575	15,763
Crown Castle Towers LLC, Series 2006-1, Class G, 6.795% 20361,5	1,250	1,176
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.845% 20366	30,583	30,699
IndyMac INDX Mortgage Loan Trust, Series 2006-AR25, Class 3-A-1, 6.368% 20361,6	43,960	40,883
SBA CMBS Trust, Series 2005-1, Class A, 5.369% 20351,5	10,000	10,119
SBA CMBS Trust, Series 2005-1, Class B, 5.565% 20351,5	7,000	6,986
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20365	12,000	12,064
SBA CMBS Trust, Series 2006-1A, Class D, 5.852% 20361,5	5,000	4,765
SBA CMBS Trust, Series 2006-1A, Class F, 6.709% 20361,5	18,000	16,965
SBA CMBS Trust, Series 2006-1A, Class G, 6.904% 20361,5	17,000	15,873
SBA CMBS Trust, Series 2006-1A, Class H, 7.389% 20361,5	1,670	1,573
Wachovia Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 5.681% 2034	966	969
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041	15,000	14,643
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042	11,000	10,975
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083% 20426	5,000	4,933
Wachovia Bank Commercial Mortgage Trust, Series 2005-C22, Class A-4, 5.44% 20446	22,000	21,479
Wachovia Bank Commercial Mortgage Trust, Series 2006-C23, Class A-PB, 5.446% 2045	12,500	12,706
IndyMac IMSC Mortgage Loan Trust, Series 2007-F3, Class 2-A-1, 6.50% 2037	20,852	20,782
IndyMac IMSC Mortgage Loan Trust, Series 2007-F3, Class 3-A-1, 7.00% 20371	42,709	42,388
Tower Ventures, LLC, Series 2006-1, Class A1-FX, 5.361% 20361,5	12,000	12,152
Tower Ventures, LLC, Series 2006-1, Class A-2, 5.45% 20361,5	11,100	11,238
Tower Ventures, LLC, Series 2006-1, Class C, 5.707% 20365	8,000	8,049
Tower Ventures, LLC, Series 2006-1, Class D, 6.052% 20361,5	29,000	28,539
Lehman Mortgage Trust, Series 2005-2, Class 3-A3, 5.50% 2035	9,431	9,487
Lehman Mortgage Trust, Series 2007-6, Class 2-A1, 6.902% 20376	27,031	27,533
Lehman Mortgage Trust, Series 2007-7, Class 6-A4, 7.00% 2037	21,108	21,556
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA11, Class I-A-5, 5.75% 2036	1,376	1,384
First Horizon Alternative Mortgage Securities Trust, Series 2006-FA3, Class A-6, 6.00% 2036	12,468	12,503
First Horizon Alternative Mortgage Securities Trust, Series 2007-FA4, Class I-A-10, 6.25% 2037	26,346	26,347
GE Commercial Mortgage Corp., Series 2004-C1, Class A-2, 3.915% 2038	5,550	5,531
GE Commercial Mortgage Corp., Series 2006-C1, Class A-4, 5.518% 20441,6	13,000	13,396
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.512% 20456	17,000	16,947
GE Commercial Mortgage Corp., Series 2005-C4, Class A-M, 5.512% 20451,6	1,650	1,664
Chase Mortgage Finance Trust, Series 2003-S9, Class A-1, 5.00% 2018	21,752	21,673
Chase Mortgage Finance Trust, Series 2003-S2, Class A-1, 5.00% 2018	15,086	15,037
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.683% 20346	9,219	8,917
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 5-A-1, 6.00% 2035	11,688	11,486
Morgan Stanley Mortgage Loan Trust, Series 2006-3AR, Class 3-A-1, 6.005% 20366	1,020	1,024
Morgan Stanley Mortgage Loan Trust, Series 2007-11AR, Class 2-A-1, 6.64% 20376	14,460	13,553
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7-A-1, 5.00% 2019	31,485	31,406
Banc of America Mortgage Securities, Inc., Series 2003-G, Class 2-A-1, 4.088% 20336	2,489	2,510
American Home Mortgage Assets Trust, Series 2007-3, Class II-2A-1, 6.25% 20376	32,140	31,856
Citigroup Mortgage Loan Trust, Inc., Series 2003-UST1, Class A-3, 5.00% 2018	6,562	6,547
Citigroup Mortgage Loan Trust, Inc., Series 2006-AR5, Class 2-A7A, 6.215% 20361,6	24,437	24,131
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.924% 20361,6	12,144	12,011
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-12, Class 2-A1, 5.959% 20376	11,652	11,744
Structured Adjustable Rate Mortgage Loan Trust, Series 2007-9, Class 2-A1, 5.997% 20376	6,797	6,903
Washington Mutual Mortgage, WMALT Series 2005-AR1, Class A-1-A, 3.636% 20356	10,316	9,738
Washington Mutual Mortgage, WMALT Series 2006-1, Class 4-CB, 6.50% 2036	6,884	6,933
Washington Mutual Mortgage, WMALT Series 2007-2, Class 1-A-1, 7.00% 2037	10,278	10,544
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036	8,764	9,091
Banc of America Commercial Mortgage Inc., Series 2005-5, Class A-3B, 5.40% 20456	17,730	17,499
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20265	20,984	22,376
GSR Mortgage Loan Trust, Series 2004-2F, Class VIIA-1, 4.50% 2019	17,592	17,364
GSR Mortgage Loan Trust, Series 2004-15F, Class 5A-1, 5.50% 2020	4,404	4,430
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 4.964% 20346	2,017	2,022
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.65% 20351,6	20,000	19,025
Structured Asset Securities Corp., Series 2004-15, Class 2-A-1, 4.75% 2019	20,749	20,412
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.507% 20275,6	263	263
Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.746% 20275,6	215	215
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2006-CD3, Class A-5, 5.617% 2048	20,000	20,340
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.323% 20306	20,000	20,245
Bank of America 5.50% 20125	17,500	18,768
Nationwide Building Society, Series 2007-2, 5.50% 20125	17,500	18,746
Thornburg Mortgage Securities Trust, Series 2006-5, Class A-1, 3.496% 20466	19,402	18,614
Morgan Stanley Capital I Trust, Series 2005-HQ7, Class A-2, 5.374% 20426	17,875	17,754
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC3, Class II-A-1, 5.25% 2020	8,058	8,192
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC8, Class A-4, 5.50% 2035	6,168	6,149
Bear Stearns Asset-backed Securities I Trust, Series 2006-AC2, Class II-1A-1, 6.00% 2036	3,296	3,294
CitiMortgage Alternative Loan Trust, Series 2005-A1, Class IIA-1, 5.00% 2020	17,360	17,395
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038	6,925	6,576
Commercial Mortgage Trust, Series 2004-LNB2, Class A-2, 3.60% 2039	7,203	7,136
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X, interest only, 1.243% 20315,6	70,237	1,089
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035	4,349	4,298
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035	7,665	7,972
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034	12,208	12,769
Host Marriott Pool Trust, Series 1999-HMTA, Class D, 7.97% 20155	10,990	11,642
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031	10,114	10,439
Bear Stearns ALT-A Trust, Series 2006-2, Class II-4-A-1, 5.909% 20361,6	11,479	10,331
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A-4-1, 5.243% 20376	10,000	9,911
American General Mortgage Loan Trust, Series 2006-1, Class A-5, 5.75% 20351,5,6	10,000	9,887
GMAC Mortgage Loan Trust, Series 2006-AR1, Class 2-A-1, 5.638% 20366	8,093	8,139
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030	1,488	1,489
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032	5,964	6,258
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 20331	1,207	1,218
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037	5,832	5,745
Banc of America Alternative Loan Trust, Series 2003-11, Class 5-A-1, 5.50% 2019	6,563	6,595
American Home Mortgage Investment Trust, Series 2004-1, Class III-A, 3.28% 2044	5,991	5,959
Government National Mortgage Assn. 9.50% 2009	130	134
Government National Mortgage Assn. 9.00% 2016	39	45
Government National Mortgage Assn. 8.50% 2017	9	10
Government National Mortgage Assn. 8.50% 2017	4	4
Government National Mortgage Assn. 10.00% 2020	854	1,012
Government National Mortgage Assn. 8.50% 2021	197	223
Government National Mortgage Assn. 8.50% 2021	34	38
Government National Mortgage Assn. 8.50% 2021	6	7
Government National Mortgage Assn. 9.50% 2021	100	117
Government National Mortgage Assn. 10.00% 2021	1,223	1,450
Government National Mortgage Assn. 10.00% 2025	1,152	1,356
HarborView Mortgage Loan Trust, Series 2005-15, Class 2-A1A2, 4.734% 20456	3,548	3,411
Morgan Stanley Capital I, Inc., Series 1998-HF2, Class A-2, 6.48% 2030	629	630
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-1, 6.341% 2033	602	603
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027	314	313
		3,963,897

FINANCIALS — 4.68%
Residential Capital, LLC 5.646% 20086	5,250	4,515
General Motors Acceptance Corp. 6.034% 20086	3,700	3,599
Residential Capital Corp. 7.782% 20086	10,000	7,750
Residential Capital Corp. 6.598% 20096	20,000	13,800
Residential Capital Corp. 7.328% 20095,6	15,000	7,350
Residential Capital Corp. 7.875% 20106	68,160	44,645
General Motors Acceptance Corp. 6.875% 2011	92,370	80,819
General Motors Acceptance Corp. 7.25% 2011	104,920	94,855
General Motors Acceptance Corp. 6.875% 2012	19,530	16,597
General Motors Acceptance Corp. 7.00% 2012	43,455	37,727
Residential Capital, LLC 8.00% 20126	14,595	9,195
General Motors Acceptance Corp. 6.75% 2014	9,480	7,822
General Motors Acceptance Corp. 7.324% 20146	37,000	29,077
Washington Mutual Bank, FA 6.875% 2011	750	716
Washington Mutual, Inc. 5.00% 2012	9,150	8,072
Washington Mutual, Inc. 5.184% 20126	16,000	14,159
Washington Mutual Bank 5.369% 20136	10,000	8,659
Washington Mutual, Inc. 4.625% 2014	5,000	3,965
Washington Mutual Bank, FA 5.65% 2014	11,126	9,819
Washington Mutual Bank, FA, Series 16, 5.125% 2015	28,925	25,265
Washington Mutual, Inc. 5.25% 2017	1,040	865
Washington Mutual, Inc. 7.25% 2017	2,000	1,747
Washington Mutual, Inc. 6.75% 20361	864	734
Washington Mutual Preferred Funding I Ltd., Series A-1, 6.534% (undated)5,6	72,100	48,951
Washington Mutual Preferred Funding II Ltd. 6.665% (undated)5,6	17,100	11,903
Washington Mutual Preferred Funding III Ltd. 6.895% (undated)5,6	26,200	17,963
Washington Mutual Preferred Funding IV Ltd. 9.75% (undated)5,6	80,700	74,358
Ford Motor Credit Co. 5.625% 2008	5,615	5,540
Ford Motor Credit Co. 5.80% 2009	4,000	3,892
Ford Motor Credit Co. 7.875% 2010	7,000	6,593
Ford Motor Credit Co. 9.75% 20106	81,750	79,005
Ford Motor Credit Co. 7.25% 2011	4,450	3,954
Ford Motor Credit Co. 7.375% 2011	1,800	1,645
Ford Motor Credit Co. 9.875% 2011	7,500	7,201
Ford Motor Credit Co. 7.127% 20126	73,405	61,885
Ford Motor Credit Co. 7.80% 2012	3,500	3,103
Ford Motor Credit Co. 8.00% 2016	9,000	7,568
Realogy Corp., Term Loan B, 7.505% 20136,7	16,866	14,213
Realogy Corp., Term Loan B, Letter of Credit, 8.24% 20136,7	5,820	4,905
Realogy Corp. 10.50% 20145	97,320	70,070
Realogy Corp. 11.00% 20145,8	18,000	12,060
Realogy Corp. 12.375% 20155	11,125	6,675
International Lease Finance Corp. 5.00% 2010	5,555	5,673
International Lease Finance Corp. 5.00% 2012	5,000	5,060
International Lease Finance Corp., Series R, 5.40% 2012	10,000	10,320
American General Finance Corp., Series I, 5.40% 2015	17,250	16,303
American General Finance Corp., Series J, 6.50% 2017	14,000	13,985
American General Finance Corp., Series J, 6.90% 2017	22,500	23,078
ILFC E-Capital Trust I 5.90% 20655,6	10,000	9,220
ILFC E-Capital Trust II 6.25% 20655,6	18,790	18,098
American International Group, Inc., Series A-1, 6.25% 20876	4,775	4,185
Bank of America Corp. 4.25% 2010	6,000	6,106
Bank of America Corp. 5.375% 2012	4,000	4,172
MBNA Global Capital Funding, Series B, 5.711% 20276	35,000	29,498
Bank of America Corp. 6.50% 2037	8,300	8,504
Bank of America Corp., Series K, 8.00% (undated)6	47,000	48,905
Barclays Bank PLC 5.926% (undated)5,6	6,525	6,083
Barclays Bank PLC 7.434% (undated)5,6	86,480	90,613
Countrywide Home Loans, Inc., Series L, 3.25% 2008	19,250	18,608
Countrywide Home Loans, Inc., Series M, 4.125% 2009	32,195	28,718
Countrywide Home Loans, Inc., Series K, 5.625% 2009	8,500	7,811
Countrywide Home Loans, Inc., Series H, 6.25% 2009	3,260	3,029
Countrywide Financial Corp., Series A, 4.50% 2010	2,695	2,375
Countrywide Financial Corp., Series B, 5.315% 20121,6	11,250	9,309
Countrywide Financial Corp., Series B, 5.80% 2012	23,885	21,273
Citigroup Inc. 5.125% 2011	12,500	12,825
Citigroup Inc. 6.125% 2017	8,000	8,451
Citigroup Capital XXI 8.30% 20576	63,050	68,168
CIT Group Inc. 6.875% 2009	15,000	15,030
CIT Group Inc. 7.625% 2012	33,675	33,238
CIT Group Inc. 5.65% 2017	8,019	6,660
CIT Group Inc. 5.80% 2036	12,500	10,622
CIT Group Inc. 6.00% 2036	10,121	7,602
CIT Group Inc. 6.10% 20676	13,890	9,900
Standard Chartered Bank 6.40% 20175	44,950	47,048
Standard Chartered Bank 3.856% Eurodollar note (undated)6	15,000	10,200
Standard Chartered PLC 6.409% (undated)5,6	25,500	22,992
Rouse Co. 3.625% 2009	32,561	31,050
Rouse Co. 7.20% 2012	36,789	35,774
Rouse Co. 6.75% 20135	12,150	11,571
Household Finance Corp. 4.125% 2009	10,000	10,010
HSBC Finance Corp. 4.625% 2010	14,000	14,243
HSBC Holdings PLC 6.50% 2037	50,100	49,223
Midland Bank 5.00% Eurodollar note (undated)1,6	5,000	3,750
Merrill Lynch & Co., Inc., Series C, 6.05% 2012	9,700	10,104
Merrill Lynch & Co., Inc. 5.45% 2013	31,200	31,282
Merrill Lynch & Co., Inc., Series C, 6.40% 2017	22,200	22,844
Merrill Lynch & Co., Inc. 6.11% 2037	11,300	9,840
HSBK (Europe) BV 7.75% 2013	10,275	9,941
HSBK (Europe) BV 7.75% 20135	2,165	2,095
HSBK (Europe) BV 7.25% 20175	65,640	57,520
HSBK (Europe) BV 7.25% 2017	3,125	2,738
E*TRADE Financial Corp. 8.00% 2011	46,350	40,093
E*TRADE Financial Corp. 7.375% 2013	16,125	12,376
E*TRADE Financial Corp. 7.875% 2015	24,700	18,834
J.P. Morgan Chase & Co. 4.891% 20156	10,000	9,377
JPMorgan Chase Bank NA 6.00% 2017	10,000	10,445
JPMorgan Chase & Co. 6.00% 2018	6,500	6,758
JPMorgan Chase Capital XXI, Series U, 5.844% 20376	12,500	9,333
JPMorgan Chase Capital XXV, Series Y, 6.80% 2037	8,350	7,916
JPMorgan Chase Capital XX, Series T, 6.55% 2066	24,040	22,080
JPMorgan Chase Capital XVIII, Series R, 6.95% 2066	5,100	4,930
TuranAlem Finance BV 8.00% 2014	6,005	5,269
TuranAlem Finance BV 8.50% 2015	22,485	20,041
TuranAlem Finance BV 8.50% 20155	10,000	8,913
TuranAlem Finance BV 8.25% 20375	35,000	30,712
TuranAlem Finance BV, Series 8, 8.25% 2037	5,385	4,725
Capmark Financial Group, Inc. 5.529% 20105,6	41,255	32,225
Capmark Financial Group, Inc. 5.875% 20125	22,260	16,299
Capmark Financial Group, Inc. 6.30% 20171,5	21,435	15,004
Wachovia Bank NA 6.60% 2038	62,375	62,157
Lehman Brothers Holdings Inc., Series I, 4.171% 20116	985	936
Lehman Brothers Holdings Inc., Series I, 4.607% 20126	1,320	1,232
Lehman Brothers Holdings Inc. 6.50% 2017	15,800	16,176
Lehman Brothers Holdings Inc. 6.75% 2017	26,200	27,209
Lehman Brothers Holdings Inc. 6.875% 2037	10,000	9,760
Lehman Brothers Holdings Capital Trust VII 5.857% (undated)6	6,415	4,960
Simon Property Group, LP 4.875% 2010	11,375	11,443
Simon Property Group, LP 5.375% 2011	32,700	32,430
Simon Property Group, LP 6.35% 2012	5,000	5,132
Simon Property Group, LP 5.25% 2016	5,000	4,666
Simon Property Group, LP 5.875% 2017	5,825	5,485
UniCredito Italiano SpA 5.584% 20175,6	32,750	33,446
UniCredito Italiano SpA 6.00% 20175	25,300	25,649
Royal Bank of Scotland Group PLC 6.99% (undated)5,6	54,975	55,085
Fifth Third Capital Trust IV 6.50% 20676	59,500	51,623
Santander Issuances, SA Unipersonal 5.286% 20165,6	17,200	16,264
Santander Issuances, SA Unipersonal 5.805% 20165,6	15,700	16,169
Santander Perpetual, SA Unipersonal 6.671% (undated)5,6	12,900	13,093
Abbey National PLC 6.70% (undated)6	3,635	3,580
Host Marriott, LP, Series M, 7.00% 2012	28,085	28,015
Host Marriott, LP, Series K, 7.125% 2013	10,000	9,950
Host Hotels & Resorts, LP, Series S, 6.875% 2014	10,500	10,369
UnumProvident Corp. 5.859% 2009	11,500	11,815
UnumProvident Finance Co. PLC 6.85% 20155	33,500	35,435
Capital One Bank 4.875% 2008	20,000	19,959
Capital One Financial Corp. 6.25% 2013	20,000	19,036
Capital One Capital III 7.686% 20366	10,000	7,587
PNC Funding Corp., Series II, 6.113% (undated)5,6	13,800	12,429
PNC Funding Corp., Series I, 6.517% (undated)5,6	35,400	32,599
Charles Schwab Corp., Series A, 6.375% 2017	16,200	16,780
Schwab Capital Trust I 7.50% 20376	24,900	25,659
Sumitomo Mitsui Banking Corp. 5.625% (undated)5,6	44,400	42,048
iStar Financial, Inc. 7.00% 20082	6,525	6,530
iStar Financial, Inc., Series B, 4.875% 20092	5,000	4,897
iStar Financial, Inc. 5.375% 20102	10,925	10,157
iStar Financial, Inc. 6.00% 20102	3,750	3,340
iStar Financial, Inc., Series B, 5.125% 20112	10,000	8,896
iStar Financial, Inc. 5.80% 20112	5,000	4,470
iStar Financial, Inc. 6.05% 20152	4,285	3,683
Liberty Mutual Group Inc. 6.50% 20355	21,275	19,520
Liberty Mutual Group Inc. 7.50% 20365	5,655	5,573
Liberty Mutual Group Inc., Series A, 7.80% 20875	15,000	13,184
ZFS Finance (USA) Trust I 6.15% 20655,6	6,000	5,678
ZFS Finance (USA) Trust II 6.45% 20655,6	14,500	13,387
ZFS Finance (USA) Trust V 6.50% 20675,6	20,360	18,620
Hospitality Properties Trust 7.00% 2008	1,210	1,213
Hospitality Properties Trust 6.75% 2013	18,365	19,162
Hospitality Properties Trust 6.30% 2016	1,500	1,468
Hospitality Properties Trust 6.70% 2018	16,175	15,582
Glen Meadow Pass Through Trust 6.505% 20671,5,6	38,500	36,768
Northern Rock PLC 5.60% (undated)1,5,6	16,380	11,466
Northern Rock PLC 6.594% (undated)1,5,6	33,985	23,789
Catlin Insurance Ltd. 7.249% (undated)5,6	38,340	34,461
AXA SA 6.379% (undated)5,6	24,250	20,492
AXA SA 6.463% (undated)5,6	15,000	13,090
HBOS PLC 5.375% (undated)5,6	36,010	33,426
Kimco Realty Corp. 6.00% 2012	3,250	3,172
Kimco Realty Corp., Series C, 5.783% 2016	15,000	14,266
Kimco Realty Corp. 5.70% 2017	16,985	15,972
SLM Corp., Series A, 5.40% 2011	15,000	13,727
SLM Corp., Series A, 3.631% 20146	10,000	8,151
SLM Corp., Series A, 5.00% 2015	12,000	10,017
Prudential Financial, Inc., Series D, 5.15% 2013	2,750	2,789
Prudential Holdings, LLC, Series C, 8.695% 20235,7	22,250	27,595
Korea Development Bank 5.30% 2013	29,500	30,049
Lincoln National Corp. 5.65% 2012	12,000	12,534
Lincoln National Corp. 7.00% 20666	17,525	17,456
Lazard Group LLC 7.125% 2015	18,265	18,520
Lazard Group LLC 6.85% 2017	11,500	11,324
Kazkommerts International BV 8.50% 20135	2,500	2,312
Kazkommerts International BV 7.875% 20145	10,000	8,800
Kazkommerts International BV 8.00% 2015	14,500	12,289
Kazkommerts International BV, Series 4, 7.50% 2016	7,500	6,053
BNP Paribas 7.195% (undated)5,6	28,500	27,547
Westfield Group 5.40% 20125	5,000	5,057
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 5.125% 20145	22,500	21,009
Mizuho Capital Investment (USD) 1 Ltd. 6.686% noncumulative preferred (undated)5,6	28,850	26,052
American Express Co. 6.15% 2017	12,610	13,043
American Express Co. 6.80% 20666	12,925	12,629
Resona Bank, Ltd. 5.85% (undated)5,6	27,575	25,524
Skandinaviska Enskilda Banken AB 4.958% (undated)5,6	15,490	14,215
Skandinaviska Enskilda Banken AB 7.50% (undated)5,6	10,405	10,816
CNA Financial Corp. 6.60% 2008	7,130	7,260
CNA Financial Corp. 5.85% 2014	5,625	5,604
CNA Financial Corp. 7.25% 2023	11,625	12,037
Mangrove Bay Pass Through Trust 6.102% 20335,6	25,980	22,538
Twin Reefs Asset Trust (XLFA), Series B, 5.411% 20795,6	7,200	1,449
Development Bank of Singapore Ltd. 7.875% 20105	10,000	10,818
Development Bank of Singapore Ltd. 7.125% 20115	5,000	5,397
DBS Bank Ltd. 4.868% 20215,6	7,250	6,779
BBVA International SA Unipersonal 5.919% (undated)5,6	24,900	21,480
National City Preferred Capital Trust I, 12.00% (undated)1,6	20,000	20,200
Lloyds TSB Group PLC 6.267% (undated)5,6	20,100	17,804
QBE Capital Funding II LP 6.797% (undated)5,6	18,715	17,652
Downey Financial Corp. 6.50% 2014	20,000	16,875
Allstate Corp., Series B, 6.125% 20676	8,020	7,817
Allstate Corp., Series A, 6.50% 20676	9,775	8,935
State Street Capital Trust IV 5.991% 20776	20,000	16,547
Wells Fargo & Co. 4.375% 2013	8,500	8,507
Wells Fargo Bank, National Assn. 4.75% 2015	7,500	7,403
Genworth Financial, Inc. 6.15% 20666	17,665	15,618
North Front Pass Through Trust 5.81% 20245,6	10,000	9,772
Nationwide Mutual Insurance Co. 7.875% 20335	5,000	5,726
Independence Community Bank Corp. 4.90% 2010	5,000	4,940
Independence Community Bank 3.75% 20146	10,000	9,850
Developers Diversified Realty Corp. 4.625% 2010	8,695	8,406
Developers Diversified Realty Corp. 5.375% 2012	2,000	1,851
Developers Diversified Realty Corp. 5.50% 2015	5,000	4,482
Goldman Sachs Group, Inc. 6.75% 2037	14,000	13,778
United Dominion Realty Trust, Inc., Series E, 4.50% 2008	10,000	10,009
United Dominion Realty Trust, Inc. 5.00% 2012	2,500	2,499
ORIX Corp. 5.48% 2011	12,000	11,917
Banco Mercantil del Norte, SA 6.135% 20165	2,000	1,961
Banco Mercantil del Norte, SA 6.862% 20215	10,250	9,597
Protective Life Insurance Co., Series 2005-C, 4.85% 2010	10,000	10,137
Chubb Corp. 6.375% 20376	10,250	10,119
United Overseas Bank Ltd. 5.375% 20195,6	10,000	9,887
Ambac Financial Group, Inc. 5.95% 2035	500	285
Ambac Financial Group, Inc. 6.15% 20876	20,915	9,463
Duke Realty LP 4.625% 2013	10,000	9,113
Credit Agricole SA 6.637% (undated)5,6	9,233	8,411
Nationwide Financial Services, Inc. 6.75% 20676	9,780	8,282
Monumental Global Funding III 4.458% 20145,6	8,000	7,782
LaBranche & Co Inc. 9.50% 2009	5,500	5,541
LaBranche & Co Inc. 11.00% 2012	1,750	1,746
Plum Creek Timberlands, LP 5.875% 2015	7,145	7,250
Bank of Nova Scotia 5.563% 20851,6	10,000	7,150
Canadian Imperial Bank of Commerce 5.563% Eurodollar note 20851,6	10,000	6,850
Assurant, Inc. 5.625% 2014	5,740	5,605
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)5,6	5,000	5,106
Silicon Valley Bank 5.70% 2012	5,000	5,102
KeyBank NA 5.50% 2012	4,000	4,157
Brandywine Operating Partnership, LP 5.75% 2012	4,190	4,152
Zions Bancorporation 5.50% 2015	4,000	3,779
ProLogis 5.625% 2015	2,605	2,453
Société Générale 5.922% (undated)5,6	2,600	2,403
BOI Capital Funding (No. 2) LP 5.571% (undated)5,6	2,500	2,172
Financial Security Assurance Holdings Ltd. 6.40% 20665,6	2,500	1,869
		3,926,481

		unaudited

	Principal amount	Market value
Bonds & notes	(000)	(000)

CONSUMER DISCRETIONARY — 3.93%
CCH II, LLC and CCH II Capital Corp. 10.25% 2010	$ 15,450	$ 14,716
Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corp. 13.50% 2011	4,375	3,183
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.00% 20125	57,748	55,149
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013	23,350	21,832
Charter Communications Operating, LLC, Term Loan Facilities B, 5.26% 20146,7	86,900	75,964
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.375% 20145	20,000	19,050
CCH I, LLC and CCH I Capital Corp. 11.00% 2015	30,575	22,052
Allison Transmission Holdings, Inc., Term Loan B, 7.17% 20146,7	116,807	102,790
Allison Transmission Holdings, Inc. 11.00% 20155	14,800	12,506
Allison Transmission Holdings, Inc. 11.25% 20155,8	76,450	62,307
General Motors Corp. 6.375% 2008	1,050	1,050
General Motors Nova Scotia Finance Co. 6.85% 2008	1,675	1,667
General Motors Corp. 7.20% 2011	65,915	60,477
General Motors Corp. 7.125% 2013	45,035	38,505
General Motors Corp. 7.70% 2016	4,000	3,330
General Motors Corp. 8.80% 2021	27,375	22,995
General Motors Corp. 9.40% 2021	11,500	10,091
General Motors Corp. 8.25% 2023	7,000	5,635
General Motors Corp. 8.375% 2033	10,000	8,175
Univision Communications, Inc., Second Lien Term Loan, 5.771% 20096,7	4,315	4,063
Univision Communications Inc. 7.85% 2011	14,040	13,461
Univision Communications, Inc., First Lien Term Loan B, 5.494% 20146,7	60,969	50,062
Univision Communications Inc. 9.75% 20155,8	98,195	73,892
Delphi Automotive Systems Corp. 6.50% 20099	54,466	21,514
Delphi Corp. 6.50% 20139	72,580	29,032
Delphi Automotive Systems Corp. 6.55% 20069	17,105	6,756
Delphi Automotive Systems Corp. 7.125% 20299	104,355	41,481
Delphi Trust I 8.25% 20339	30,031	7,057
Michaels Stores, Inc., Term Loan B, 7.625% 20136,7	24,322	20,923
Michaels Stores, Inc. 10.00% 2014	78,600	70,347
Michaels Stores, Inc. 0%/13.00% 201610	17,950	8,347
Michaels Stores, Inc. 11.375% 2016	6,800	5,542
K. Hovnanian Enterprises, Inc. 8.00% 2012	3,000	2,175
K. Hovnanian Enterprises, Inc. 8.875% 2012	10,515	5,415
K. Hovnanian Enterprises, Inc. 7.75% 2013	14,265	7,061
K. Hovnanian Enterprises, Inc. 6.375% 2014	8,086	5,579
K. Hovnanian Enterprises, Inc. 6.50% 2014	27,301	18,838
K. Hovnanian Enterprises, Inc. 6.25% 2015	28,080	19,796
K. Hovnanian Enterprises, Inc. 6.25% 2016	13,605	9,421
K. Hovnanian Enterprises, Inc. 7.50% 2016	16,150	11,628
K. Hovnanian Enterprises, Inc. 8.625% 2017	32,775	24,253
Comcast Cable Communications, Inc. 6.20% 2008	49,000	49,610
Comcast Corp. 4.677% 20096	1,250	1,225
Comcast Cable Communications, Inc. 7.125% 2013	8,100	8,777
Comcast Corp. 5.85% 2015	13,200	13,370
Comcast Corp. 5.90% 2016	8,475	8,555
Comcast Corp. 6.45% 2037	10,000	9,722
Comcast Corp. 6.95% 2037	10,275	10,594
MGM MIRAGE 6.00% 2009	35,100	35,100
Mandalay Resort Group 6.50% 2009	7,122	7,158
MGM MIRAGE 8.50% 2010	22,830	23,857
MGM MIRAGE 6.75% 2012	9,150	8,853
MGM MIRAGE 6.75% 2013	8,200	7,851
MGM MIRAGE 7.50% 2016	4,000	3,860
KB Home 7.75% 2010	12,000	11,640
KB Home 5.875% 2015	33,545	30,358
KB Home 6.25% 2015	43,170	39,501
Dex Media West LLC, Dex Media West Finance Co., Series B, 8.50% 2010	5,000	5,081
Dex Media, Inc., Series B, 0%/9.00% 201310	9,000	8,032
R.H. Donnelley Corp., Series A-1, 6.875% 2013	20,650	17,449
R.H. Donnelley Corp., Series A-2, 6.875% 2013	15,825	13,372
R.H. Donnelley Corp., Series A-3, 8.875% 2016	17,775	15,331
R.H. Donnelley Corp. 8.875% 20175	16,325	13,917
Tenneco Automotive Inc., Series B, 10.25% 2013	7,883	8,395
Tenneco Automotive Inc. 8.625% 2014	42,300	41,031
Tenneco Automotive Inc. 8.125% 20155	22,100	22,100
Time Warner Inc. 5.109% 20096	20,000	19,421
Time Warner Inc. 5.50% 2011	1,000	1,011
AOL Time Warner Inc. 6.875% 2012	6,950	7,311
Time Warner Companies, Inc. 9.125% 2013	5,000	5,733
Time Warner Inc. 5.875% 2016	8,700	8,573
Time Warner Companies, Inc. 7.25% 2017	9,500	10,224
AOL Time Warner Inc. 7.625% 2031	10,750	11,648
Time Warner Inc. 6.50% 2036	8,000	7,556
Federated Retail Holdings, Inc. 5.35% 2012	7,000	6,815
Federated Retail Holdings, Inc. 5.90% 2016	48,915	45,671
Federated Retail Holdings, Inc. 6.375% 2037	14,300	11,932
J.C. Penney Co., Inc. 8.00% 2010	35,705	37,539
J.C. Penney Co., Inc. 9.00% 2012	10,506	11,869
J.C. Penney Corp., Inc. 5.75% 2018	4,970	4,676
J.C. Penney Corp., Inc. 6.375% 2036	4,800	4,251
Centex Corp. 5.70% 2014	7,705	6,635
Centex Corp. 5.25% 2015	38,945	32,371
Centex Corp. 6.50% 2016	20,715	18,465
Sally Holdings LLC and Sally Capital Inc. 9.25% 2014	59,950	56,952
NTL Cable PLC 8.75% 2014	26,689	24,554
NTL Cable PLC 9.125% 2016	32,000	29,120
News America Holdings Inc. 8.00% 2016	6,000	6,927
News America Inc. 7.25% 2018	1,405	1,536
News America Holdings Inc. 8.25% 2018	7,000	8,315
News America Inc. 6.40% 2035	750	743
News America Inc. 6.15% 2037	1,500	1,450
News America Inc. 6.65% 20375	18,000	18,334
News America Inc. 6.75% 2038	15,000	15,964
Liberty Media Corp. 7.75% 2009	10,950	11,300
Liberty Media Corp. 7.875% 2009	28,350	29,304
Liberty Media Corp. 8.25% 2030	13,870	12,643
Time Warner Cable Inc. 5.40% 2012	25,000	25,408
Time Warner Cable Inc. 6.55% 2037	25,000	24,845
Chancellor Media Corp. of Los Angeles 8.00% 2008	23,750	24,106
Clear Channel Communications, Inc. 7.65% 2010	15,000	15,467
Clear Channel Communications, Inc. 5.75% 2013	3,580	2,990
Clear Channel Communications, Inc. 5.50% 2014	9,170	6,996
CanWest Media Inc., Series B, 8.00% 2012	45,523	43,361
CanWest MediaWorks Inc. 9.25% 20155	3,150	2,992
Cox Communications, Inc. 7.875% 2009	12,500	13,175
Cox Communications, Inc. 4.625% 2010	8,250	8,278
Cox Communications, Inc. 7.75% 2010	10,000	10,840
Cox Communications, Inc. 5.45% 2014	13,500	13,496
TL Acquisitions, Inc., Term Loan B, 6.03% 20146,7	13,591	12,260
Thomson Learning 0%/13.25% 20155,10	2,250	1,721
Thomson Learning 10.50% 20155	33,050	30,241
Toys “R” Us, Inc. 7.625% 2011	38,195	30,365
Toys “R” Us-Delaware, Inc., Term Loan B, 9.155% 20126,7	11,940	11,340
Standard Pacific Corp. 6.50% 2008	5,000	4,450
Standard Pacific Corp. 5.125% 2009	15,750	12,600
Standard Pacific Corp. 6.875% 2011	9,435	6,604
Standard Pacific Corp. 7.75% 2013	4,975	3,408
Standard Pacific Corp. 6.25% 2014	7,050	4,865
Standard Pacific Corp. 7.00% 2015	13,135	9,129
Target Corp. 5.125% 2013	10,000	10,329
Target Corp. 6.00% 2018	11,350	11,837
Target Corp. 7.00% 2038	17,500	18,349
Mohegan Tribal Gaming Authority 6.375% 2009	19,780	19,681
Mohegan Tribal Gaming Authority 8.00% 2012	2,100	2,069
Mohegan Tribal Gaming Authority 6.125% 2013	4,175	3,935
Mohegan Tribal Gaming Authority 7.125% 2014	4,950	4,566
Mohegan Tribal Gaming Authority 6.875% 2015	8,775	7,898
Radio One, Inc., Series B, 8.875% 2011	22,030	19,607
Radio One, Inc. 6.375% 2013	21,165	16,747
Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014	36,535	35,393
Ford Motor Co. 9.50% 2011	1,000	910
Ford Motor Co., Term Loan B, 8.00% 20136,7	32,814	28,794
Ford Motor Co. 6.50% 2018	7,062	5,173
Quebecor Media Inc. 7.75% 2016	19,095	17,806
Quebecor Media Inc. 7.75% 20165	17,750	16,552
Boyd Gaming Corp. 7.75% 2012	28,400	26,909
Boyd Gaming Corp. 6.75% 2014	8,004	7,004
DaimlerChrysler North America Holding Corp. 4.05% 2008	2,560	2,564
DaimlerChrysler North America Holding Corp. 7.20% 2009	11,000	11,508
DaimlerChrysler North America Holding Corp. 7.75% 2011	15,000	16,345
Vidéotron Ltée 6.875% 2014	21,069	20,490
Vidéotron Ltée 6.375% 2015	10,435	9,783
Idearc Inc. 8.00% 2016	33,500	30,150
Meritage Corp. 7.00% 2014	3,835	2,819
Meritage Homes Corp. 6.25% 2015	38,180	26,917
Harrah’s Operating Co., Inc. 5.50% 2010	26,375	23,684
Harrah’s Operating Co., Inc. 5.625% 2015	8,800	5,595
Royal Caribbean Cruises Ltd. 8.75% 2011	26,850	28,576
CSC Holdings, Inc. 7.25% 2008	8,000	8,020
CSC Holdings, Inc., Series B, 8.125% 2009	17,625	17,978
CSC Holdings, Inc., Series B, 6.75% 2012	400	381
Cablevision Systems Corp., Series B, 8.00% 2012	2,050	1,973
Toll Brothers Finance Corp. 5.95% 2013	1,250	1,190
Toll Brothers, Inc. 4.95% 2014	9,240	8,229
Toll Brothers, Inc. 5.15% 2015	20,720	18,665
Technical Olympic USA, Inc. 9.00% 20109	10,675	5,871
Technical Olympic USA, Inc. 9.00% 20109	7,815	4,298
Technical Olympic USA, Inc. 9.25% 20115,9	33,175	17,085
Claire’s Stores, Inc., Term Loan, 5.994% 20141,6,7	7,114	5,656
Claire’s Stores, Inc. 9.25% 20155	30,050	20,284
Seminole Tribe of Florida 6.535% 20205,7	10,000	10,424
Seminole Tribe of Florida 7.804% 20201,5,7	10,750	11,130
Beazer Homes USA, Inc. 8.375% 2012	11,298	8,615
Beazer Homes USA, Inc. 8.125% 2016	16,810	12,187
American Media Operations, Inc., Series B, 10.25% 2009	17,230	12,879
American Media Operations, Inc., Series B, 10.25% 2009	582	435
American Media Operations, Inc. 8.875% 2011	8,930	6,698
American Media Operations, Inc. 8.875% 2011	325	244
Kabel Deutschland GmbH 10.625% 2014	19,675	20,019
Warner Music Group 7.375% 2014	25,000	19,625
Gap, Inc. 10.05% 20086	18,840	19,349
Viacom Inc. 5.75% 2011	3,000	3,077
Viacom Inc. 6.25% 2016	15,750	15,939
Neiman Marcus Group, Inc. 9.00% 20158	18,810	18,904
D.R. Horton, Inc. 8.00% 2009	16,650	16,442
D.R. Horton, Inc. 7.875% 2011	550	534
D.R. Horton, Inc. 5.25% 2015	2,000	1,690
Dollar General Corp. 10.625% 20155	14,125	13,136
Dollar General Corp. 11.875% 20175,8	6,200	4,898
Cooper-Standard Automotive Inc. 7.00% 2012	18,150	15,791
Cooper-Standard Automotive Inc. 8.375% 2014	2,600	1,976
Goodyear Tire & Rubber Co. 8.663% 20096	7,125	7,143
Goodyear Tire & Rubber Co. 8.625% 2011	10,157	10,500
Young Broadcasting Inc. 10.00% 2011	20,855	15,641
Young Broadcasting Inc. 8.75% 2014	535	366
DaimlerChrysler Financial Services Americas LLC, First Lien Term Loan, 8.99% 20126,7	13,212	11,919
DaimlerChrysler Financial Services Americas LLC, Second Lien Term Loan, 11.49% 20136,7	5,000	3,880
LBI Media, Inc. 8.50% 20175	17,080	15,244
Bon-Ton Department Stores, Inc. 10.25% 2014	21,925	15,128
AMC Entertainment Inc., Series B, 8.625% 2012	14,650	14,723
McGraw-Hill Companies, Inc. 5.375% 2012	7,475	7,624
McGraw-Hill Companies, Inc. 5.90% 2017	7,000	6,941
Education Management LLC and Education Management Finance Corp. 8.75% 2014	7,775	7,522
Education Management LLC and Education Management Finance Corp. 10.25% 2016	7,245	6,937
Limited Brands, Inc. 6.90% 2017	14,870	14,210
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013	12,187	12,659
Visteon Corp. 7.00% 2014	18,000	12,330
YUM! Brands, Inc. 7.70% 2012	10,000	11,041
Seneca Gaming Corp. 7.25% 2012	8,000	7,800
Seneca Gaming Corp., Series B, 7.25% 2012	3,275	3,193
TRW Automotive Inc. 7.00% 20145	11,625	10,724
William Lyon Homes, Inc. 7.625% 2012	17,000	9,265
William Lyon Homes, Inc. 10.75% 2013	2,500	1,425
NVR, Inc. 5.00% 2010	10,000	10,078
Staples, Inc. 7.375% 2012	9,000	9,982
Gaylord Entertainment Co. 8.00% 2013	6,804	6,294
Gaylord Entertainment Co. 6.75% 2014	4,000	3,460
Burlington Coat Factory Warehouse Corp. 11.125% 2014	12,075	9,524
Hanesbrands Inc., Series B, 8.204% 20146	10,295	9,368
ERAC USA Finance Co. 7.00% 20375	10,000	9,111
Ryland Group, Inc. 5.375% 2012	9,000	8,291
Pinnacle Entertainment, Inc. 7.50% 20155	9,400	7,520
Regal Cinemas Corp., Series B, 9.375% 20121	7,250	7,398
WCI Communities, Inc. 9.125% 2012	12,700	7,303
Marriott International, Inc., Series J, 5.625% 2013	3,500	3,585
Marriott International, Inc., Series I, 6.375% 2017	3,500	3,640
Sealy Mattress Co. 8.25% 2014	6,675	5,807
Warnaco, Inc. 8.875% 2013	5,625	5,752
Morris Publishing Group, LLC and Morris Publishing Finance Co., Series B, 7.00% 2013	8,450	5,704
MDC Holdings, Inc. 7.00% 2012	5,000	5,231
Pulte Homes, Inc. 7.875% 2011	5,000	4,856
Local T.V. Finance LLC 9.25% 20155,8	4,775	4,202
Cinemark USA, Inc., Term Loan B, 6.64% 20136,7	3,738	3,450
Walt Disney Co. 5.70% 2011	1,000	1,062
Walt Disney Co. 5.625% 2016	2,000	2,092
		3,296,173

		unaudited

	Principal amount	Market value
Bonds & notes	(000)	(000)

TELECOMMUNICATION SERVICES — 2.03%
Nextel Communications, Inc., Series E, 6.875% 2013	$ 96,350	$ 89,953
Nextel Communications, Inc., Series F, 5.95% 2014	8,000	7,066
Nextel Communications, Inc., Series D, 7.375% 2015	134,905	123,501
Sprint Capital Corp. 6.875% 2028	1,350	1,135
Sprint Capital Corp. 8.75% 2032	44,305	43,569
U S WEST Communications, Inc. 5.625% 2008	18,020	18,020
U S WEST Capital Funding, Inc. 6.375% 2008	7,100	7,118
Qwest Capital Funding, Inc. 7.90% 2010	32,510	32,835
Qwest Capital Funding, Inc. 7.25% 2011	38,270	37,792
Qwest Communications International Inc. 7.25% 2011	30,025	29,875
Qwest Corp. 8.875% 2012	12,400	13,159
Qwest Capital Funding, Inc. 7.625% 2021	7,225	6,502
U S WEST Capital Funding, Inc. 6.875% 2028	21,175	17,681
Qwest Capital Funding, Inc. 7.75% 2031	39,335	35,008
SBC Communications Inc. 4.125% 2009	17,465	17,527
SBC Communications Inc. 6.25% 2011	5,500	5,832
AT&T Corp. 7.30% 20116	14,789	16,275
AT&T Wireless Services, Inc. 8.125% 2012	24,935	28,373
AT&T Inc. 4.95% 2013	8,750	8,969
SBC Communications Inc. 5.10% 2014	38,500	38,732
SBC Communications Inc. 5.625% 2016	10,000	10,209
AT&T Inc. 5.50% 2018	15,000	15,079
AT&T Corp. 8.00% 20316	5,000	6,035
AT&T Inc. 6.30% 2038	19,000	18,931
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC 10.125% 2013	17,500	17,981
Centennial Communications Corp. 10.479% 20136	44,800	42,896
Centennial Communications Corp., Centennial Cellular Operating Co. LLC and Centennial Puerto Rico Operations Corp. 8.125% 20146	60,275	56,960
American Tower Corp. 7.125% 2012	59,775	61,718
American Tower Corp. 7.50% 2012	43,300	44,707
American Tower Corp. 7.00% 20175	9,200	9,154
Intelsat, Ltd. 6.50% 2013	14,850	9,875
Intelsat (Bermuda), Ltd. 8.25% 2013	39,135	38,939
Intelsat (Bermuda), Ltd. 0%/9.25% 201510	7,075	5,837
Intelsat (Bermuda), Ltd. 8.625% 2015	6,560	6,568
Intelsat Corp. 9.00% 2016	10,000	9,975
Intelsat (Bermuda), Ltd. 9.25% 2016	23,650	23,709
Intelsat (Bermuda), Ltd. 11.25% 2016	6,800	6,834
Triton PCS, Inc. 8.50% 20132	94,050	97,342
Windstream Corp. 8.125% 2013	7,500	7,725
Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp. 7.75% 2015	17,125	17,954
Windstream Corp. 8.625% 2016	63,950	66,508
Verizon Global Funding Corp. 4.90% 2015	3,560	3,502
Verizon Communications Inc. 5.50% 2017	27,000	27,482
Verizon Global Funding Corp. 7.75% 2030	6,705	7,848
Verizon Communications Inc. 6.25% 2037	50,000	50,350
Rural Cellular Corp. 8.25% 2012	4,000	4,140
Rural Cellular Corp. 10.661% 20126	11,590	11,764
Rural Cellular Corp. 8.124% 20136	36,300	36,845
British Telecommunications PLC 8.625% 20106	2,000	2,231
British Telecommunications PLC 5.15% 2013	8,750	8,995
British Telecommunications PLC 5.95% 2018	30,750	31,629
British Telecommunications PLC 9.125% 2030	5,800	7,576
Cricket Communications, Inc. 9.375% 2014	31,900	29,189
Cricket Communications, Inc. 9.375% 20145	19,000	17,385
Telecom Italia Capital SA 4.00% 2010	1,470	1,454
Telecom Italia Capital SA 4.875% 2010	1,630	1,651
Telecom Italia Capital SA, Series B, 5.25% 2013	7,700	7,744
Telecom Italia Capital SA 5.25% 2015	14,000	13,696
Telecom Italia Capital SA 7.20% 2036	18,400	19,496
Hawaiian Telcom Communications, Inc. 9.75% 2013	16,945	15,674
Hawaiian Telcom Communications, Inc. 10.318% 20136	15,920	14,089
Hawaiian Telcom Communications, Inc., Series B, 12.50% 2015	7,075	6,332
France Télécom 7.75% 20116	28,600	31,168
Rogers Wireless Inc. 7.25% 2012	9,175	10,084
Rogers Wireless Inc. 7.50% 2015	16,750	18,326
Cincinnati Bell Inc. 7.25% 2013	26,275	26,406
MetroPCS Wireless, Inc., Term Loan B, 7.188% 20136,7	13,872	13,036
MetroPCS Wireless, Inc. 9.25% 2014	14,300	13,228
Vodafone Group PLC 5.625% 2017	9,200	9,241
Vodafone Group PLC 6.15% 2037	16,560	16,280
Singapore Telecommunications Ltd. 6.375% 20115	6,000	6,513
Singapore Telecommunications Ltd. 6.375% 2011	4,825	5,237
Singapore Telecommunications Ltd. 7.375% 20315	3,800	4,379
Koninklijke KPN NV 8.00% 2010	10,000	10,790
Koninklijke KPN NV 8.375% 2030	3,020	3,614
ALLTELL Corp., Term Loan B3, 6.773% 20156,7	13,092	11,960
PCCW-HKT Capital No. 3 Ltd. 5.25% 20155	12,000	11,739
Embarq Corp. 6.738% 2013	10,000	10,271
Level 3 Financing, Inc. 9.25% 2014	10,000	8,650
NTELOS Inc., Term Loan B, 5.53% 20116,7	5,836	5,639
Nordic Telephone Co. Holding ApS 8.875% 20165	4,000	4,080
Trilogy International Partners LLC, Term Loan B, 8.33% 20126,7	4,000	3,695
		1,697,266

BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 1.91%
U.S. Treasury 3.25% 2009	3,750	3,826
U.S. Treasury 3.625% 2009	10,000	10,213
U.S. Treasury 4.50% 2009	30,000	30,867
U.S. Treasury 4.50% 2011	16,165	17,313
U.S. Treasury 4.625% 2011	122,750	132,196
U.S. Treasury 3.00% 20121,11	32,432	35,913
U.S. Treasury 3.875% 2012	5,250	5,500
U.S. Treasury 4.25% 2012	56,490	60,104
U.S. Treasury 4.875% 2012	20,000	21,769
U.S. Treasury 3.625% 2013	62,500	64,761
U.S. Treasury 4.25% 2013	333,157	355,568
U.S. Treasury 4.25% 2014	210,500	223,705
U.S. Treasury Principal Strip 0% 2014	8,000	6,570
U.S. Treasury Principal Strip 0% 2014	5,000	4,153
U.S. Treasury 8.875% 2017	7,500	10,598
U.S. Treasury 6.875% 2025	25,750	33,877
U.S. Treasury 6.00% 2026	20,000	24,175
U.S. Treasury 4.50% 2036	10,000	10,206
U.S. Treasury Principal Strip 0% 2037	45,000	12,500
Freddie Mac 5.25% 2011	80,000	85,934
Freddie Mac 5.00% 2018	170,000	173,133
Fannie Mae 5.25% 2012	74,000	78,871
Fannie Mae 4.625% 2013	80,000	82,972
Fannie Mae 6.25% 2029	41,000	48,626
Federal Home Loan Bank 5.125% 2013	43,000	46,444
United States Agency for International Development, Republic of Egypt 4.45% 2015	10,000	10,456
Federal Agricultural Mortgage Corp. 4.25% 2008	6,000	6,044
Federal Agricultural Mortgage Corp. 4.875% 20115	1,000	1,052
Federal Agricultural Mortgage Corp. 5.50% 20115	3,000	3,211
CoBank ACB 5.591% 20225,6	4,000	3,595
		1,604,152

		unaudited

	Principal amount	Market value
Bonds & notes	(000)	(000)

INDUSTRIALS — 1.52%
Calair LLC and Calair Capital Corp. 8.125% 2008	$ 8,500	$ 8,542
Continental Airlines, Inc. 8.75% 2011	29,250	26,471
Continental Airlines, Inc., Series 2000-2, Class A-2, 7.487% 20127	11,700	11,700
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 20167	10,428	9,981
Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 20177	5,741	5,397
Continental Airlines, Inc., Series 1998-1, Class B, 6.748% 20187	1,660	1,604
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20197	21,150	21,185
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20197	5,084	5,081
Continental Airlines, Inc., Series 2000-2, Class B, 8.307% 20197	871	838
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 20207	16,519	16,334
Continental Airlines, Inc., Series 1999-1, Class B, 6.795% 20207	873	818
Continental Airlines, Inc., Series 2003-ERJ3, Class A, 7.875% 20207	12,475	11,414
Continental Airlines, Inc., Series 1999-2, Class A-1, 7.256% 20217	732	747
Continental Airlines, Inc., Series 1999-2, Class B, 7.566% 20217	5,433	5,199
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20227	14,448	14,050
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20227	11,380	10,526
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20227	2,766	2,821
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 20227	7,054	7,284
Continental Airlines, Inc., Series 2000-1, Class B, 8.388% 20227	5,981	5,861
United Air Lines, Inc., Series 2001-1, Class A-2, 6.201% 20107	6,652	6,619
United Air Lines, Inc., Series 2000-2, Class B, 7.811% 20117,9	5,302	6,124
United Air Lines, Inc., Series 2000-2, Class A-2, 7.186% 20127	43,155	43,208
United Air Lines, Inc., Series 2001-1, Class A-1, 6.071% 20147	4,938	4,895
United Air Lines, Inc., Term Loan B, 7.125% 20146,7	13,505	12,203
United Air Lines, Inc., Series 2001-1, Class A-3, 6.602% 20157	2,609	2,586
United Air Lines, Inc., Series 1996-A2, 7.87% 20191,7,9	3,360	1,176
United Air Lines, Inc., Series 2007-1, Class B, 7.336% 20211,5,7	5,323	4,764
United Air Lines, Inc., Series 2007-1, Class A, 6.636% 20241,7	9,539	9,086
Nielsen Finance LLC, Term Loan B, 7.146% 20136,7	2,015	1,883
Nielsen Finance LLC and Nielsen Finance Co. 10.00% 2014	47,275	47,984
Nielsen Finance LLC and Nielsen Finance Co. 0%/12.50% 201610	53,975	38,052
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 20127	1,547	1,471
American Airlines, Inc., Series 2001-1, Class A-2, 6.817% 20127	17,745	16,947
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 20127	2,370	2,347
American Airlines, Inc., Series 2001-2, Class B, 8.608% 20127	4,595	4,549
AMR Corp. 9.00% 2012	11,000	10,395
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20137	17,138	17,679
AMR Corp. 9.00% 2016	2,000	1,830
American Airlines, Inc., Series 2001-1, Class B, 7.377% 20197	15,573	14,093
AMR Corp. 10.00% 20211	3,000	2,454
American Airlines, Inc., Series 2001-1, Class A-1, 6.977% 20227	7,938	7,263
Delta Air Lines, Inc., Series 2000-1, Class A-2, 7.57% 20127	8,050	8,050
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20147	46,035	46,453
Delta Air Lines, Inc., Series 1992-A2, 9.20% 20147,9	3,407	3,637
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20247	19,813	20,448
Allied Waste North America, Inc., Series B, 6.50% 2010	16,000	15,920
Allied Waste North America, Inc., Series B, 5.75% 2011	18,800	18,236
Allied Waste North America, Inc. 7.875% 2013	2,500	2,544
Allied Waste North America, Inc., Series B, 6.125% 2014	13,275	12,744
Allied Waste North America, Inc., Series B, 7.375% 2014	4,500	4,376
Allied Waste North America, Inc. 7.25% 2015	8,500	8,479
Allied Waste North America, Inc. 6.875% 2017	7,250	7,069
US Investigations Services, Inc., Term Loan B, 7.91% 20156,7	18,952	17,531
US Investigations Services 10.50% 20155	41,545	36,560
US Investigations Services 11.75% 20165	15,775	13,330
Northwest Airlines, Inc., Term Loan B, 8.33% 20136,7	6,858	6,669
Northwest Airlines, Inc., Term Loan A, 6.58% 20186,7	61,598	58,518
Ashtead Group PLC 8.625% 20155	15,700	12,952
Ashtead Capital, Inc. 9.00% 20165	53,580	45,007
Sequa Corp., Term Loan B, 8.08% 20141,6,7	60,250	56,936
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 20115,7	27,101	28,928
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20135,7	10,851	11,257
ARAMARK Corp., Term Loan B, 6.83% 20146,7	10,166	9,458
ARAMARK Corp., Term Loan B, Letter of Credit, 6.83% 20146,7	646	601
ARAMARK Corp. 8.411% 20156	3,050	2,745
ARAMARK Corp. 8.50% 2015	24,575	24,575
General Electric Co. 5.25% 2017	11,250	11,371
General Electric Capital Corp., Series A, 5.258% 20266	25,000	23,852
Hutchison Whampoa International Ltd. 7.00% 20115	5,000	5,366
Hutchison Whampoa International Ltd. 6.50% 20135	25,000	26,554
NTK Holdings Inc. 0%/10.75% 20147,10	12,500	7,062
THL Buildco, Inc. 8.50% 2014	27,325	21,450
USG Corp. 6.30% 2016	24,500	21,742
USG Corp. 7.75% 2018	4,150	3,990
American Standard Inc. 7.375% 2008	5,935	5,935
American Standard Inc. 7.625% 2010	16,501	17,597
Waste Management, Inc. 6.50% 2008	5,000	5,112
Waste Management, Inc. 5.00% 2014	7,000	6,844
WMX Technologies, Inc. 7.10% 2026	10,125	11,088
Hawker Beechcraft 8.50% 20155	5,300	5,274
Hawker Beechcraft 8.875% 20151,5,8	11,530	11,299
Hawker Beechcraft 9.75% 20175	4,105	3,920
Tyco International Group SA 6.125% 2008	8,000	8,100
Tyco International Group SA 7.00% 2028	4,345	4,196
Tyco International Group SA 6.875% 2029	8,310	7,912
John Deere Capital Corp., Series D, 4.375% 2008	9,000	9,007
John Deere Capital Corp. 4.875% 2009	4,000	4,053
John Deere Capital Corp. 5.40% 2011	2,000	2,093
John Deere Capital Corp. 5.10% 2013	500	517
John Deere Capital Corp., Series D, 5.50% 2017	2,500	2,578
Caterpillar Financial Services Corp. 2.70% 2008	3,000	2,989
Caterpillar Financial Services Corp., Series F, 3.314% 20086	400	398
Caterpillar Financial Services Corp., Series F, 4.85% 2012	5,000	5,120
Caterpillar Financial Services Corp., Series F, 5.50% 2016	5,000	5,101
Caterpillar Financial Services Corp., Series F, 5.85% 2017	2,000	2,116
Atrium Companies, Inc., Term Loan B, 7.21% 20126,7	14,074	12,491
ACIH, Inc. 11.50% 20125	6,125	2,419
Accuride Corp. 8.50% 2015	17,200	13,674
Atlas Copco AB 5.60% 20175	11,405	11,602
DRS Technologies, Inc. 6.875% 2013	275	271
DRS Technologies, Inc. 6.625% 2016	10,250	10,071
DRS Technologies, Inc. 7.625% 2018	200	199
CSX Corp. 5.75% 2013	10,000	10,309
CEVA Group PLC 10.00% 20145	8,825	8,384
RBS Global, Inc. and Rexnord LLC 9.50% 2014	7,800	7,079
RBS Global, Inc. and Rexnord LLC 8.875% 2016	575	506
Esterline Technologies Corp. 6.625% 2017	7,500	7,500
RSC Holdings III, LLC, Second Lien Term Loan B, 8.15% 20136,7	8,105	7,284
Esco Corp. 8.625% 20135	4,000	3,840
Esco Corp. 8.866% 20135,6	3,725	3,371
TransDigm Inc. 7.75% 2014	6,865	6,934
H&E Equipment Services, Inc. 8.375% 2016	6,800	6,290
DynCorp International and DIV Capital Corp., Series A, 9.50% 2013	5,230	5,452
Deluxe Corp. 7.375% 2015	5,000	4,938
Goodman Global Holdings, Inc., Series B, 7.875% 2012	3,660	3,959
BNSF Funding Trust I 6.613% 20556	2,910	2,666
Union Pacific Corp. 5.75% 2017	2,065	2,086
Alion Science and Technology Corp. 10.25% 2015	1,740	1,366
		1,271,811

INFORMATION TECHNOLOGY — 1.43%
NXP BV and NXP Funding LLC 7.008% 20136	104,645	87,248
NXP BV and NXP Funding LLC 7.875% 2014	100,850	92,908
NXP BV and NXP Funding LLC 9.50% 2015	201,515	176,578
Electronic Data Systems Corp. 7.125% 2009	10,315	10,757
Electronic Data Systems Corp., Series B, 6.50% 20136	117,650	119,925
Electronic Data Systems Corp. 7.45% 2029	10,555	10,359
Freescale Semiconductor, Inc., Term Loan B, 6.381% 20136,7	12,973	11,147
Freescale Semiconductor, Inc. 8.875% 2014	28,032	22,916
Freescale Semiconductor, Inc. 9.125% 20148	38,350	29,242
Freescale Semiconductor, Inc. 10.125% 2016	82,050	58,871
Celestica Inc. 7.875% 2011	63,905	62,307
Celestica Inc. 7.625% 2013	36,945	34,913
Sanmina-SCI Corp. 7.741% 20105,6	1,732	1,732
Sanmina-SCI Corp. 6.75% 2013	11,000	9,570
Sanmina-SCI Corp. 7.741% 20145,6	15,500	14,958
Sanmina-SCI Corp. 8.125% 2016	70,650	61,995
Jabil Circuit, Inc. 5.875% 2010	54,140	55,035
Jabil Circuit, Inc. 8.25% 20185	29,000	28,493
First Data Corp., Term Loan B2, 7.634% 20146,7	77,606	70,773
First Data Corp., Term Loan B3, 7.634% 20146,7	10,000	9,142
SunGard Data Systems Inc. 3.75% 2009	11,050	10,746
SunGard Data Systems Inc. 9.125% 2013	48,900	49,878
Western Union Co. 5.055% 20086	22,000	21,808
Western Union Co. 5.40% 2011	5,000	5,169
Western Union Co. 5.93% 2016	24,000	24,428
Ceridian Corp. 11.25% 20155	25,925	22,036
Sensata Technologies BV, Term Loan B, 5.056% 20136,7	9,726	8,981
Sensata Technologies BV 8.00% 20146	11,000	9,955
MagnaChip Semiconductor SA and MagnaChip Semiconductor Finance Co. 8.00% 2014	30,005	18,903
Hughes Communications, Inc. 9.50% 2014	15,750	15,671
National Semiconductor Corp. 6.15% 2012	15,000	15,646
Serena Software, Inc. 10.375% 2016	13,430	12,994
Xerox Corp. 7.125% 2010	9,000	9,481
Nortel Networks Corp. 8.508% 20116	6,500	6,078
		1,200,643

ENERGY — 1.23%
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20095,7	20,973	21,011
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20097	404	404
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 20145,7	13,329	15,107
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 20147	4,325	4,902
Ras Laffan Liquefied Natural Gas II 5.298% 20205,7	49,350	48,201
Ras Laffan Liquefied Natural Gas III 5.838% 20275,7	55,650	52,179
Williams Companies, Inc. and Credit Linked Certificate Trust 6.75% 20095	8,000	8,200
Williams Companies, Inc. 6.375% 20105	4,700	4,853
Williams Companies, Inc. 6.729% 20105,6	8,000	8,220
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011	10,000	10,550
Williams Companies, Inc. 7.125% 2011	38,750	41,462
Williams Companies, Inc. 8.125% 2012	14,810	16,254
Williams Partners L.P. and Williams Partners Finance Corp. 7.25% 2017	12,325	12,818
Williams Companies, Inc. 7.875% 2021	14,515	16,075
Williams Companies, Inc. 8.75% 2032	12,500	15,000
Southern Natural Gas Co. 5.90% 20175	11,740	11,809
El Paso Natural Gas Co. 5.95% 2017	7,500	7,570
Tennessee Gas Pipeline Co. 7.00% 2028	71,500	72,613
Gaz Capital SA 6.51% 20225	42,310	40,089
Gaz Capital SA, Series 9, 6.51% 2022	9,500	9,001
Gaz Capital SA 7.288% 20375	24,925	24,646
Newfield Exploration Co. 6.625% 2014	32,075	31,754
Newfield Exploration Co. 6.625% 2016	41,200	40,582
TransCanada PipeLines Ltd. 6.35% 20676	76,100	70,982
Enterprise Products Operating LP, Series B, 5.00% 2015	7,000	6,785
Enterprise Products Operating LP 6.875% 2033	5,750	5,924
Enterprise Products Operating LP 8.375% 20661,6	36,635	36,089
Enterprise Products Operating LP 7.034% 20686	21,365	19,012
Premcor Refining Group Inc. 6.125% 2011	14,500	15,486
Premcor Refining Group Inc. 6.75% 2011	11,150	12,082
Premcor Refining Group Inc. 9.50% 2013	12,275	12,900
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 20145,7	28,500	26,970
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 20147	9,000	8,517
Drummond Co., Inc. 7.375% 20165	37,705	34,500
Forest Oil Corp. 7.25% 20195	28,600	28,743
Kinder Morgan Inc., Term Loan B, 6.35% 20146,7	23,243	23,022
K N Energy, Inc. 7.25% 2028	6,000	5,472
Devon Financing Corp., ULC 6.875% 2011	24,500	26,758
Sunoco, Inc. 4.875% 2014	10,060	9,808
Sunoco, Inc. 5.75% 2017	10,000	10,157
Enbridge Energy Partners, LP 8.05% 20676	20,045	19,314
XTO Energy Inc. 5.65% 2016	10,000	10,166
XTO Energy Inc. 6.25% 2017	7,750	8,273
Enbridge Inc. 5.60% 2017	17,200	17,185
Qatar Petroleum 5.579% 20115,7	15,556	16,291
Canadian Natural Resources Ltd. 5.70% 2017	14,600	14,692
Pemex Project Funding Master Trust 7.875% 2009	1,297	1,352
Pemex Project Funding Master Trust 5.75% 20185	4,500	4,597
Pemex Project Funding Master Trust 6.625% 20355	5,000	5,160
Kinder Morgan Energy Partners LP 5.125% 20141	10,325	10,168
Husky Energy Inc. 6.80% 2037	8,625	9,048
Massey Energy Co. 6.875% 2013	7,500	7,181
Petroplus Finance Ltd. 6.75% 20145	3,750	3,450
Petroplus Finance Ltd. 7.00% 20175	3,750	3,422
Petrobas International Finance Co. 6.125% 2016	6,000	6,195
EOG Resources, Inc. 5.875% 20171	5,375	5,705
Sabine Pass LNG, LP 7.25% 2013	6,000	5,700
PETRONAS Capital Ltd. 7.00% 20125	4,000	4,435
TEPPCO Partners LP 7.00% 20676	4,830	4,304
Peabody Energy Corp., Series B, 6.875% 2013	4,300	4,289
Delek & Avner-Yam Tethys Ltd. 5.326% 20135,7	3,132	3,240
TNK-BP Finance SA 7.50% 20165	1,500	1,459
		1,032,133

UTILITIES — 1.13%
Texas Competitive Electric Holding Co. LLC, Term Loan B2, 8.396% 20146,7	12,175	11,133
Texas Competitive Electric Holding Co. LLC 10.25% 20155	146,624	144,791
Texas Competitive Electric Holding Co. LLC 10.25% 20155	56,380	55,675
Edison Mission Energy 7.50% 2013	32,525	33,419
Edison Mission Energy 7.75% 2016	35,300	36,182
Midwest Generation, LLC, Series B, 8.56% 20167	11,625	12,511
Edison Mission Energy 7.00% 2017	19,525	19,086
Edison Mission Energy 7.20% 2019	39,450	38,661
Homer City Funding LLC 8.734% 20267	12,610	13,682
Edison Mission Energy 7.625% 2027	20,850	19,651
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2006-E, 5.55% 2037	6,500	6,163
AES Corp. 9.50% 2009	39,815	41,209
AES Corp. 9.375% 2010	12,502	13,127
AES Corp. 8.75% 20135	38,707	40,642
AES Corp. 7.75% 20151	16,000	16,440
AES Corp. 8.00% 2017	6,000	6,150
AES Red Oak, LLC, Series A, 8.54% 20197	31,634	33,295
AES Red Oak, LLC, Series B, 9.20% 20297	7,000	7,647
NRG Energy, Inc. 7.25% 2014	24,525	23,943
NRG Energy, Inc. 7.375% 2016	76,625	74,230
Israel Electric Corp. Ltd. 7.95% 20115	5,000	5,480
Israel Electric Corp. Ltd. 7.70% 20185	22,500	26,666
Israel Electric Corp. Ltd. 8.10% 20965	4,905	5,458
Nevada Power Co., General and Refunding Mortgage Bonds, Series A, 8.25% 2011	6,000	6,580
Nevada Power Co., General and Refunding Mortgage Notes, Series I, 6.50% 2012	4,250	4,508
Sierra Pacific Resources 8.625% 2014	2,725	2,935
Nevada Power Co., General and Refunding Mortgage Notes, Series L, 5.875% 2015	5,675	5,741
Nevada Power Co., General and Refunding Mortgage Notes, Series M, 5.95% 2016	13,700	13,938
Sierra Pacific Resources 6.75% 2017	3,000	3,049
Cilcorp Inc. 8.70% 2009	9,000	9,588
Union Electric Co. 5.40% 2016	8,000	8,046
Illinois Power Co. 6.125% 20175	5,000	5,210
Cilcorp Inc. 9.375% 2029	3,000	3,469
MidAmerican Energy Co. 4.65% 2014	3,200	3,132
MidAmerican Energy Co. 5.95% 2017	7,000	7,398
MidAmerican Energy Holdings Co. 6.125% 2036	11,650	11,615
MidAmerican Energy Holdings Co. 6.50% 2037	3,000	3,110
Exelon Corp. 6.75% 2011	1,000	1,055
Exelon Generation Co., LLC 6.95% 2011	1,300	1,378
Commonwealth Edison Co., First Mortgage Bonds, Series 104, 5.95% 2016	5,000	5,148
Exelon Generation Co., LLC 6.20% 2017	8,000	8,138
Commonwealth Edison Co., First Mortgage Bonds, Series 103, 5.90% 2036	3,850	3,606
PECO Energy Co., First and Refunding Mortgage Bonds, 5.70% 2037	5,000	4,744
Abu Dhabi National Energy Co. PJSC (TAQA) 5.875% 20165	11,000	10,825
Abu Dhabi National Energy Co. PJSC (TAQA) 6.165% 20175	4,000	3,972
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 20365	7,750	7,432
PSEG Energy Holdings Inc. 8.625% 2008	3,593	3,596
PSEG Power LLC 7.75% 2011	7,500	8,175
PSEG Power LLC 5.00% 2014	10,000	9,787
Appalachian Power Co., Series G, 3.60% 2008	6,770	6,758
Appalachian Power Co., Series M, 5.55% 2011	3,000	3,089
Ohio Power Co., Series K, 6.00% 2016	5,000	5,178
Virginia Electric and Power Co., Series 2003-A, 4.75% 2013	6,000	6,072
Virginia Electric and Power Co., Series B, 5.95% 2017	4,500	4,759
Virginia Electric and Power Co., Series A, 6.00% 2037	2,250	2,235
Intergen Power 9.00% 20175	10,000	10,475
Alabama Power Co., Series X, 3.125% 2008	3,750	3,740
Alabama Power Co., Series R, 4.70% 2010	1,250	1,290
Alabama Power Co., Series Q, 5.50% 2017	5,000	5,128
Mirant Americas Generation, Inc. 8.30% 2011	9,000	9,135
Constellation Energy Group, Inc. 6.125% 2009	8,000	8,214
AES Panamá, SA 6.35% 20165	8,000	7,746
Carolina Power & Light Co. d/b/a Progress Energy Carolinas, Inc. 5.25% 2015	6,000	6,131
Duke Energy Corp., First and Refunding Mortgage Bonds, 5.30% 2015	5,000	5,142
Scottish Power PLC 5.375% 2015	5,000	4,946
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034	4,000	3,986
Enersis SA 7.375% 2014	3,500	3,728
Centerpoint Energy, Inc., Series B, 6.85% 2015	3,000	3,183
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 20185,7	2,599	2,759
FPL Energy National Wind Portfolio, LLC 6.125% 20195,7	1,846	1,893
		947,003

HEALTH CARE — 1.09%
HCA Inc., Term Loan B, 7.09% 20136,7	162,459	149,615
HCA Inc. 9.125% 2014	2,090	2,176
HCA Inc. 9.25% 2016	9,650	10,145
HCA Inc. 9.625% 20168	3,400	3,587
Tenet Healthcare Corp. 6.375% 2011	3,345	3,086
Tenet Healthcare Corp. 9.875% 2014	122,620	117,715
Tenet Healthcare Corp. 9.25% 2015	30,760	28,453
HealthSouth Corp. 10.829% 20146	41,025	40,615
HealthSouth Corp. 10.75% 2016	85,700	89,771
VWR International, Inc. 10.25% 20155,6,8	73,210	68,817
Boston Scientific Corp. 6.40% 2016	32,415	29,984
Boston Scientific Corp. 7.00% 2035	27,720	24,255
Warner Chilcott Corp. 8.75% 2015	42,424	43,485
PTS Acquisition Corp. 9.50% 20155,8	48,205	41,697
Cardinal Health, Inc. 4.00% 2015	25,000	23,328
Cardinal Health, Inc. 6.30% 20165	10,000	10,606
AMR HoldCo, Inc. and EmCare HoldCo, Inc. 10.00% 2015	28,340	30,182
Mylan Inc., Term Loan B, 6.625% 20146,7	28,755	28,156
Team Finance LLC and Health Finance Corp. 11.25% 2013	26,600	28,063
Coventry Health Care, Inc. 6.30% 2014	26,750	27,844
Elan Finance PLC and Elan Finance Corp. 8.875% 2013	19,350	18,576
Elan Finance PLC and Elan Finance Corp. 9.249% 20136	10,095	9,237
Hospira, Inc. 5.31% 20106	10,000	9,890
Hospira, Inc. 5.55% 2012	5,295	5,516
UnitedHealth Group Inc. 6.00% 20175	15,000	15,251
CHS/Community Health Systems, Inc. 8.875% 2015	11,275	11,402
Humana Inc. 6.45% 2016	10,000	10,280
Surgical Care Affiliates, Inc. 8.875% 20155,8	4,250	3,634
Surgical Care Affiliates, Inc. 10.00% 20175	7,500	6,413
AstraZeneca PLC 5.40% 2012	7,000	7,396
Viant Holdings Inc. 10.125% 20175	8,335	7,043
Bausch & Lomb Inc. 9.875% 20155	2,250	2,289
Abbott Laboratories 5.60% 2017	955	999
Universal Hospital Services, Inc. 8.288% 20156	1,040	993
		910,499

ASSET-BACKED OBLIGATIONS7 — 1.05%
Drive Auto Receivables Trust, Series 2005-1, Class A-4, MBIA insured, 4.01% 20121	6,526	6,332
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 20121,5	8,900	8,668
Drive Auto Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09% 20131,5	20,000	19,226
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 20141,5	20,000	19,048
Washington Mutual Master Note Trust, Series 2006-A3A, Class A-3, 4.266% 20135,6	8,000	7,882
Washington Mutual Master Note Trust, Series 2007-C1, Class C-1, 4.636% 20145,6	7,550	6,426
Washington Mutual Master Note Trust, Series 2007-A4A, Class A-4, 5.20% 20145	17,475	17,289
Washington Mutual Master Note Trust, Series 2006-A2A, Class A, 4.286% 20151,5,6	17,000	15,841
Washington Mutual Master Note Trust, Series 2006-C2A, Class C-2, 4.736% 20151,5,6	2,300	1,793
CSAB Mortgage-backed Trust, Series 2006-3, Class A-2, 3.536% 20361,6	18,294	15,294
CSAB Mortgage-backed Trust, Series 2006-4, Class A-2-B, 3.536% 20366	8,651	7,083
CSAB Mortgage-backed Trust, Series 2006-2, Class A-2, 3.546% 20366	22,064	18,520
CSAB Mortgage-backed Trust, Series 2006-2, Class A-6-A, 5.72% 20361,6	6,923	6,137
Honda Auto Receivables Owner Trust, Series 2006-3, Class A-4, 5.11% 2012	17,500	17,954
Honda Auto Receivables Owner Trust, Series 2007-2, Class A-4, 5.57% 2013	24,500	25,520
CWHEQ Revolving Home Equity Loan Trust, Series 2007-C, Class A, 4.386% 20371,6	39,987	30,230
UPFC Auto Receivables Trust, Series 2005-B, Class A-3, XLCA insured, 4.98% 2011	6,278	6,320
UPFC Auto Receivables Trust, Series 2007-B, Class A-3, AMBAC insured, 6.15% 20141	23,250	22,836
Securitized Asset-backed Receivables LLC Trust, Series 2006-HE2, Class A-2C, 3.526% 20366	17,043	13,059
Securitized Asset-backed Receivables LLC Trust, Series 2006-NC3, Class A-2B, 3.526% 20361,6	7,950	6,718
Structured Asset Investment Loan Trust, Series 2006-BNC2, Class A-5, 3.536% 20361,6	10,000	8,250
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 20125	7,500	7,685
CPS Auto Receivables Trust, Series 2006-C, Class A-4, XLCA insured, 5.14% 20135	10,000	10,037
CPS Auto Receivables Trust, Series 2007-B, Class A-4, FSA insured, 5.60% 20145	10,000	10,247
Home Equity Mortgage Trust, Series 2006-4, Class A-1, 5.671% 20361,6	6,702	3,485
Home Equity Mortgage Trust, Series 2006-2, Class 1A-1, 4.963% 20361,6	3,361	2,184
Home Equity Mortgage Trust, Series 2006-3, Class A-1, 5.046% 20361,6	2,311	1,271
Home Equity Mortgage Trust, Series 2006-6, Class 2A-1, 3.476% 20371,6	27,033	12,165
Home Equity Mortgage Trust, Series 2006-5, Class A-1, 5.50% 20371,6	16,802	8,401
ARG Funding Corp., Series 2005-1, Class A-1, MBIA insured, 4.02% 20095	5,000	5,001
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 20111,5	20,000	18,750
CWABS Asset-backed Certificates Trust, Series 2007-2, Class 2-A-3, 3.516% 20371,6	20,000	17,614
CWABS Asset-backed Certificates Trust, Series 2006-14, Class 2-A-2, 3.526% 20371,6	7,125	6,013
Residential Funding Mortgage Securities II, Inc., Series 2006-HSA2, Class A-I-5, FGIC insured, 5.63% 20361,6	10,000	5,000
Residential Funding Mortgage Securities II, Inc., Series 2007-HSA2, Class A-1F, MBIA insured, 8.47% 20376	17,648	17,352
Triad Automobile Receivables Trust, Series 2006-C, Class A-2, AMBAC insured, 5.40% 2010	1,531	1,531
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 20111	11,000	10,718
Triad Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC insured, 4.22% 20121	10,000	9,425
Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 20251,9	12,449	3,984
Green Tree Financial Corp., Series 1995-2, Class B-2, 8.80% 20269	9,004	4,894
Green Tree Financial Corp., Series 1996-2, Class B-2, 7.90% 20271,9	7,573	1
Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 20291,9	6,004	1
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 20291	16,039	12,591
Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 20301,9	3,680	37
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-2, FGIC insured, 6.054% 20371,6	12,500	8,149
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-3, FGIC insured, 6.193% 20371,6	18,000	9,155
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-6, FGIC insured, 6.249% 20371,6	7,500	3,953
Citigroup Mortgage Loan Trust, Inc., Series 2007-AMC2, Class A-3B, 3.556% 20376	25,000	19,477
J.P. Morgan Alternative Loan Trust, Series 2006-S1, Class 3-A-5, 5.73% 20361,6	19,462	19,236
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 20121	10,000	9,905
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 20141	8,040	8,050
Advanta Business Card Master Trust, Series 2005-A2, Class A-2, 4.064% 20136	18,000	17,533
Long Beach Acceptance Auto Receivables Trust, Series 2006-B, Class A-3, FSA insured, 5.17% 20111	5,000	4,924
Long Beach Acceptance Auto Receivables Trust, Series 2006-B, Class A-4, FSA insured, 5.18% 2013	11,500	11,547
American Express Issuance Trust, Series 2005-1, Class C, 4.566% 20116	17,500	16,453
Prestige Auto Receivables Trust, Series 2005-1A, Class A-2, FSA insured, 4.37% 20125	6,012	6,031
Prestige Auto Receivables Trust, Series 2006-1A, Class A-2, FSA insured, 5.25% 20131,5	9,372	9,323
Susquehanna Auto Lease Trust, Series 2007-1, Class A-3, 5.25% 20105	14,250	14,573
Drivetime Auto Owner Trust, Series 2006-A, Class A-3, XLCA insured, 5.501% 20111,5,6	10,000	9,856
Drivetime Auto Owner Trust, Series 2005-C, Class A-3, MBIA insured, 5.006% 20115,6	4,678	4,708
Santander Drive Auto Receivables Trust, Series 2007-1, Class A-3, FGIC insured, 5.05% 20111	15,000	14,538
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-A, MBIA insured, 5.55% 20141	7,000	6,371
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-4-A, FSA insured, 5.56% 2014	7,000	6,957
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031	5,497	5,484
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 3.976% 20331,6	180	164
Residential Asset Securities Corp. Trust, Series 2006-KS3, Class M-2, 3.716% 20361,6	10,000	6,153
SACO I Trust, Series 2005-4, Class M-1, 3.976% 20351,5,6	3,000	1,796
SACO I Trust, Series 2006-12, Class I-A, 3.516% 20366	13,789	9,653
BMW Vehicle Owner Trust, Series 2006-A, Class A-4, 5.07% 2011	11,044	11,286
CWABS, Inc., Series 2005-11, Class AF-2, 4.657% 20366	11,330	11,240
Capital One Multi-asset Execution Trust, Series 2005-1, Class C, 4.636% 20131,6	6,000	5,558
Capital One Multi-asset Execution Trust, Series 2006-1, Class C, 4.526% 20146	2,000	1,739
Capital One Multi-asset Execution Trust, Series 2003-3, Class C, 6.486% 20166	4,600	3,832
J.P. Morgan Mortgage Acquisition Corp., Series 2005-FRE1, Class A-F-4, 5.488% 20351,6	11,978	11,040
Home Equity Asset Trust, Series 2004-7, Class M-1, 3.996% 20351,6	10,000	8,800
Home Equity Asset Trust, Series 2005-2, Class B-4, 8.365% 20351,5,6	6,775	1,558
Ameriquest Mortgage Securities Trust, Series 2006-M3, Class A-2C, 3.536% 20366	12,000	10,157
Providian Master Note Trust, Series 2005-A1, Class A, 4.296% 20125,6	10,000	9,989
Option One Mortgage Loan Trust, Series 2006-3, Class II-A-2, 3.476% 20376	10,000	9,306
New Century Home Equity Loan Trust, Series 2006-2, Class A-2-b, 3.536% 20361,6	9,000	8,690
AEP Texas Central Transitioning Funding II LLC, Senior Secured Transition Bonds, Series A, Class A-3, 5.09% 2015	8,265	8,567
CWHEQ Home Equity Loan Trust, Series 2006-S2, Class A-5, FGIC insured, 5.753% 20271	10,000	8,122
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024	7,706	8,072
CarMax Auto Owner Trust, Series 2007-2, Class A-3, 5.23% 2011	7,000	7,108
Ameriquest Mortgage Securities Inc., Series 2003-12, Class M-1, 4.126% 20341,6	7,000	6,300
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-2, Class A-6, AMBAC insured, 5.08% 20115	6,375	6,035
RAMP Trust, Series 2003-RZ4, Class A-7, 4.79% 20336	6,290	5,957
MASTR Asset-backed Securities Trust, Series 2007-HE1, Class A-2, 3.526% 20371,6	6,600	5,916
Long Beach Mortgage Loan Trust, Series 2006-A, Class A-1, 3.466% 20361,6	17,855	5,892
BNC Mortgage Loan Trust, Series 2007-3, Class A3, 3.506% 20376	5,819	5,383
Argent Securities Trust, Series 2006-M2, Class A-2D, 3.616% 20361,6	8,000	5,360
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 4.836% 20136	5,000	4,900
NovaStar Mortgage Funding Trust, Series 2004-4, Class B-1, 5.076% 20351,6	7,500	4,725
Bear Stearns Asset-backed Securities I Trust, Series 2005-CL1, Class A-1, 3.876% 20346	5,233	4,665
First Franklin Mortgage Loan Trust, Series 2006-FFA, Class A-3, 3.496% 20266	8,638	4,374
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 20141,5	4,669	4,235
MBNA Credit Card Master Note Trust, Series 2003-1, Class C, 5.936% 20126	3,600	3,516
BA Credit Card Trust, Series 2007-2, Class C-2, 4.506% 20126	3,315	3,117
Merrill Lynch Mortgage Investors Trust, Series 2007-SL1, Class A-1, 3.676% 20371,6	4,263	2,643
GSAA Home Equity Trust, Series 2006-7, Class AF-5A, 6.205% 20461,6	2,800	2,535
First USA Credit Card Master Trust, Series 1998-6, Class C, 6.16% 20115	2,000	2,007
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1, Class A, MBIA insured, 6.68% 20161,5	576	572
Structured Asset Securities Corp., Series 2005-WF4, Class B-1, 5.876% 20351,6	1,500	375
		876,373

MATERIALS — 0.78%
Freeport-McMoRan Copper & Gold Inc. 6.875% 2014	3,100	3,162
Freeport-McMoRan Copper & Gold Inc. 8.25% 2015	37,230	39,138
Freeport-McMoRan Copper & Gold Inc. 8.375% 2017	17,735	18,888
Jefferson Smurfit Corp. (U.S.) 8.25% 2012	3,700	3,570
Stone Container Corp. 8.375% 2012	19,558	19,020
Jefferson Smurfit Corp. (U.S.) 7.50% 2013	15,825	14,717
Smurfit-Stone Container Enterprises, Inc. 8.00% 2017	18,665	17,405
Abitibi-Consolidated Co. of Canada 5.25% 2008	16,650	16,150
Abitibi-Consolidated Finance LP 7.875% 2009	6,136	5,891
Abitibi-Consolidated Inc. 8.55% 2010	12,118	9,997
Abitibi-Consolidated Inc. 7.75% 2011	6,025	4,624
Abitibi-Consolidated Co. of Canada 8.491% 20116	5,225	3,821
Abitibi-Consolidated Co. of Canada 6.00% 2013	1,955	1,339
Abitibi-Consolidated Co. of Canada 8.375% 2015	17,515	12,479
Domtar Corp. 5.375% 2013	13,350	12,015
Domtar Corp. 7.125% 2015	39,870	38,574
Georgia Gulf Corp. 7.125% 2013	850	625
Georgia Gulf Corp. 9.50% 2014	44,770	34,921
Georgia Gulf Corp. 10.75% 2016	4,535	2,948
Boise Cascade, LLC and Boise Cascade Finance Corp. 7.125% 2014	38,500	36,864
C5 Capital (SPV) Ltd. 6.196% (undated)5,6	3,000	2,940
C8 Capital (SPV) Ltd. 6.64% (undated)5,6	20,000	18,144
C10 Capital (SPV) Ltd. 6.722% (undated)5,6	17,895	15,700
Owens-Brockway Glass Container Inc. 8.875% 2009	17,570	17,570
Owens-Illinois, Inc. 7.50% 2010	750	759
Owens-Brockway Glass Container Inc. 8.25% 2013	16,000	16,640
Nalco Co. 7.75% 2011	20,010	20,110
Nalco Co. 8.875% 2013	1,000	1,020
Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. 0%/9.00% 201410	7,200	6,516
Stora Enso Oyj 6.404% 20165	14,500	14,492
Stora Enso Oyj 7.25% 20365	13,000	12,879
Georgia-Pacific Corp. 8.125% 2011	9,825	9,874
Georgia-Pacific Corp. 9.50% 2011	5,000	5,225
Georgia-Pacific Corp., First Lien Term Loan B, 6.896% 20126,7	11,253	10,395
NewPage Corp. 10.00% 20125	10,500	10,500
NewPage Corp., Series A, 11.161% 20126	10,000	9,850
NewPage Corp., Series A, 12.00% 2013	5,000	4,975
Norske Skogindustrier ASA 7.625% 20115	19,640	18,854
Graphic Packaging International, Inc. 8.50% 2011	18,975	18,501
Algoma Steel Inc. 9.875% 20155	19,750	15,899
FMG Finance Pty Ltd. 10.625% 20165	11,500	13,110
Metals USA Holdings Corp. 10.729% 20125,6,8	10,675	7,899
Metals USA, Inc. 11.125% 2015	4,200	4,190
Allegheny Technologies, Inc. 8.375% 2011	10,500	11,209
AMH Holdings, Inc. 0%/11.25% 201410	16,795	11,001
Momentive Performance Materials 9.75% 2014	12,000	10,920
AEP Industries Inc. 7.875% 2013	10,500	9,923
UPM-Kymmene Corp. 5.625% 20145	7,500	7,319
Building Materials Corp. of America 7.75% 2014	8,400	6,258
JSG Funding PLC 7.75% 2015	6,500	6,013
United States Steel Corp. 7.00% 2018	5,670	5,622
Rohm and Haas Co. 5.60% 2013	4,020	4,193
Ispat Inland ULC 9.75% 2014	3,207	3,479
Rockwood Specialties Group, Inc. 7.50% 2014	3,240	3,159
E.I. du Pont de Nemours and Co. 5.00% 2013	3,025	3,134
Ryerson Inc. 12.574% 20145,6	1,200	1,110
Ryerson Inc. 12.00% 20155	1,800	1,701
Arbermarle Corp. 5.10% 2015	2,570	2,526
Packaging Corp. of America 4.375% 2008	2,500	2,498
Ainsworth Lumber Co. Ltd. 7.25% 2012	3,725	2,365
Berry Plastics Holding Corp. 10.25% 2016	2,950	2,227
Plastipak Holdings, Inc. 8.50% 20155	2,275	2,150
Corporación Nacional del Cobre de Chile 6.375% 20125	1,500	1,622
Airgas, Inc. 6.25% 2014	1,400	1,400
Neenah Paper, Inc. 7.375% 2014	332	291
		652,310

CONSUMER STAPLES — 0.46%
SUPERVALU INC., Term Loan B, 5.63% 20126,7	20,389	19,502
SUPERVALU INC. 7.50% 2012	3,323	3,483
Albertson’s, Inc. 7.25% 2013	21,355	21,778
SUPERVALU INC. 7.50% 2014	1,000	1,019
Albertson’s, Inc. 8.00% 2031	12,650	12,121
Tyson Foods, Inc. 6.85% 20166	45,325	45,585
Stater Bros. Holdings Inc. 8.125% 2012	30,625	30,012
Stater Bros. Holdings Inc. 7.75% 2015	13,750	12,994
Yankee Candle Co., Inc., Series B, 8.50% 2015	24,800	21,328
Yankee Candle Co., Inc., Series B, 9.75% 2017	23,345	19,143
Tesco PLC 6.15% 20375	30,600	29,517
Dole Food Co., Inc. 8.625% 2009	12,850	12,015
Dole Food Co., Inc. 7.25% 2010	7,875	6,969
Dole Food Co., Inc. 8.875% 2011	10,735	9,608
Spectrum Brands, Inc., Term Loan B, Letter of Credit, 8.60% 20136,7	850	792
Spectrum Brands, Inc., Term Loan B, 8.896% 20136,7	17,391	16,201
Spectrum Brands, Inc. 7.375% 2015	15,050	10,535
CVS Corp. 5.298% 20275,7	4,264	4,023
CVS Corp. 6.036% 20285,7	13,662	13,107
CVS Caremark Corp. 6.943% 20305,7	6,000	6,238
Kroger Co. 6.40% 2017	17,950	19,115
Duane Reade Inc. 9.75% 2011	14,120	12,355
Vitamin Shoppe Industries Inc. 12.369% 20121,6	11,650	12,116
Delhaize Group 6.50% 2017	3,850	3,954
Delhaize America, Inc. 9.00% 2031	5,000	5,935
Rite Aid Corp. 8.625% 2015	3,000	2,265
Rite Aid Corp. 7.70% 2027	9,000	5,220
Rite Aid Corp. 6.875% 2028	2,500	1,337
Safeway Inc. 6.35% 2017	8,000	8,478
Constellation Brands, Inc. 8.375% 2014	3,675	3,804
Constellation Brands, Inc. 7.25% 2017	3,000	2,865
Smithfield Foods, Inc. 7.625% 2008	1,975	1,980
Smithfield Foods, Inc., Series B, 8.00% 2009	875	890
Smithfield Foods, Inc., Series B, 7.00% 2011	750	735
Smithfield Foods, Inc., Series B, 7.75% 2013	2,800	2,758
Kraft Foods Inc. 6.875% 2038	5,875	5,986
Elizabeth Arden, Inc. 7.75% 2014	3,675	3,519
		389,282

BONDS & NOTES OF GOVERNMENTS & GOVERNMENT AGENCIES OUTSIDE THE U.S. — 0.17%
United Mexican States Government Global 8.375% 2011	3,000	3,369
United Mexican States Government Global 7.50% 2012	5,470	6,121
United Mexican States Government Global 6.375% 2013	14,765	16,005
United Mexican States Government Global 11.375% 2016	9,118	13,121
United Mexican States Government Global 5.625% 2017	3,640	3,773
United Mexican States Government Global 6.75% 2034	7,740	8,410
United Mexican States Government Global 6.05% 2040	14,000	13,846
Russian Federation 8.25% 20107	14,028	14,656
Russian Federation 8.25% 20105,7	5,556	5,804
Russian Federation 7.50% 20307	24,522	28,323
State of Qatar 9.75% 2030	4,000	6,350
El Salvador (Republic of) 7.75% 2023	3,000	3,457
El Salvador (Republic of) 7.75% 20235	1,250	1,441
El Salvador (Republic of) 7.65% 20355	750	844
Banque Centrale de Tunisie 7.375% 2012	3,500	3,819
Bulgaria (Republic of) 8.25% 2015	3,000	3,586
Aries Vermögensverwaltungs GmbH, Series C, 9.60% 2014	2,500	3,334
Corporación Andina de Fomento 5.75% 2017	2,000	1,955
		138,214

		unaudited

	Principal amount	Market value
Bonds & notes	(000)	(000)

MUNICIPALS — 0.01%
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds, Series 2002-A, Class A, 6.72% 20251	$ 4,013	$ 3,988
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, Series 2001-A, Class A, 6.36% 2025	3,346	3,277
		7,265


Total bonds & notes (cost: $22,789,972,000)		21,913,502


Short-term securities — 7.12%

Federal Home Loan Bank 2.90%–4.90% due 2/1–6/20/2008	1,215,341	1,210,637
Freddie Mac 3.49%–4.62% due 3/3–12/8/2008	722,478	717,523
U.S. Treasury Bills 3.015%–4.116% due 3/6–6/19/2008	704,400	700,749
Procter & Gamble International Funding S.C.A. 4.25%–4.74% due 2/5–3/7/20085	519,179	517,515
Coca-Cola Co. 2.90%–4.47% due 2/12–4/21/20085	320,400	319,339
General Electric Co. 4.48%–4.52% due 3/17–3/31/2008	230,000	228,829
General Electric Capital Services, Inc. 4.74% due 3/19/2008	50,000	49,745
Edison Asset Securitization LLC 4.56% due 2/13/20085	25,000	24,947
Fannie Mae 3.77%–4.23% due 2/11–4/9/2008	279,023	277,788
Bank of America Corp. 3.735%–4.675% due 3/11–4/14/2008	240,100	238,877
Ranger Funding Co. LLC 4.33% due 4/8/20085	30,000	29,802
JPMorgan Chase & Co. 3.00%–5.06% due 2/6–4/29/2008	192,500	191,884
Jupiter Securitization Co., LLC 4.65% due 3/20/20085	50,000	49,709
International Lease Finance Corp. 3.78%–4.22% due 2/13–4/25/2008	176,225	175,318
United Parcel Service Inc. 4.20%–4.50% due 2/1–3/10/20085	171,400	171,006
IBM International Group Capital LLC 2.74%–4.47% due 2/15–3/31/20085	161,300	160,722
Private Export Funding Corp. 4.25%–4.50% due 3/3–4/24/20085	145,800	144,992
Ciesco LLC 4.02%–4.25% due 2/26–3/3/20085	75,000	74,659
CAFCO, LLC 4.35% due 3/3/20085	21,500	21,417
Federal Farm Credit Banks 4.09% due 2/4–2/7/2008	81,800	81,740
Variable Funding Capital Corp. 4.25%–4.27% due 2/26–3/3/20085	78,400	78,123
Hewlett-Packard Co. 3.02% due 3/26/20085	57,900	57,633
FCAR Owner Trust I 5.50% due 2/4/2008	50,000	49,969
Prudential Funding, LLC 4.23% due 2/11/2008	50,000	49,935
NetJets Inc. 4.20% due 2/22/20085	50,000	49,850
Paccar Financial Corp. 2.80% due 4/24/2008	50,000	49,673
Pfizer Inc 4.35% due 5/22/20085	42,000	41,602
Harley-Davidson Funding Corp. 4.45%–4.48% due 2/8–2/15/20085	30,000	29,949
Anheuser-Busch Cos. Inc. 3.75%–4.18% due 2/1–3/19/20085	29,000	28,896
Caterpillar Financial Services Corp. 4.20% due 2/19/2008	26,400	26,341
Eaton Corp. 4.29% due 2/28/20085	25,000	24,909
Scripps (E.W.) Co. 4.73% due 2/28/20085	25,000	24,909
Union Bank of California, N.A. 4.58% due 3/4/2008	21,100	21,100
Harvard University 4.02% due 3/17/200812	15,000	14,921
John Deere Capital Corp. 2.95% due 4/10/20085	14,250	14,165
Tennessee Valley Authority 2.70% due 2/21/2008	12,700	12,680
Lowe’s Cos. Inc. 4.20% due 2/4/2008	5,800	5,797
Brown-Forman Corp. 4.25% due 2/1/20085	3,300	3,300

Total short-term securities (cost: $5,964,955,000)		5,970,950


Total investment securities (cost: $78,067,334,000)		83,860,587
Other assets less liabilities		(50,597)

Net assets		$83,809,990

unaudited

“Miscellaneous” securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.

1Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in “Miscellaneous,” was $15,425,649,000.

2Represents an affiliated company as defined under the Investment Company Act of 1940.

3Purchased in a transaction exempt from registration under the Securities Act of 1933. May be subject to legal or contractual restrictions on resale. Further details on these holdings appear below.

	Acquisition date(s)	Cost (000)	Market value (000)	Percent of net assets

Citigroup Inc., Series J, 7.00%, noncumulative convertible preferred depositary shares	1/15/2008	$178,500	$192,959	.23%
SunCom Wireless Holdings, Inc., Class A	5/15/2007	80,686	126,399	.15

Total restricted securities		$259,186	$319,358	.38%

4Security did not produce income during the last 12 months.

5Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the United States in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $6,692,288,000, which represented 7.99% of the net assets of the fund.

6Coupon rate may change periodically.

7Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.

8Payment in kind; the issuer has the option of paying additional securities in lieu of cash.

9Scheduled interest and/or principal payment was not received.

10Step bond; coupon rate will increase at a later date.

11Index-linked bond whose principal amount moves with a government retail price index.

12This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.

ADR = American Depositary Receipts

GDR = Global Depositary Receipts

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 your financial professional and should be read carefully before investing.

MFGEFP-906-0308O-S10870

The portfolio at a glance

The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund’s principal holdings. For details on how to obtain a complete schedule of portfolio holdings, please see the inside back cover.

[begin pie chart]

January 31, 2008	unaudited

	Percent of net assets

Investment portfolio

U.S. common stocks		44.2	%
Common stocks of issuers outside the U.S.		18.5
Convertible securities & preferred stocks		4.1
U. S. Treasury & agency bonds & notes		1.9
Other fixed-income securities		24.2
Short-term securities & other assets less liabilities		7.1

[end pie chart]

	Percent of net assets

Five largest sectors in common stock holdings

Financials		12.4	%
Telecommunication services		9.4
Utilities		7.1
Industrials		6.3
Consumer staples		5.7

	Percent of net assets

Ten largest common stock holdings

AT&T		2.9	%
Chevron		2.3
General Electric		1.9
Verizon Communications		1.9
Bristol-Myers Squibb		1.3
Merck		1.2
Koninklijke KPN		1.2
Vodafone		1.2
Wells Fargo & Co.		1.2
Citigroup		1.1

[begin pie chart]

July 31, 2007
	Percent of net assets

Investment portfolio

U.S. common stocks		46.5
Common stocks of issuers outside the U.S.		17.6
Convertible securities & preferred stocks		3.7
U. S. Treasury & agency bonds & notes		2.2
Other fixed-income securities		21.4
Short-term securities & other assets less liabilities		8.6

[end pie chart]

	Percent of net assets

Five largest sectors in common stock holdings

Financials		14.5	%
Telecommunication services		7.9
Utilities		6.9
Consumer staples		6.5
Industrials		6.4

	Percent of net assets

Ten largest common stock holdings

AT&T		2.9	%
Chevron		2.6
General Electric		2.3
Verizon Communications		2.0
Citigroup		1.5
Merck		1.5
Bristol-Myers Squibb		1.5
Coca-Cola		1.1
Washington Mutual		1.1
Vodafone		1.0

Summary investment portfolio, January 31, 2008

						unaudited


Common stocks - 62.70%	Shares		Market value (000)			Percent of net assets

Financials - 12.36%
Wells Fargo & Co.		29,140,000	$	991,051			1.18	%
Citigroup Inc.		31,685,000		894,151			1.07
Bank of America Corp.		17,046,550		756,015			.90
Lloyds TSB Group PLC (1)		60,959,000		536,627			.64
Fannie Mae		15,406,200		521,654			.62
Washington Mutual, Inc.		24,300,000		484,056			.58
U.S. Bancorp		11,541,400		391,831			.47
Société Générale (1)		3,146,500		389,897			.47
Equity Residential, shares of beneficial interest		10,092,800		377,572			.45
Other securities				5,018,876			5.98
				10,361,730			12.36

Telecommunication services - 9.39%
AT&T Inc.		62,127,371		2,391,283			2.85
Verizon Communications Inc.		40,189,000		1,560,941			1.86
Koninklijke KPN NV (1)		56,820,000		1,029,987			1.23
Vodafone Group PLC (1)		293,165,000		1,028,697			1.23
France Télécom SA (1)		13,364,947		471,434			.56
Other securities				1,386,216			1.66
				7,868,558			9.39

Utilities - 7.14%
E.ON AG (1)		4,175,000		766,578			.91
SUEZ SA (1)		9,323,500		569,399			.68
RWE AG (1)		4,070,000		498,492			.59
Entergy Corp.		4,378,005		473,612			.57
Duke Energy Corp.		20,080,000		374,693			.45
Exelon Corp.		4,300,000		327,617			.39
Other securities				2,976,419			3.55
				5,986,810			7.14

Industrials - 6.28%
General Electric Co.		45,885,000		1,624,788			1.94
Waste Management, Inc.		14,950,000		484,978			.58
Emerson Electric Co.		9,370,000		476,371			.57
Deutsche Post AG (1)		12,271,400		398,271			.47
Schneider Electric SA (1)		3,081,038		356,861			.43
Sandvik AB (1)		23,580,000		339,587			.41
Other securities				1,582,360			1.88
				5,263,216			6.28

Consumer staples - 5.65%
H.J. Heinz Co. (2)		20,596,700		876,596			1.05
Altria Group, Inc.		10,530,000		798,385			.95
Kraft Foods Inc., Class A		23,426,892		685,471			.82
Coca-Cola Co.		10,775,000		637,557			.76
Diageo PLC (1)		17,950,000		361,066			.43
Other securities				1,373,436			1.64
				4,732,511			5.65

Energy - 4.71%
Chevron Corp.		22,675,000		1,916,038			2.29
TOTAL SA (ADR)		3,640,000		264,919
TOTAL SA (1)		3,390,000		245,581			.61
Marathon Oil Corp.		7,790,000		364,962			.44
Other securities				1,154,340			1.37
				3,945,840			4.71

Health care - 4.41%
Bristol-Myers Squibb Co.		45,465,500		1,054,345			1.26
Merck & Co., Inc.		22,275,000		1,030,887			1.23
Eli Lilly and Co.		14,715,000		758,117			.90
Pfizer Inc		24,050,000		562,529			.67
Other securities				286,679			.35
				3,692,557			4.41

Consumer discretionary - 3.66%
McDonald's Corp.		13,600,300		728,296			.87
Esprit Holdings Ltd. (1)		40,949,000		532,659			.64
Carnival Corp., units		8,150,000		362,594			.43
Other securities				1,443,141			1.72
				3,066,690			3.66

Materials - 3.64%
Weyerhaeuser Co. (2)		10,728,000		726,500			.87
E.I. du Pont de Nemours and Co.		14,869,200		671,790			.80
International Paper Co.		16,023,820		516,768			.62
Dow Chemical Co.		8,980,000		347,167			.41
MeadWestvaco Corp. (2)		11,500,696		322,020			.38
Other securities				465,674			.56
				3,049,919			3.64

Information technology - 1.23%
Microchip Technology Inc. (2)		14,128,000		450,825			.54
Other securities				578,616			.69
				1,029,441			1.23

Miscellaneous - 4.23%
Other common stocks in initial period of acquisition				3,548,772			4.23


Total common stocks (cost: $45,991,830,000)				52,546,044			62.70



	Shares		Market value (000)			Percent of net assets

Preferred stocks - 1.24%

Financials - 0.90%
Fannie Mae, Series O, 7.00% (3) (4)		1,475,000	$	73,475			.09	%
Other securities				678,708			.81
				752,183			.90

Miscellaneous - 0.34%
Other preferred stocks in initial period of acquisition				286,668			.34

Total preferred stocks (cost: $1,101,677,000)				1,038,851			1.24

			Market value (000)			Percent of net assets

Warrants - 0.00%

Telecommunication services - 0.00%
Other securities			$	4			.00	%

Total warrants (cost: $816,000)				4			.00

			Market value (000)			Percent of net assets

Convertible securities - 2.85%	Shares

Other - 2.75%
Citigroup Inc., Series J, 7.00%, noncumulative convertible preferred depositary shares (1) (5) (6)		3,570,000	$	192,959			.23	%
Fannie Mae, Series 2004-1, 5.375% convertible preferred		1,738		140,778			.17
Other securities				1,975,749			2.35
				2,309,486			2.75

Miscellaneous - 0.10%
Other convertible securities in initial period of acquisition				81,750			.10

Total convertible securities (cost: $2,218,084,000)				2,391,236			2.85

	Principal amount (000)		Market value (000)			Percent of net assets

Bonds & notes - 26.15%

Mortgage-backed obligations (7) - 4.73%
Fannie Mae 4.00%-11.895% 2010-2047 (1) (4)	$	1,103,351	$	1,138,598			1.36	%
Freddie Mac 2.64%-11.46% 2009-2038 (4)		308,950		315,121			.38
Bank of America 5.50% 2012 (3)		17,500		18,768			.02
Other securities				2,491,410			2.97
				3,963,897			4.73

Financials - 4.68%
Bank of America Corp. 8.00% (undated) (4)		47,000		48,905
MBNA Global Capital Funding 5.711% 2027 (4)		35,000		29,498
Bank of America Corp. 4.25%-6.50% 2010-2037		18,300		18,782			.11
Citigroup Capital XXI 8.30% 2057 (4)		63,050		68,168
Citigroup Inc. 5.125%-6.125% 2011-2017		20,500		21,276			.11
Wells Fargo & Co. 4.375% 2013		8,500		8,507
Wells Fargo Bank, National Assn. 4.75% 2015		7,500		7,403			.02
Other securities				3,723,942			4.44
				3,926,481			4.68

Consumer discretionary - 3.93%
Other securities				3,296,173			3.93

Telecommunication services - 2.03%
SBC Communications Inc. 4.125%-6.25% 2009-2016		71,465		72,300
AT&T Inc. 4.95%-6.30% 2013-2038		42,750		42,979
AT&T Wireless Services, Inc. 8.125% 2012		24,935		28,373
AT&T Corp. 7.30%-8.00% 2011-2031 (4)		19,789		22,310			.20
Verizon Communications Inc. 5.50%-6.25% 2017-2037		77,000		77,832
Verizon Global Funding Corp. 4.90%-7.75% 2015-2030		10,265		11,350			.11
Vodafone Group PLC 5.625%-6.15% 2017-2037		25,760		25,521			.03
Koninklijke KPN NV 8.00%-8.375% 2010-2030		13,020		14,404			.02
Other securities				1,402,197			1.67
				1,697,266			2.03

Bonds & notes of U.S. government & government agencies - 1.91%
U.S. Treasury:
4.25% 2013		333,157		355,568
0%-8.875% 2009-2037 (1) (8)		691,087		708,246			1.27
Freddie Mac 5.00%-5.25% 2011-2018		250,000		259,067			.31
Fannie Mae 4.625%-6.25% 2012-2029		195,000		210,469			.25
Federal Home Loan Bank 5.125% 2013		43,000		46,444			.05
Other securities				24,358			.03
				1,604,152			1.91

Industrials - 1.52%
General Electric Capital Corp. 5.258% 2026 (4)		25,000		23,852
General Electric Co. 5.25% 2017		11,250		11,371			.04
Other securities				1,236,588			1.48
				1,271,811			1.52

Information technology - 1.43%
Other securities				1,200,643			1.43

Energy - 1.23%
Other securities				1,032,133			1.23

Utilities - 1.13%
Other securities				947,003			1.13

Health care - 1.09%
Other securities				910,499			1.09

Asset-backed obligations - 1.05%
Other securities				876,373			1.05

Other - 1.42%
Other securities				1,187,071			1.42

Total bonds & notes (cost: $22,789,972,000)				21,913,502			26.15

	Principal amount (000)		Market value (000)			Percent of net assets

Short-term securities - 7.12%

Federal Home Loan Bank 2.90%-4.90% due 2/1-6/20/2008	$	1,215,341	$	1,210,637			1.44	%
Freddie Mac 3.49%-4.62% due 3/3-12/8/2008		722,478		717,523			.86
U.S. Treasury Bills 3.015%-4.116% due 3/6-6/19/2008		704,400		700,749			.84
Procter & Gamble International Funding S.C.A. 4.25%-4.74% due 2/5-3/7/2008 (3)		519,179		517,515			.62
Coca-Cola Co. 2.90%-4.47% due 2/12-4/21/2008 (3)		320,400		319,339			.38
General Electric Co. 4.48%-4.52% due 3/17-3/31/2008		230,000		228,829
General Electric Capital Services, Inc. 4.74% due 3/19/2008		50,000		49,745
Edison Asset Securitization LLC 4.56% due 2/13/2008 (3)		25,000		24,947			.36
Fannie Mae 3.77%-4.23% due 2/11-4/9/2008		279,023		277,788			.33
Bank of America Corp. 3.735%-4.675% due 3/11-4/14/2008		240,100		238,877
Ranger Funding Co. LLC 4.33% due 4/8/2008 (3)		30,000		29,802			.32
Ciesco LLC 4.02%-4.25% due 2/26-3/3/2008 (3)		75,000		74,659
CAFCO, LLC 4.35% due 3/3/2008 (3)		21,500		21,417			.11
Other securities				1,559,123			1.86

Total short-term securities (cost: $5,964,955,000)				5,970,950			7.12

Total investment securities (cost: $78,067,334,000)				83,860,587			100.06
Other assets less liabilities				(50,597	)		(.06	)

Net assets			$	83,809,990			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. The fund's affiliated holdings listed below are either shown in the preceding summary investment portfolio or included in the market value of "Other securities" under their respective industry sectors. Further details on these holdings and related transactions during the six months ended January 31, 2008, appear below.

	Beginning shares or principal amount		Additions		Reductions		Ending shares or principal amount		Dividend or interest income (000)		Market value of affiliates at 1/31/08 (000)
H.J. Heinz Co.		18,104,640		2,492,060		-		20,596,700	$	15,243	$	876,596
Weyerhaeuser Co.		10,728,000		-		-		10,728,000		19,310		726,500
Microchip Technology Inc.		11,265,000		2,863,000		-		14,128,000		7,855		450,824
MeadWestvaco Corp.		10,865,696		635,000		-		11,500,696		5,144		322,020
iStar Financial, Inc.		8,207,550		-		1,287,800		6,919,750		14,844		184,619
iStar Financial, Inc. 5.375% 2010	$	10,925,000	$	-	$	-	$	10,925,000		297		10,157
iStar Financial, Inc., Series B, 5.125% 2011	$	10,000,000	$	-	$	-	$	10,000,000		275		8,896
iStar Financial, Inc., Series F, 7.80% cumulative redeemable		400,000		-		-		400,000		390		7,800
iStar Financial, Inc. 7.00% 2008	$	6,525,000	$	-	$	-	$	6,525,000		170		6,530
iStar Financial, Inc., Series B, 4.875% 2009	$	5,000,000	$	-	$	-	$	5,000,000		142		4,897
iStar Financial, Inc. 5.80% 2011	$	5,000,000	$	-	$	-	$	5,000,000		145		4,470
iStar Financial, Inc. 6.05% 2015	$	4,285,000	$	-	$	-	$	4,285,000		130		3,683
iStar Financial, Inc. 6.00% 2010	$	3,750,000	$	-	$	-	$	3,750,000		114		3,340
SunCom Wireless Holdings, Inc., Class A (5) (6)		4,732,277		-		-		4,732,277		-		126,399
Triton PCS, Inc. 8.50% 2013	$	94,050,000	$	-	$	-	$	94,050,000		4,124		97,342
Bell Aliant Regional Communications Income Fund		4,488,700		1,916,300		-		6,405,000		6,379		180,199
Macquarie Korea Infrastructure Fund (1)		21,023,070		-		-		21,023,070		4,564		153,815
Arthur J. Gallagher & Co.		5,403,700		-		-		5,403,700		3,350		137,308
Goodman Fielder Ltd. (1)		67,000,000		-		-		67,000,000		4,140		102,490
Clarent Hospital Corp. (1) (6)		484,684		-		-		484,684		-		97
Beverly Hills Bancorp Inc. (9)		950,000		-		950,000		-		81		-
Brookdale Senior Living Inc. (9)		5,906,600		691,000		2,586,300		4,011,300		6,598		-
Packaging Corp. of America (9)		6,792,800		-		6,792,800		-		1,698		-
Packaging Corp. of America 4.375% 2008 (9)	$	2,500,000	$	-	$	-	$	2,500,000		56		-
Sunstone Hotel Investors, Inc. (9)		4,038,400		-		3,538,400		500,000		1,224		-
Tupperware Brands Corp. (9)		3,865,000		-		3,865,000		-		653		-

									$	96,926	$	3,407,982

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) Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in "Miscellaneous" and "Other securities," was $15,425,649,000.

(2) Represents an affiliated company as defined under the Investment Company Act of 1940.

(3) Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the United States in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities, including those in "Other securities," was $6,692,288,000, which represented 7.99% of the net assets of the fund.

(4) Coupon rate may change periodically.

(5) Purchased in a transaction exempt from registration under the Securities Act of 1933. Further details on these holdings appear below.

	Acquisition date	Cost (000)		Market value (000)		Percent of net assets



Citigroup Inc., Series J, 7.00%, noncumulative convertible preferred depositary shares	1/15/2008	$	178,500	$	192,959		.23	%
SunCom Wireless Holdings, Inc., Class A	5/15/2007		80,686		126,399		.15

Total restricted securities		$	259,186	$	319,358		.38	%

(6) Security did not produce income during the last 12 months.

(7) Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.

(8) Index-linked bond whose principal amount moves with a government retail price index.

(9) Unaffiliated issuer at 1/31/2008.

ADR = American Depositary Receipts

See Notes to Financial Statements

Financial statements

Statement of assets and liabilities						unaudited
at January 31, 2008				(dollars and shares in thousands, except per-share amounts)

Assets:
	Investment securities at market:
		Unaffiliated issuers (cost: $74,781,324)			$80,452,605
		Affiliated issuers (cost: $3,286,010)			3,407,982	$83,860,587
	Cash					3,016
	Receivables for:
		Sales of investments			317,293
		Sales of fund's shares			142,936
		Dividends and interest			503,776
		Other			2,121	966,126
						84,829,729
Liabilities:
	Payables for:
		Purchases of investments			545,686
		Repurchases of fund's shares			85,458
		Dividends on fund's shares			325,789
		Investment advisory services			15,099
		Services provided by affiliates			44,402
		Directors' deferred compensation			2,916
		Other			389	1,019,739
Net assets at January 31, 2008						$83,809,990

Net assets consist of:
	Capital paid in on shares of capital stock					$76,930,379
	Undistributed net investment income					91,925
	Undistributed net realized gain					994,431
	Net unrealized appreciation					5,793,255
Net assets at January 31, 2008						$83,809,990

Total authorized capital stock - 5,500,000 shares, $.001 par value (4,509,443 total shares outstanding)
				Net assets	Shares outstanding	Net asset value per share*

Class A				$63,430,498	3,408,378	$18.61
Class B				4,748,782	256,769	18.49
Class C				8,616,985	466,683	18.46
Class F				3,027,920	162,938	18.58
Class 529-A				682,174	36,696	18.59
Class 529-B				116,180	6,266	18.54
Class 529-C				288,394	15,543	18.55
Class 529-E				33,029	1,780	18.56
Class 529-F				21,864	1,176	18.59
Class R-1				84,034	4,530	18.55
Class R-2				545,281	29,494	18.49
Class R-3				1,112,772	59,931	18.57
Class R-4				592,201	31,855	18.59
Class R-5				509,876	27,404	18.61

* 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 $19.75 and $19.72, respectively.


See Notes to Financial Statements



Statement of operations						unaudited
for the six months ended January 31, 2008					(dollars in thousands)
Investment income:
	Income:
		Dividends (net of non-U.S. taxes of $16,482; also includes $91,473 from affiliates)			$1,039,435
		Interest (includes $5,453 from affiliates)			1,027,849	$2,067,284

	Fees and expenses(*):
		Investment advisory services			106,144
		Distribution services			163,237
		Transfer agent services			21,563
		Administrative services			10,239
		Reports to shareholders			801
		Registration statement and prospectus			951
		Postage, stationery and supplies			2,358
		Directors' compensation			189
		Auditing and legal			38
		Custodian			1,676
		State and local taxes			1
		Other			13
		Total fees and expenses before reimbursements/waivers			307,210
	Less reimbursements/waivers of fees and expenses:
		Investment advisory services			10,620
		Administrative services			1
		Total fees and expenses after reimbursements/waivers				296,589
	Net investment income					1,770,695

Net realized gain and unrealized depreciation on investments and currency:
	Net realized gain (loss) on:
		Investments (including $9,247 net loss from affiliates)			1,938,281
		Currency transactions			(1,213)	1,937,068
	Net unrealized depreciation on:
		Investments			(6,475,050)
		Currency translations			(233)	(6,475,283)
			Net realized gain and unrealized depreciation on investments and currency			(4,538,215)

Net decrease in net assets resulting from operations						$(2,767,520)

*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)

					Six months ended January 31, 2008 *	Year ended July 31, 2007


Operations:
	Net investment income				$1,770,695	$3,250,382
	Net realized gain on investments and currency transactions				1,937,068	2,819,041
	Net unrealized (depreciation) appreciation on investments and currency translations				(6,475,283)	3,452,873
		Net (decrease) increase in net assets resulting from operations			(2,767,520)	9,522,296

Dividends and distributions paid or accrued to shareholders:
	Dividends from net investment income and currency gain				(2,140,395)	(3,454,007)
	Distributions from net realized gain on investments				(3,639,311)	(1,728,252)
		Total dividends and distributions paid or accrued to shareholders			(5,779,706)	(5,182,259)

Net capital share transactions					6,061,755	13,497,369

Total (decrease) increase in net assets					(2,485,471)	17,837,406

Net assets:
	Beginning of period				86,295,461	68,458,055
	End of period (including undistributed net investment
		income: $91,925 and $461,625, respectively)			$83,809,990	$86,295,461

*Unaudited.

See Notes to Financial Statements

Notes to financial statements unaudited

1. Organization and significant accounting policies

Organization – The Income Fund of America, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks current income while secondarily striving for capital growth through investments in stocks and fixed-income securities.

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

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

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

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

Security valuation – Equity securities are valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from an independent pricing service when such prices are available. However, where the investment adviser deems it appropriate, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region.

Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the investment adviser are fair valued as determined in good faith under procedures adopted by authority of the fund's board of directors. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly securities outside the U.S.) between the close of trading in those securities and the close of regular trading on the New York Stock Exchange. Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions.

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

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

Dividends and distributions to shareholders – Dividends paid to shareholders are declared daily from net investment income and are paid to shareholders quarterly. Distributions paid to shareholders are recorded on the ex-dividend date.

Currency translation – Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. On the accompanying financial statements, the effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.

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

Loan transactions – The fund may enter into loan transactions in which the fund acquires a loan either through an agent, by assignment from another holder, or as a participation interest in another holder's portion of a loan. The loan is often administered by a financial institution that acts as agent for the holders of the loan, and the fund may be required to receive approval from the agent and/or borrower prior to the sale of the investment. The loan's interest rate and maturity date may change based on the terms of the loan, including potential early payments of principal. Risks may arise due to the delayed settlement date of the loan transaction and the ability of the agent and/or borrower to meet the obligations of the loan.

2. Investments outside the U.S.

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

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

3. Federal income taxation and distributions

The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. Therefore, no federal income tax provision is required.

As of and during the period ended January 31, 2008, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.

The fund is not subject to examination by U.S. federal tax authorities for tax years before 2003 and by state tax authorities for tax years before 2002.

Distributions – Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; paydowns on fixed-income securities; and income on certain investments. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes.

The components of distributable earnings on a tax basis are reported as of the fund’s most recent year-end. As of July 31, 2007, the fund had tax basis undistributed ordinary income of $796,599,000, currency loss deferrals (realized during the period November 1, 2006, through July 31, 2007) of $1,487,000 and undistributed long-term capital gain of $2,732,234,000.

As of January 31, 2008, the tax basis unrealized appreciation (depreciation) and cost of investment securities were as follows:

(dollars in thousands)
Gross unrealized appreciation on investment securities	$	10,383,233
Gross unrealized depreciation on investment securities		(4,614,644	)
Net unrealized appreciation on investment securities		5,768,589
Cost of investment securities		78,091,998

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

	Six months ended January 31, 2008						Year ended July 31, 2007
	Ordinary income		Long-term capital gains		Total distributions paid or accrued		Ordinary income		Long-term capital gains		Total distributions paid or accrued
Share class
Class A	$	1,670,488	$	2,754,835	$	4,425,323	$	2,741,287	$	1,330,299	$	4,071,586
Class B		108,457		209,622		318,079		184,596		108,711		293,307
Class C		192,709		379,553		572,262		296,266		174,425		470,691
Class F		78,830		131,893		210,723		115,303		55,201		170,504
Class 529-A		17,023		28,945		45,968		24,723		11,936		36,659
Class 529-B		2,489		5,017		7,506		3,874		2,332		6,206
Class 529-C		6,121		12,364		18,485		8,909		5,270		14,179
Class 529-E		786		1,412		2,198		1,167		605		1,772
Class 529-F		562		925		1,487		678		297		975
Class R-1		1,757		3,564		5,321		2,010		1,091		3,101
Class R-2		11,774		23,660		35,434		17,170		10,098		27,268
Class R-3		25,124		46,144		71,268		32,101		16,294		48,395
Class R-4		12,865		22,561		35,426		15,313		7,141		22,454
Class R-5		11,410		18,816		30,226		10,610		4,552		15,162
Total	$	2,140,395	$	3,639,311	$	5,779,706	$	3,454,007	$	1,728,252	$	5,182,259

4. Fees and transactions with related parties

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

Investment advisory services – The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.250% on the first $500 million of daily net assets and decreasing to 0.125% on such assets in excess of $71 billion. The agreement also provides for monthly fees, accrued daily, of 2.25% of the fund’s monthly gross income. Prior to January 1, 2008, CRMC reduced total investment advisory services fees by decreasing the annual rate on net assets in excess of $89 billion from a rate of 0.125% to a rate of 0.123%. The board of directors approved an amended agreement effective January 1, 2008, which reflected this reduction in the annual rate on net assets in excess of $89 billion. In addition, CRMC is currently waiving 10% of investment advisory services fees. During the six months ended January 31, 2008, total investment advisory services fees waived by CRMC were $10,620,000. As a result, the fee shown on the accompanying financial statements of $106,144,000, which was equivalent to an annualized rate of 0.241%, was reduced to $95,524,000, or 0.217% of average daily net assets.

Class-specific fees and expenses – Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below:

Distribution services – The fund has adopted plans of distribution for all share classes, except Class R-5. Under the plans, the board of directors approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted below. In some cases, the board of directors has limited the amounts that may be paid to less than the maximum allowed by the plans. All share classes may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.

For Class A and 529-A, the board of directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of January 31, 2008, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A.

Share class	Currently approved limits	Plan limits
Class A	0.25%	0.25%
Class 529-A	0.25	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 – The fund has a transfer agent agreement with AFS for Class A and B. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent services provided to all other share classes from the administrative services fees paid to CRMC described below.

Administrative services – The fund has an administrative services agreement with CRMC to provide transfer agent and other related shareholder services for all share classes other than Class A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant share class also pays AFS additional amounts for certain transfer agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. CRMC has agreed to pay AFS on the fund's behalf for a portion of the transfer agent services fees for some of the retirement plan share classes. For the six months ended January 31, 2008, the total administrative services fees paid by CRMC were $1,000 for Class R-2. Administrative services fees are presented gross of any payments made by CRMC. Each 529 share class is subject to an additional annual administrative services fee of 0.10% of its respective average daily net assets; this fee is payable to the Commonwealth of Virginia for the maintenance of the 529 college savings plan. Although these amounts are included with administrative services fees on the accompanying financial statements, the Commonwealth of Virginia is not considered a related party.

Expenses under the agreements described above for the six months ended January 31, 2008, were as follows (dollars in thousands):

Share class	Distribution services	Transfer agent services	Administrative services
Share class	Distribution services	Transfer agent services	CRMC administrative services	Transfer agent services	Commonwealth of Virginia administrative services
Class A	$79,354	$20,014	Not applicable	Not applicable	Not applicable
Class B	25,526	1,549	Not applicable	Not applicable	Not applicable
Class C	45,644	Included in administrative services	$4,355	$502	Not applicable
Class F	3,977		1,332	166	Not applicable
Class 529-A	700		236	28	$345
Class 529-B	604		42	12	60
Class 529-C	1,481		102	24	148
Class 529-E	85		12	1	17
Class 529-F	-		7	1	11
Class R-1	419		48	16	Not applicable
Class R-2	2,115		411	759	Not applicable
Class R-3	2,688		766	245	Not applicable
Class R-4	644		369	14	Not applicable
Class R-5	Not applicable		203	7	Not applicable
Total	$163,237	$21,563	$7,883	$1,775	$581

Directors’ deferred compensation – Since the adoption of the deferred compensation plan in 1993, directors who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors’ compensation of $189,000, shown on the accompanying financial statements, includes $193,000 in current fees (either paid in cash or deferred) and a net decrease of $4,000 in the value of the deferred amounts.

Affiliated officers and directors – Officers and certain directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or directors received any compensation directly from the fund.

5. Capital share transactions

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

Share class	Sales*				Reinvestments of dividends and distributions				Repurchases*						Net increase
	Amount		Shares		Amount		Shares		Amount			Shares			Amount		Shares
Six months ended January 31, 2008
Class A	$	4,657,039		229,359	$	4,097,934		208,404	$	(4,575,175	)		(227,915	)	$	4,179,798		209,848
Class B		193,006		9,551		289,301		14,827		(339,558	)		(17,031	)		142,749		7,347
Class C		783,619		38,744		518,330		26,618		(707,005	)		(35,638	)		594,944		29,724
Class F		535,839		26,433		176,634		9,002		(449,449	)		(22,393	)		263,024		13,042
Class 529-A		87,877		4,348		45,791		2,332		(37,857	)		(1,896	)		95,811		4,784
Class 529-B		8,615		426		7,502		384		(5,430	)		(272	)		10,687		538
Class 529-C		37,844		1,876		18,454		943		(23,580	)		(1,180	)		32,718		1,639
Class 529-E		4,307		213		2,190		112		(2,506	)		(125	)		3,991		200
Class 529-F		4,696		231		1,468		75		(1,905	)		(96	)		4,259		210
Class R-1		23,834		1,174		5,230		268		(11,787	)		(585	)		17,277		857
Class R-2		113,220		5,618		35,255		1,809		(86,316	)		(4,329	)		62,159		3,098
Class R-3		314,033		15,477		70,620		3,606		(137,691	)		(6,843	)		246,962		12,240
Class R-4		240,124		11,953		34,805		1,774		(76,271	)		(3,824	)		198,658		9,903
Class R-5		239,937		11,942		27,823		1,419		(59,042	)		(2,976	)		208,718		10,385
Total net increase
(decrease)	$	7,243,990		357,345	$	5,331,337		271,573	$	(6,513,572	)		(325,103	)	$	6,061,755		303,815

Year ended July 31, 2007
Class A	$	11,380,559		552,805	$	3,645,817		179,124	$	(5,882,210	)		(285,623	)	$	9,144,166		446,306
Class B		592,214		28,970		258,866		12,801		(479,658	)		(23,462	)		371,422		18,309
Class C		2,229,591		109,165		410,555		20,323		(824,465	)		(40,327	)		1,815,681		89,161
Class F		1,294,485		63,019		133,621		6,566		(435,975	)		(21,103	)		992,131		48,482
Class 529-A		178,893		8,686		35,737		1,756		(39,519	)		(1,922	)		175,111		8,520
Class 529-B		19,217		936		6,115		301		(5,615	)		(273	)		19,717		964
Class 529-C		85,314		4,147		13,876		684		(27,708	)		(1,349	)		71,482		3,482
Class 529-E		8,454		411		1,734		85		(2,660	)		(130	)		7,528		366
Class 529-F		9,629		468		930		46		(1,175	)		(57	)		9,384		457
Class R-1		46,174		2,246		2,924		144		(12,774	)		(619	)		36,324		1,771
Class R-2		226,310		11,043		26,541		1,312		(116,865	)		(5,682	)		135,986		6,673
Class R-3		516,588		25,057		46,778		2,300		(200,112	)		(9,691	)		363,254		17,666
Class R-4		235,448		11,404		21,573		1,058		(76,506	)		(3,699	)		180,515		8,763
Class R-5		206,608		9,878		12,745		625		(44,685	)		(2,169	)		174,668		8,334
Total net increase
(decrease)	$	17,029,484		828,235	$	4,617,812		227,125	$	(8,149,927	)		(396,106	)	$	13,497,369		659,254

6. Investment transactions

The fund made purchases and sales of investment securities, excluding short-term securities, of $17,776,906,000 and $14,261,268,000, respectively, during the six months ended January 31, 2008.

Financial highlights (1)

			(Loss) income from investment operations(2)								Dividends and distributions
	Net asset value, beginning of period		Net investment income		Net (losses) gains 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 (3) (4)			Net assets, end of period (in millions)		Ratio of expenses to average net assets before reim- bursements/ waivers					Ratio of expenses to average net assets after reim-bursements/ waivers (4)					Ratio of net income to average net assets (4)
Class A:
Six months ended 1/31/2008 (5)	$	20.54	$	.43	$	(1.00	)	$	(.57	)	$	(.51	)	$	(.85	)	$	(1.36	)	$	18.61		(3.03	)%	$	63,431		.55	%	(6	)		.53	%	(6	)		4.16	%	(6	)
Year ended 7/31/2007		19.33		.87		1.73			2.60			(.93	)		(.46	)		(1.39	)		20.54		13.66			65,713		.56					.54					4.22
Year ended 7/31/2006		18.70		.81		.94			1.75			(.76	)		(.36	)		(1.12	)		19.33		9.77			53,188		.56					.53					4.35
Year ended 7/31/2005		17.10		.77		1.61			2.38			(.65	)		(.13	)		(.78	)		18.70		14.12			47,196		.55					.54					4.26
Year ended 7/31/2004		15.44		.70		1.70			2.40			(.74	)		-			(.74	)		17.10		15.76			36,075		.57					.57					4.15
Year ended 7/31/2003		14.49		.72		.98			1.70			(.73	)		(.02	)		(.75	)		15.44		12.18			25,891		.61					.61					4.98
Class B:
Six months ended 1/31/2008 (5)		20.43		.35		(1.01	)		(.66	)		(.43	)		(.85	)		(1.28	)		18.49		(3.42	)		4,749		1.31		(6	)		1.29		(6	)		3.40		(6	)
Year ended 7/31/2007		19.22		.70		1.74			2.44			(.77	)		(.46	)		(1.23	)		20.43		12.83			5,094		1.32					1.30					3.46
Year ended 7/31/2006		18.61		.66		.93			1.59			(.62	)		(.36	)		(.98	)		19.22		8.87			4,442		1.33					1.31					3.58
Year ended 7/31/2005		17.01		.63		1.61			2.24			(.51	)		(.13	)		(.64	)		18.61		13.32			4,135		1.34					1.32					3.48
Year ended 7/31/2004		15.36		.56		1.69			2.25			(.60	)		-			(.60	)		17.01		14.84			3,231		1.35					1.35					3.37
Year ended 7/31/2003		14.42		.61		.97			1.58			(.62	)		(.02	)		(.64	)		15.36		11.37			2,015		1.39					1.39					4.17
Class C:
Six months ended 1/31/2008 (5)		20.39		.34		(.99	)		(.65	)		(.43	)		(.85	)		(1.28	)		18.46		(3.45	)		8,617		1.36		(6	)		1.34		(6	)		3.35		(6	)
Year ended 7/31/2007		19.19		.69		1.73			2.42			(.76	)		(.46	)		(1.22	)		20.39		12.80			8,911		1.37					1.35					3.41
Year ended 7/31/2006		18.58		.65		.93			1.58			(.61	)		(.36	)		(.97	)		19.19		8.83			6,675		1.38					1.36					3.52
Year ended 7/31/2005		16.99		.61		1.60			2.21			(.49	)		(.13	)		(.62	)		18.58		13.17			5,756		1.43					1.41					3.38
Year ended 7/31/2004		15.34		.55		1.69			2.24			(.59	)		-			(.59	)		16.99		14.75			3,833		1.44					1.44					3.26
Year ended 7/31/2003		14.41		.59		.97			1.56			(.61	)		(.02	)		(.63	)		15.34		11.23			1,850		1.48					1.48					4.07
Class F:
Six months ended 1/31/2008 (5)		20.52		.42		(1.00	)		(.58	)		(.51	)		(.85	)		(1.36	)		18.58		(3.11	)		3,028		.60		(6	)		.57		(6	)		4.11		(6	)
Year ended 7/31/2007		19.30		.86		1.74			2.60			(.92	)		(.46	)		(1.38	)		20.52		13.69			3,075		.60					.57					4.18
Year ended 7/31/2006		18.68		.80		.93			1.73			(.75	)		(.36	)		(1.11	)		19.30		9.68			1,957		.60					.57					4.30
Year ended 7/31/2005		17.08		.75		1.61			2.36			(.63	)		(.13	)		(.76	)		18.68		14.01			1,603		.67					.65					4.14
Year ended 7/31/2004		15.42		.67		1.71			2.38			(.72	)		-			(.72	)		17.08		15.65			1,000		.69					.69					4.02
Year ended 7/31/2003		14.47		.71		.97			1.68			(.71	)		(.02	)		(.73	)		15.42		12.11			471		.72					.72					4.83
Class 529-A:
Six months ended 1/31/2008 (5)		20.52		.42		(1.00	)		(.58	)		(.50	)		(.85	)		(1.35	)		18.59		(3.08	)		682		.63		(6	)		.61		(6	)		4.07		(6	)
Year ended 7/31/2007		19.31		.85		1.73			2.58			(.91	)		(.46	)		(1.37	)		20.52		13.57			655		.65					.63					4.14
Year ended 7/31/2006		18.68		.80		.94			1.74			(.75	)		(.36	)		(1.11	)		19.31		9.70			452		.63					.61					4.27
Year ended 7/31/2005		17.08		.75		1.61			2.36			(.63	)		(.13	)		(.76	)		18.68		13.98			328		.70					.68					4.13
Year ended 7/31/2004		15.42		.68		1.70			2.38			(.72	)		-			(.72	)		17.08		15.61			195		.67					.67					4.06
Year ended 7/31/2003		14.48		.71		.97			1.68			(.72	)		(.02	)		(.74	)		15.42		12.10			93		.68					.68					4.87
Class 529-B:
Six months ended 1/31/2008 (5)		20.47		.33		(.99	)		(.66	)		(.42	)		(.85	)		(1.27	)		18.54		(3.48	)		116		1.44		(6	)		1.42		(6	)		3.27		(6	)
Year ended 7/31/2007		19.26		.68		1.73			2.41			(.74	)		(.46	)		(1.20	)		20.47		12.71			117		1.45					1.43					3.34
Year ended 7/31/2006		18.65		.64		.92			1.56			(.59	)		(.36	)		(.95	)		19.26		8.71			92		1.47					1.44					3.44
Year ended 7/31/2005		17.05		.59		1.61			2.20			(.47	)		(.13	)		(.60	)		18.65		13.05			74		1.55					1.53					3.28
Year ended 7/31/2004		15.36		.53		1.70			2.23			(.54	)		-			(.54	)		17.05		14.67			51		1.57					1.57					3.16
Year ended 7/31/2003		14.46		.58		.97			1.55			(.63	)		(.02	)		(.65	)		15.36		11.10			28		1.60					1.60					3.95
Class 529-C:
Six months ended 1/31/2008 (5)		20.49		.33		(1.00	)		(.67	)		(.42	)		(.85	)		(1.27	)		18.55		(3.52	)		288		1.44		(6	)		1.41		(6	)		3.27		(6	)
Year ended 7/31/2007		19.27		.69		1.74			2.43			(.75	)		(.46	)		(1.21	)		20.49		12.77			285		1.45					1.42					3.35
Year ended 7/31/2006		18.65		.64		.93			1.57			(.59	)		(.36	)		(.95	)		19.27		8.77			201		1.46					1.43					3.45
Year ended 7/31/2005		17.06		.59		1.60			2.19			(.47	)		(.13	)		(.60	)		18.65		13.00			153		1.54					1.52					3.29
Year ended 7/31/2004		15.39		.53		1.71			2.24			(.57	)		-			(.57	)		17.06		14.69			95		1.56					1.56					3.17
Year ended 7/31/2003		14.46		.58		.97			1.55			(.60	)		(.02	)		(.62	)		15.39		11.10			44		1.59					1.59					3.96
Class 529-E:
Six months ended 1/31/2008 (5)		20.49		.39		(1.00	)		(.61	)		(.47	)		(.85	)		(1.32	)		18.56		(3.22	)		33		.93		(6	)		.91		(6	)		3.78		(6	)
Year ended 7/31/2007		19.28		.79		1.73			2.52			(.85	)		(.46	)		(1.31	)		20.49		13.27			32		.94					.91					3.86
Year ended 7/31/2006		18.66		.74		.93			1.67			(.69	)		(.36	)		(1.05	)		19.28		9.32			23		.94					.92					3.96
Year ended 7/31/2005		17.06		.69		1.61			2.30			(.57	)		(.13	)		(.70	)		18.66		13.63			17		1.02					1.01					3.80
Year ended 7/31/2004		15.40		.62		1.70			2.32			(.66	)		-			(.66	)		17.06		15.24			10		1.04					1.04					3.69
Year ended 7/31/2003		14.47		.66		.96			1.62			(.67	)		(.02	)		(.69	)		15.40		11.66			5		1.06					1.06					4.48
Class 529-F:
Six months ended 1/31/2008 (5)	$	20.52	$	.44	$	(1.00	)	$	(.56	)	$	(.52	)	$	(.85	)	$	(1.37	)	$	18.59		(2.97	)%	$	22		.43	%	(6	)		.40	%	(6	)		4.28	%	(6	)
Year ended 7/31/2007		19.30		.90		1.73			2.63			(.95	)		(.46	)		(1.41	)		20.52		13.87			20		.44					.41					4.37
Year ended 7/31/2006		18.68		.83		.93			1.76			(.78	)		(.36	)		(1.14	)		19.30		9.85			10		.44					.42					4.46
Year ended 7/31/2005		17.08		.75		1.60			2.35			(.62	)		(.13	)		(.75	)		18.68		13.96			5		.70					.68					4.14
Year ended 7/31/2004		15.42		.67		1.69			2.36			(.70	)		-			(.70	)		17.08		15.53			3		.79					.79					3.95
Period from 9/17/2002 to 7/31/2003		14.11		.60		1.24			1.84			(.51	)		(.02	)		(.53	)		15.42		13.38			1		.81		(6	)		.81		(6	)		4.68		(6	)
Class R-1:
Six months ended 1/31/2008 (5)		20.48		.34		(1.00	)		(.66	)		(.42	)		(.85	)		(1.27	)		18.55		(3.46	)		84		1.40		(6	)		1.38		(6	)		3.30		(6	)
Year ended 7/31/2007		19.27		.70		1.72			2.42			(.75	)		(.46	)		(1.21	)		20.48		12.75			75		1.41					1.39					3.41
Year ended 7/31/2006		18.65		.64		.94			1.58			(.60	)		(.36	)		(.96	)		19.27		8.79			37		1.45					1.41					3.46
Year ended 7/31/2005		17.05		.61		1.61			2.22			(.49	)		(.13	)		(.62	)		18.65		13.15			19		1.50					1.45					3.36
Year ended 7/31/2004		15.39		.55		1.70			2.25			(.59	)		-			(.59	)		17.05		14.75			8		1.55					1.48					3.27
Year ended 7/31/2003		14.47		.60		.96			1.56			(.62	)		(.02	)		(.64	)		15.39		11.19			2		1.92					1.50					4.02
Class R-2:
Six months ended 1/31/2008 (5)		20.42		.33		(.99	)		(.66	)		(.42	)		(.85	)		(1.27	)		18.49		(3.47	)		545		1.42		(6	)		1.39		(6	)		3.29		(6	)
Year ended 7/31/2007		19.22		.69		1.72			2.41			(.75	)		(.46	)		(1.21	)		20.42		12.73			539		1.44					1.39					3.38
Year ended 7/31/2006		18.60		.64		.94			1.58			(.60	)		(.36	)		(.96	)		19.22		8.83			379		1.52					1.40					3.48
Year ended 7/31/2005		17.01		.61		1.60			2.21			(.49	)		(.13	)		(.62	)		18.60		13.16			271		1.58					1.42					3.39
Year ended 7/31/2004		15.36		.55		1.69			2.24			(.59	)		-			(.59	)		17.01		14.75			139		1.75					1.44					3.30
Year ended 7/31/2003		14.48		.59		.95			1.54			(.64	)		(.02	)		(.66	)		15.36		11.12			52		1.81					1.46					4.02
Class R-3:
Six months ended 1/31/2008 (5)		20.50		.38		(.99	)		(.61	)		(.47	)		(.85	)		(1.32	)		18.57		(3.23	)		1,113		.94		(6	)		.91		(6	)		3.76		(6	)
Year ended 7/31/2007		19.29		.79		1.73			2.52			(.85	)		(.46	)		(1.31	)		20.50		13.26			978		.94					.92					3.86
Year ended 7/31/2006		18.67		.73		.93			1.66			(.68	)		(.36	)		(1.04	)		19.29		9.29			579		.96					.94					3.94
Year ended 7/31/2005		17.07		.70		1.60			2.30			(.57	)		(.13	)		(.70	)		18.67		13.68			394		.97					.96					3.85
Year ended 7/31/2004		15.41		.62		1.70			2.32			(.66	)		-			(.66	)		17.07		15.25			176		1.02					1.02					3.70
Year ended 7/31/2003		14.48		.65		.98			1.63			(.68	)		(.02	)		(.70	)		15.41		11.68			56		1.12					1.08					4.42
Class R-4:
Six months ended 1/31/2008 (5)		20.53		.41		(1.00	)		(.59	)		(.50	)		(.85	)		(1.35	)		18.59		(3.08	)		592		.65		(6	)		.63		(6	)		4.04		(6	)
Year ended 7/31/2007		19.31		.85		1.74			2.59			(.91	)		(.46	)		(1.37	)		20.53		13.57			451		.65					.63					4.15
Year ended 7/31/2006		18.69		.79		.93			1.72			(.74	)		(.36	)		(1.10	)		19.31		9.60			255		.66					.64					4.22
Year ended 7/31/2005		17.09		.76		1.60			2.36			(.63	)		(.13	)		(.76	)		18.69		14.00			120		.67					.65					4.17
Year ended 7/31/2004		15.43		.68		1.70			2.38			(.72	)		-			(.72	)		17.09		15.64			30		.69					.69					4.05
Year ended 7/31/2003		14.49		.70		.98			1.68			(.72	)		(.02	)		(.74	)		15.43		12.07			12		.72					.72					4.81
Class R-5:
Six months ended 1/31/2008 (5)		20.54		.44		(.99	)		(.55	)		(.53	)		(.85	)		(1.38	)		18.61		(2.93	)		510		.35		(6	)		.32		(6	)		4.33		(6	)
Year ended 7/31/2007		19.32		.91		1.74			2.65			(.97	)		(.46	)		(1.43	)		20.54		13.94			350		.36					.33					4.42
Year ended 7/31/2006		18.70		.85		.93			1.78			(.80	)		(.36	)		(1.16	)		19.32		9.92			168		.36					.34					4.56
Year ended 7/31/2005		17.10		.80		1.61			2.41			(.68	)		(.13	)		(.81	)		18.70		14.33			81		.37					.35					4.45
Year ended 7/31/2004		15.44		.73		1.71			2.44			(.78	)		-			(.78	)		17.10		16.01			57		.37					.37					4.35
Year ended 7/31/2003		14.49		.75		.98			1.73			(.76	)		(.02	)		(.78	)		15.44		12.43			39		.40					.40					5.17



	Six months ended	Year ended July 31
	January 31, 2008 5	2007	2006	2005	2004	2003

Portfolio turnover rate for all classes of shares	18%	32%	35%	24%	27%	28%

(1) Based on operations for the periods shown (unless otherwise noted) and, accordingly, may not be representative of a full year.
(2) Based on average shares outstanding.
(3) Total returns exclude any applicable sales charges, including contingent deferred sales charges.
(4) This column reflects the impact, if any, of certain reimbursements/waivers from CRMC. During some of the periods shown, CRMC reduced fees for investment advisory services. In addition, during some of the periods shown, CRMC paid a portion of the fund's transfer agent fees for certain retirement plan share classes.

(5) Unaudited.
(6) Annualized.

See Notes to Financial Statements

[logo – American Funds®]

The Income Fund of America®

Investment portfolio

July 31, 2007

Common stocks — 64.14%	Shares		Market value (000)

FINANCIALS — 14.50%
Citigroup Inc.		28,464,500	$	1,325,592
Washington Mutual, Inc.		24,300,000		911,979
Wells Fargo & Co.		21,540,000		727,406
Fannie Mae		11,304,322		676,451
Société Générale1		3,811,500		653,086
SunTrust Banks, Inc.		7,340,000		574,722
Bank of America Corp.		10,766,550		510,550
Lloyds TSB Group PLC1		42,839,900		481,342
Fifth Third Bancorp		12,000,000		442,680
Equity Residential, shares of beneficial interest		10,092,800		401,794
iStar Financial, Inc.2		8,207,550		298,180
Insurance Australia Group Ltd.1		58,599,325		282,939
PNC Financial Services Group, Inc.		3,800,000		253,270
ING Groep NV1		5,376,202		227,561
Kimco Realty Corp.		5,986,800		223,487
Fidelity National Financial, Inc.		10,634,000		222,144
Boston Properties, Inc.		2,295,000		216,855
St. George Bank Ltd.1		6,846,552		199,595
Wachovia Corp.		4,200,000		198,282
Banco Itaú Holding Financeira SA, preferred nominative		4,110,000		190,005
Hang Lung Properties Ltd.1		48,836,000		178,752
AMP Ltd.1		20,680,000		176,380
U.S. Bancorp		5,761,400		172,554
CapitalSource Inc.		8,828,441		167,740
JPMorgan Chase & Co.		3,800,000		167,238
Hospitality Properties Trust		4,100,000		157,276
Unibail-Rodamco, non-registered shares1		650,000		153,446
American Capital Strategies, Ltd.		4,020,000		152,639
Arthur J. Gallagher & Co.2		5,403,700		149,034
BNP Paribas SA1		1,237,500		136,069
Standard Bank Group Ltd.1		8,860,000		127,256
Allied Capital Corp.		4,459,020		126,280
XL Capital Ltd., Class A		1,613,541		125,630
Popular, Inc.		9,350,000		123,327
Bank of Ireland1		5,885,000		112,439
Developers Diversified Realty Corp.		2,255,000		108,240
Cathay Financial Holding Co., Ltd.1		38,729,373		100,619
Sunstone Hotel Investors, Inc.2		4,038,400		100,233
DnB NOR ASA1		7,500,000		99,625
Banco Santander Central Hispano, SA1		5,030,828		94,379
HRPT Properties Trust		9,850,000		92,098
Unibanco-União de Bancos Brasileiros SA, units (GDR)		697,000		81,298
Archstone-Smith Trust		1,400,000		80,374
Boardwalk REIT		1,734,000		73,965
Regions Financial Corp.		2,350,000		70,665
Health Care Property Investors, Inc.		2,442,300		66,528
Itaúsa — Investimentos Itaú SA, preferred nominative		9,967,138		63,534
Hysan Development Co. Ltd.1		21,815,601		56,329
Associated Banc-Corp		1,400,000		40,236
First Midwest Bancorp, Inc.		1,200,000		39,468
Camden Property Trust		700,000		38,472
Crescent Real Estate Equities Co.		1,680,000		37,934
Cousins Properties Inc.		666,525		17,136
Beverly Hills Bancorp Inc.2		950,000		7,106
				12,512,219


TELECOMMUNICATION SERVICES — 7.90%
AT&T Inc.		63,399,871		2,482,739
Verizon Communications Inc.		39,689,000		1,691,545
Vodafone Group PLC1		273,610,000		831,630
Koninklijke KPN NV1		52,115,000		805,092
Telstra Corp. Ltd., installment receipts1		95,368,954		250,793
Telstra Corp. Ltd.1		7,500,000		29,200
Chunghwa Telecom Co., Ltd. (ADR)		8,524,395		141,334
Chunghwa Telecom Co., Ltd.1		48,024,966		81,208
France Télécom SA1		7,000,000		188,034
SunCom Wireless Holdings, Inc., Class A2,3		4,732,277		115,610
SK Telecom Co., Ltd. (ADR)		2,775,000		78,088
Telekomunikacja Polska SA1		9,355,000		74,062
Dobson Communications Corp., Class A3		2,290,483		28,516
Sprint Nextel Corp., Series 1		760,501		15,613
Embarq Corp.		38,025		2,350
American Tower Corp., Class A3		42,271		1,761
XO Holdings, Inc.3		9,158		41
				6,817,616


UTILITIES — 6.89%
E.ON AG1		4,100,000		647,194
Entergy Corp.		5,022,600		502,059
SUEZ SA1		8,098,500		424,761
Duke Energy Corp.		23,080,000		393,052
RWE AG1		3,520,000		371,980
Exelon Corp.		5,098,600		357,667
Dominion Resources, Inc.		4,133,498		348,123
Public Service Enterprise Group Inc.		3,502,000		301,697
DTE Energy Co.		6,500,000		301,470
Equitable Resources, Inc.		5,470,000		257,692
Ameren Corp.		5,000,000		239,900
Southern Co.		6,880,000		231,443
Progress Energy, Inc.		4,884,900		213,275
American Electric Power Co., Inc.		4,250,000		184,833
Consolidated Edison, Inc.		3,880,000		169,478
Hongkong Electric Holdings Ltd.1		33,080,000		163,901
PPL Corp.		3,125,000		147,313
FirstEnergy Corp.		2,240,000		136,080
Edison International		2,500,000		132,225
NiSource Inc.		6,198,500		118,205
Xcel Energy Inc.		5,225,000		106,068
KeySpan Corp.		2,160,000		89,748
MDU Resources Group, Inc.		2,655,000		72,375
Northeast Utilities		1,214,500		33,204
				5,943,743


CONSUMER STAPLES — 6.45%
Coca-Cola Co.		17,560,000		915,052
H.J. Heinz Co.2		18,104,640		792,259
Altria Group, Inc.		10,530,000		699,929
Reynolds American Inc.		8,380,000		512,604
General Mills, Inc.		8,171,800		454,515
Kraft Foods Inc., Class A		11,094,988		363,361
Diageo PLC1		17,650,000		360,202
ConAgra Foods, Inc.		12,147,200		307,931
Kimberly-Clark Corp.		3,450,000		232,081
Unilever NV (New York registered)		4,551,750		137,736
Unilever NV1		2,355,000		71,108
Scottish & Newcastle PLC1		14,892,000		179,025
Goodman Fielder Ltd.1,2		67,000,000		143,709
SABMiller PLC1		4,311,000		111,142
UST Inc.		2,000,000		107,100
Tesco PLC1		11,540,000		94,921
Woolworths Ltd.1		3,565,632		82,411
				5,565,086


INDUSTRIALS — 6.38%
General Electric Co.		50,370,000		1,952,341
Waste Management, Inc.		14,450,000		549,534
Sandvik AB1		23,580,000		475,195
Emerson Electric Co.		9,370,000		441,046
Atlas Copco AB, Class A1		20,350,000		350,105
R.R. Donnelley & Sons Co.		7,400,000		312,724
Deutsche Post AG1		10,521,400		306,873
Cooper Industries, Ltd., Class A		3,800,000		201,096
Bidvest Group Ltd.1		9,570,000		194,000
Hubbell Inc., Class B		3,213,100		185,235
Macquarie Korea Infrastructure Fund1,2		21,023,070		168,693
PACCAR Inc		1,805,700		147,742
Avery Dennison Corp.		1,498,182		91,898
Brambles Ltd.1,3		9,053,000		84,733
Singapore Technologies Engineering Ltd.1		10,330,000		24,891
Singapore Post Private Ltd.1		25,900,000		21,193
UAL Corp.3		59,741		2,637
				5,509,936


HEALTH CARE — 5.27%
Merck & Co., Inc.		26,260,000		1,303,809
Bristol-Myers Squibb Co.		44,375,500		1,260,708
Eli Lilly and Co.		14,485,000		783,494
Pfizer Inc		26,050,000		612,436
Brookdale Senior Living Inc.2		5,906,600		236,323
Abbott Laboratories		3,500,000		177,415
Baxter International Inc.		1,972,048		103,730
Wyeth		1,431,500		69,456
Clarent Hospital Corp.1,2,3		484,684		48
				4,547,419


ENERGY — 4.95%
Chevron Corp.		26,275,000		2,240,207
Royal Dutch Shell PLC, Class A (ADR)		6,919,000		536,845
Royal Dutch Shell PLC, Class B1		3,297,147		130,583
Royal Dutch Shell PLC, Class B (ADR)		948,199		75,173
Marathon Oil Corp.		7,790,000		430,008
Spectra Energy Corp		8,540,000		217,514
TOTAL SA1		1,390,000		110,013
TOTAL SA (ADR)		1,290,000		101,407
Occidental Petroleum Corp.		3,600,000		204,192
Exxon Mobil Corp.		1,385,000		117,905
ENI SpA1		2,400,000		83,935
Centennial Coal Co. Ltd.1		8,916,417		25,497
				4,273,279


MATERIALS — 4.40%
Weyerhaeuser Co.		10,728,000		764,263
E.I. du Pont de Nemours and Co.		14,869,200		694,838
International Paper Co.		14,973,820		555,080
Dow Chemical Co.		8,980,000		390,450
MeadWestvaco Corp.2		10,865,696		353,570
PPG Industries, Inc.		4,230,000		322,622
Packaging Corp. of America2		6,792,800		173,352
RPM International, Inc.		5,385,000		126,601
Alcoa Inc.		3,036,400		115,991
Eastman Chemical Co.		1,500,000		103,230
UPM-Kymmene Corp.1		4,100,000		91,200
Lyondell Chemical Co.		1,470,000		66,003
Freeport-McMoRan Copper & Gold Inc.		300,000		28,194
Worthington Industries, Inc.		834,400		17,272
				3,802,666


CONSUMER DISCRETIONARY — 2.74%
Esprit Holdings Ltd.1		40,949,000		554,663
Vivendi SA1		5,680,000		241,201
DSG International PLC1		74,250,000		233,977
CBS Corp., Class B		7,000,000		222,040
General Motors Corp.		6,442,559		208,739
VF Corp.		2,040,000		175,012
Leggett & Platt, Inc.		6,500,000		134,745
Kesa Electricals PLC1		16,003,258		104,039
Tupperware Brands Corp.2		3,865,000		100,529
Kingfisher PLC1		20,678,565		89,366
Regal Entertainment Group, Class A		4,022,000		86,031
H & M Hennes & Mauritz AB, Class B1		1,300,000		75,304
Compagnie Générale des Etablissements Michelin, Class B1		550,000		71,999
Marks and Spencer Group PLC1		3,195,000		40,644
Macquarie Media Group1		6,055,676		23,434
				2,361,723


INFORMATION TECHNOLOGY — 1.12%
Microchip Technology Inc.2		11,265,000		409,032
Microsoft Corp.		9,200,000		266,708
Acer Inc.1		74,250,000		163,607
Lite-On Technology Corp.1		36,692,964		60,971
Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)		3,912,828		39,715
Delta Electronics, Inc.1		4,410,000		17,364
Micron Technology, Inc.3,4		339,328		4,028
ZiLOG, Inc.3		455,000		2,179
				963,604


MISCELLANEOUS — 3.54%
Other common stocks in initial period of acquisition				3,055,878


Total common stocks (cost: $43,156,500,000)				55,353,169


			Market value
Preferred stocks — 1.14%	Shares			(000	)

FINANCIALS — 1.08%
SB Treasury Co. LLC, Series A, 9.40% noncumulative4,5		124,434,000	$	128,578
Sumitomo Mitsui Banking Corp. 6.078%4,5		31,750,000		30,560
Fannie Mae, Series O, 7.495%4,5		2,190,000		114,017
Fuji JGB Investment LLC, Series A, 9.87% noncumulative4,5		71,950,000		74,667
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative4,5		31,300,000		32,187
MUFG Capital Finance 1 Ltd. 6.346% noncumulative5		68,580,000		65,849
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative4,5		19,000,000		19,727
Vornado Realty Trust, Series I, 6.625%		3,380,000		76,895
IndyMac Bancorp, Inc., Series A, 8.50% noncumulative3,4		2,948,000		58,223
Shinsei Finance II (Cayman) Ltd. 7.16% noncumulative4,5		45,950,000		43,849
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up4,5		25,000,000		27,664
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up4,5		10,000,000		13,994
Banco Santander Central Hispano, SA 6.50%4		1,524,000		34,957
Chuo Mitsui Trust and Banking Co., Ltd. 5.506%4,5		36,590,000		34,310
Public Storage, Inc., Series F, 6.45%		1,000,000		22,400
Public Storage, Inc., Series V, 7.50% cumulative depositary shares		400,000		10,056
Standard Chartered PLC 7.014% noncumulative redeemable preference shares4,5		25,100,000		22,687
Wachovia Capital Trust III 5.80%5		20,000,000		19,631
Duke Realty Corp., Series B, 7.99% cumulative step-up premium rate		300,000		14,991
National Bank of Canada, Series A, 8.35% exchangeable depositary shares		520,000		13,536
BNP Paribas Capital Trust 9.003% noncumulative trust4,5		8,000,000		8,796
BNP U.S. Funding LLC, Series A, 7.738% noncumulative4,5		4,360,000		4,389
Simon Property Group, Inc., Series G, 7.89% cumulative step-up premium rate		200,000		10,281
Resona Preferred Global Securities (Cayman) Ltd. 7.191%4,5		9,825,000		9,935
Royal Bank of Scotland Group PLC 5.512% noncumulative trust5		10,000,000		9,607
iStar Financial, Inc., Series F, 7.80% cumulative redeemable2		400,000		9,520
CBG Florida REIT Corp., Series A, Class A, 7.114%4,5		9,000,000		8,668
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares4,5		6,500,000		6,971
Nationwide Health Properties, Inc., Series A, 7.677% cumulative step-up premium rate		50,000		5,187
Barclays Bank PLC, Series 1, 6.278% noncumulative5		1,990,000		1,781
				933,913


MISCELLANEOUS — 0.06%
Other preferred stocks in initial period of acquisition				46,313


Total preferred stocks (cost: $1,002,594,000)				980,226


Warrants — 0.00%

TELECOMMUNICATION SERVICES — 0.00%
XO Holdings, Inc., Series A, warrants, expire 20103		18,316		13
XO Holdings, Inc., Series B, warrants, expire 20103		13,738		7
XO Holdings, Inc., Series C, warrants, expire 20103		13,738		3
Allegiance Telecom, Inc., warrants, expire 20081,3,4		20,000		0
GT Group Telecom Inc., warrants, expire 20101,3,4		15,000		0

Total warrants (cost: $816,000)				23


	Shares or
Convertible securities — 2.54%	principal amount

FINANCIALS — 0.50%
Metropolitan Life Insurance Co., Class B, 6.375% convertible preferred 2008	6,400,000 units			191,232
Fannie Mae, Series 2004-1, 5.375% convertible preferred		1,690		166,042
XL Capital Ltd. 7.00% convertible preferred 2009	2,810,000 units			76,882
				434,156


HEALTH CARE — 0.37%
Schering-Plough Corp. 6.00% convertible preferred 2007		2,499,900	$	161,344
Medtronic, Inc. 1.625% convertible notes 2013	$	45,500,000		47,661
Medtronic, Inc. 1.50% convertible notes 2011	$	69,900,000		73,308
Teva Pharmaceutical Industries Ltd., Series D, 1.75% convertible debenture 2026	$	20,000,000		20,400
Incyte Corp. 3.50% convertible notes 20114	$	15,000,000		12,656
				315,369


INFORMATION TECHNOLOGY — 0.29%
Nortel Networks Corp. 4.25% convertible notes 20084	$	40,000,000		39,400
Nortel Networks Corp. 4.25% convertible notes 2008	$	80,000,000		78,800
Advanced Micro Devices, Inc. 6.00% convertible debentures 2015	$	4,678,000		4,234
Advanced Micro Devices, Inc. 6.00% convertible debentures 20154	$	87,567,000		79,248
Liberty Media Holding Corp. 2.921% exchangeable debentures 20315	$	52,000,000		42,988
Fairchild Semiconductor Corp. 5.00% convertible notes 2008	$	2,500,000		2,481
				247,151


MATERIALS — 0.22%
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred		25,000		50,870
Freeport-McMoRan Copper & Gold Inc. 6.75% convertible preferred 2010		1,000,000		140,750
				191,620


INDUSTRIALS — 0.22%
UAL Corp. 4.50% convertible notes 20214	$	72,600,000		105,648
Allied Waste Industries, Inc., Series D, 6.25% convertible preferred 2008		240,000		80,258
				185,906


UTILITIES — 0.19%
PG&E Corp. 9.50% convertible notes 2010	$	28,000,000		86,940
NRG Energy, Inc. 5.75% convertible preferred 20091		200,000		69,236
AES Trust VII 6.00% convertible preferred 2008		125,000		6,234
				162,410


TELECOMMUNICATION SERVICES — 0.18%
Qwest Communications International Inc. 3.50% convertible debenture 2025	$	100,000,000		157,375


CONSUMER DISCRETIONARY — 0.17%
Amazon.com, Inc. 4.75% convertible debentures 2009	$	59,137,000		63,720
Ford Motor Co. 4.25% convertible notes 2036	$	50,000,000		58,125
Liberty Media Holding Corp. 3.25% exchangeable debentures 2031	$	35,000,000		28,963
				150,808


ENERGY — 0.12%
El Paso Corp. 4.99% convertible preferred4		75,000		107,062



MISCELLANEOUS — 0.28%
Other convertible securities in initial period of acquisition				237,592


Total convertible securities (cost: $1,816,186,000)				2,189,449



MORTGAGE-BACKED OBLIGATIONS6— 4.72%
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010		36,750		38,669
Fannie Mae 9.00% 2010		131		134
Fannie Mae 4.89% 2012		10,000		9,714
Fannie Mae 4.00% 2015		6,352		6,117
Fannie Mae 7.00% 2016		221		229
Fannie Mae 5.00% 2018		16,028		15,628
Fannie Mae 5.50% 2018		13,843		13,746
Fannie Mae 10.00% 2018		292		325
Fannie Mae 5.50% 2020		37,318		36,974
Fannie Mae 5.50% 2021		47,154		46,719
Fannie Mae 6.00% 2021		1,769		1,780
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022		26,337		25,304
Fannie Mae 9.50% 2022		276		303
Fannie Mae 7.50% 2023		57		60
Fannie Mae 7.50% 2023		12		13
Fannie Mae 10.00% 2025		184		204
Fannie Mae, Series 2001-4, Class GA, 10.267% 20255		1,001		1,103
Fannie Mae, Series 2001-4, Class NA, 11.882% 20255		89		99
Fannie Mae 6.00% 2026		21,740		21,673
Fannie Mae 6.00% 2027		78,296		78,052
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028		830		859
Fannie Mae 7.50% 2031		357		377
Fannie Mae, Series 2001-20, Class E, 9.619% 20315		838		916
Fannie Mae 5.50% 2033		63,249		61,406
Fannie Mae 4.50% 2035		64,795		59,224
Fannie Mae 4.50% 2035		31,528		28,749
Fannie Mae 4.50% 2035		12,200		11,125
Fannie Mae 4.551% 20355		6,506		6,419
Fannie Mae 5.00% 2035		48,444		45,564
Fannie Mae 5.00% 2035		25,173		23,676
Fannie Mae 5.00% 2035		6,599		6,207
Fannie Mae 5.50% 2035		62,238		60,415
Fannie Mae 5.50% 2035		50,869		49,323
Fannie Mae 5.50% 2035		16,846		16,321
Fannie Mae 5.50% 2035		7,841		7,597
Fannie Mae 6.50% 2035		539		549
Fannie Mae 4.50% 2036		2,619		2,392
Fannie Mae 5.00% 2036		975		916
Fannie Mae 5.50% 2036		3,948		3,822
Fannie Mae 6.00% 2036		21,595		21,427
Fannie Mae, Series 2006-43, Class PX, 6.00% 2036		9,164		9,171
Fannie Mae 6.50% 2036		19,781		19,955
Fannie Mae 5.50% 2037		108,091		104,434
Fannie Mae 5.50% 2037		34,101		32,947
Fannie Mae, Series 2007-33, Class HE, 5.50% 2037		25,987		25,499
Fannie Mae 5.50% 2037		26,177		25,291
Fannie Mae 5.50% 2037		24,818		23,979
Fannie Mae 5.50% 2037		19,670		19,004
Fannie Mae 5.50% 2037		14,941		14,332
Fannie Mae 5.50% 2037		11,813		11,413
Fannie Mae 5.50% 2037		8,152		7,876
Fannie Mae 5.50% 2037		3,048		2,945
Fannie Mae 6.00% 2037		30,113		29,860
Fannie Mae 6.00% 2037		28,092		27,852
Fannie Mae 6.00% 2037		22,379		22,036
Fannie Mae, Series 2007-24, Class P, 6.00% 2037		19,682		19,745
Fannie Mae 6.00% 2037		18,605		18,448
Fannie Mae 6.00% 2037		11,409		11,308
Fannie Mae 6.00% 2037		2,562		2,530
Fannie Mae 6.50% 2037		63,357		63,874
Fannie Mae 6.50% 2037		15,936		16,030
Fannie Mae 6.50% 2037		15,000		15,122
Fannie Mae 6.50% 2037		8,158		8,206
Fannie Mae 7.00% 2037		47,543		48,615
Fannie Mae 7.00% 2037		17,223		17,698
Fannie Mae 7.00% 2037		14,377		14,701
Fannie Mae 7.00% 2037		10,950		11,272
Fannie Mae 7.00% 2037		10,146		10,375
Fannie Mae 7.00% 2037		5,264		5,374
Fannie Mae 7.00% 2037		4,130		4,217
Fannie Mae 7.50% 2037		5,302		5,475
Fannie Mae 7.50% 2037		3,885		4,012
Fannie Mae 7.50% 2037		1,993		2,049
Fannie Mae 7.50% 2037		1,697		1,752
Fannie Mae 7.50% 2037		1,006		1,035
Fannie Mae 8.00% 2037		3,151		3,241
Fannie Mae 8.00% 2037		1,989		2,045
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041		1,636		1,675
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041		1,122		1,152
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042		1,803		1,869
Freddie Mac 8.50% 2008		0		0
Freddie Mac, Series SF02, Class GC, 2.64% 2009		2,108		2,090
Freddie Mac 8.50% 2009		29		29
Freddie Mac 8.50% 2010		49		50
Freddie Mac 5.00% 2018		9,876		9,627
Freddie Mac 5.50% 2018		4,916		4,880
Freddie Mac 11.00% 2018		231		255
Freddie Mac 5.50% 2019		13,636		13,520
Freddie Mac, Series 178, Class Z, 9.25% 2021		89		89
Freddie Mac, Series 2289, Class NB, 11.424% 20225		207		232
Freddie Mac 6.00% 2026		5,900		5,884
Freddie Mac 6.00% 2027		9,724		9,698
Freddie Mac 4.646% 20355		8,087		7,961
Freddie Mac 5.00% 2035		17,765		16,705
Freddie Mac 5.00% 2035		13,283		12,496
Freddie Mac 5.50% 2035		8,540		8,270
Freddie Mac 5.50% 2035		8,522		8,253
Freddie Mac, Series 3061, Class PN, 5.50% 2035		6,377		6,382
Freddie Mac 5.00% 2036		11,293		10,605
Freddie Mac, Series 3257, Class PA, 5.50% 2036		24,804		24,401
Freddie Mac 7.00% 2036		2,079		2,125
Freddie Mac 5.00% 2037		3,473		3,260
Freddie Mac, Series 3286, Class JN, 5.50% 2037		33,299		32,567
Freddie Mac, Series 3312, Class PA, 5.50% 2037		25,379		24,820
Freddie Mac, Series 3318, Class JT, 5.50% 2037		18,413		17,999
Freddie Mac 6.00% 2037		75,000		74,303
Freddie Mac 6.00% 2037		60,525		60,038
Freddie Mac, Series 3271, Class OA, 6.00% 2037		24,563		25,084
Countrywide Alternative Loan Trust, Series 2003-12CB, Class 2-A-1, 5.00% 2018		11,759		11,269
Countrywide Alternative Loan Trust, Series 2006-J3, Class 2-A-1, 4.75% 2020		7,625		7,266
Countrywide Alternative Loan Trust, Series 2005-49CB, Class A-1, 5.50% 2035		113,620		112,963
Countrywide Alternative Loan Trust, Series 2005-46CB, Class A-8, 5.50% 2035		21,657		21,547
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035		15,391		14,773
Countrywide Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50% 2035		7,750		7,734
Countrywide Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50% 2035		7,629		7,603
Countrywide Alternative Loan Trust, Series 2005-23CB, Class A-15, 5.50% 2035		7,275		6,956
Countrywide Alternative Loan Trust, Series 2005-50CB, Class 3-A-1, 6.00% 2035		14,457		14,181
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035		9,715		9,613
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035		4,723		4,700
Countrywide Alternative Loan Trust, Series 2005-62, Class 2-A-1, 6.029% 20355		5,230		5,231
Countrywide Alternative Loan Trust, Series 2006-6CB, Class 1-A-1, 5.50% 2036		8,625		8,542
Countrywide Alternative Loan Trust, Series 2007-J1, Class 3-A-4, 5.755% 20365		20,000		19,856
Countrywide Alternative Loan Trust, Series 2006-24CB, Class A-1, 6.00% 2036		15,943		15,905
Countrywide Alternative Loan Trust, Series 2006-16CB, Class A-2, 6.00% 2036		5,520		5,512
Countrywide Alternative Loan Trust, Series 2007-8CB, Class A-1, 5.50% 2037		28,719		28,096
Countrywide Alternative Loan Trust, Series 2007-2CB, Class 1-A-9, 5.75% 2037		17,217		16,740
Countrywide Alternative Loan Trust, Series 2007-HY4, Class 3-A-1, 5.898% 20475		33,834		33,683
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S8, Class A-2, 5.00% 2018		75,349		72,197
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S10, Class A-2, 5.00% 2018		45,185		43,295
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S6, Class II-A-1, 5.00% 2018		14,572		13,962
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR1, Class A-6, 4.474% 20335		673		670
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A, 4.55% 20345		4,904		4,842
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY5, Class 3-A1, 5.828% 20375		23,181		22,905
WaMu Mortgage Pass-Through Certificates Trust, Series 2005-AR15, Class A-1-A, 5.58% 20455		13,025		13,046
CS First Boston Mortgage Securities Corp., Series 2004-6, Class II-A-1, 4.75% 2019		33,775		32,078
CS First Boston Mortgage Securities Corp., Series 2005-7, Class III-A-1, 5.00% 2020		6,549		6,276
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034		3,580		3,511
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034		3,574		3,569
CS First Boston Mortgage Securities Corp., Series 2005-6, Class VI-A-1, 6.00% 2035		6,975		6,979
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035		5,666		5,571
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035		10,100		10,333
CS First Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal only, 0% 20364		20,357		12,926
CS First Boston Mortgage Securities Corp., Series 2004-C5, Class A-2, 4.183% 2037		10,000		9,717
CS First Boston Mortgage Securities Corp., Series 2005-C3, Class A-AB, 4.614% 2037		10,000		9,524
CS First Boston Mortgage Securities Corp., Series 2007-2, Class 3-A-4, 5.50% 2037		23,283		21,711
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037		6,910		7,059
CS First Boston Mortgage Securities Corp., Series 2005-C5, Class A-2, 5.10% 20385		8,000		7,886
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-2FX, 5.207% 2040		3,050		3,017
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20405		10,000		9,725
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class II-A-4, 6.00% 2037		14,000		13,868
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class III-A-1, 6.25% 2037		34,573		34,575
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class IV-A-1, 6.50% 2037		48,351		48,641
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class V-A-1, 7.00% 2037		25,602		26,141
Wells Fargo Mortgage-backed Securities Trust, Series 2003-13, Class A-1, 4.50% 2018		17,083		16,089
Wells Fargo Mortgage-backed Securities Trust, Series 2003-16, Class I-A-1, 4.75% 2018		8,170		7,759
Wells Fargo Mortgage-backed Securities Trust, Series 2003-6, Class I-A-1, 5.00% 2018		7,289		7,030
Wells Fargo Mortgage-backed Securities Trust, Series 2004-7, Class II-A-1, 4.50% 2019		23,955		22,550
Wells Fargo Mortgage-backed Securities Trust, Series 2006-1, Class A-3, 5.00% 2021		13,416		12,857
Wells Fargo Mortgage-backed Securities Trust, Series 2003-3, Class II-A-1, 5.25% 2033		7,375		7,232
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR15, Class A-1, 5.657% 20365		26,574		26,320
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20374		7,250		7,090
American Tower Trust I, Series 2007-1A, Class B, 5.537% 20374		20,000		19,477
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20374		37,375		36,878
American Tower Trust I, Series 2007-1A, Class E, 6.249% 20374		20,500		20,229
American Tower Trust I, Series 2007-1A, Class F, 6.639% 20374		5,550		5,478
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-2, 4.739% 2037		2,000		1,962
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC11, Class A-2, 5.016% 2037		14,040		13,864
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-C1, Class A-3, 4.719% 2038		7,000		6,601
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-C3, Class A-2, 4.223% 2042		11,687		11,339
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042		3,155		3,097
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-CIBC14, Class A-4, 5.471% 20445		3,840		3,725
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A-4, 5.875% 20455		27,700		27,646
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046		20,000		19,614
CHL Mortgage Pass-Through Trust, Series 2003-35, Class 1-A-1, 4.75% 2018		6,926		6,578
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.827% 20335		1,233		1,221
CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.629% 20345		4,299		4,226
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.636% 20355		7,006		6,994
CHL Mortgage Pass-Through Trust, Series 2007-HY5, Class 1-A-1, 5.974% 20375		45,000		44,986
CHL Mortgage Pass-Through Trust, Series 2007-HY5, Class 3-A-1, 6.234% 20375		21,228		21,195
Lehman Mortgage Trust, Series 2005-2, Class 3-A3, 5.50% 2035		10,788		10,757
Lehman Mortgage Trust, Series 2007-6, Class 2-A1, 6.946% 20375		50,884		51,423
Lehman Mortgage Trust, Series 2007-7, Class 6-A4, 7.00% 2037		22,568		22,808
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 20354		10,000		9,795
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 20354		37,750		36,838
Crown Castle Towers LLC, Series 2006-1, Class E, 6.065% 20364		9,000		8,939
Crown Castle Towers LLC, Series 2006-1, Class F, 6.650% 20364		16,575		16,464
Crown Castle Towers LLC, Series 2006-1, Class G, 6.795% 20364		1,250		1,251
Residential Accredit Loans, Inc., Series 2003-QS16, Class A-1, 5.00% 2018		14,069		13,485
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 2019		11,187		10,719
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034		7,946		7,849
Residential Accredit Loans, Inc., Series 2005-QS13, Class I-A-5, 5.50% 2035		12,894		12,717
Residential Accredit Loans, Inc., Series 2005-QS9, Class A-6, 5.50% 2035		100		95
Residential Accredit Loans, Inc., Series 2005-QS10, Class I-A, 6.00% 2035		9,048		8,946
Residential Accredit Loans, Inc., Series 2007-QS7, Class II-A-1, 6.75% 2037		17,178		17,391
SBA CMBS Trust, Series 2005-1, Class A, 5.369% 20354		10,000		9,977
SBA CMBS Trust, Series 2005-1, Class B, 5.565% 20354		7,000		6,974
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20364		12,000		11,869
SBA CMBS Trust, Series 2006-1A, Class D, 5.852% 20364		5,000		4,856
SBA CMBS Trust, Series 2006-1A, Class F, 6.709% 20364		18,000		17,511
SBA CMBS Trust, Series 2006-1A, Class G, 6.904% 20364		17,000		16,364
Wachovia Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 5.681% 2034		2,372		2,374
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041		15,000		14,398
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042		11,000		10,837
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083% 20425		5,000		4,745
Wachovia Bank Commercial Mortgage Trust, Series 2005-C22, Class A-4, 5.266% 20445		22,000		21,110
Wachovia Bank Commercial Mortgage Trust, Series 2006-C23, Class A-PB, 5.446% 2045		12,500		12,274
Tower Ventures, LLC, Series 2006-1, Class A1-FX, 5.361% 20364		12,000		11,939
Tower Ventures, LLC, Series 2006-1, Class A-2, 5.45% 20364		11,100		11,068
Tower Ventures, LLC, Series 2006-1, Class C, 5.707% 20364		8,000		7,873
Tower Ventures, LLC, Series 2006-1, Class D, 6.052% 20364		29,000		28,977
IndyMac IMSC Mortgage Loan Trust, Series 2007-F3, Class 3-A-1, 7.00% 2037		44,000		44,523
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA11, Class I-A-5, 5.75% 2036		1,527		1,518
First Horizon Alternative Mortgage Securities Trust, Series 2006-FA3, Class A-6, 6.00% 2036		13,817		13,913
First Horizon Alternative Mortgage Securities Trust, Series 2007-FA4, Class I-A-10, 6.25% 2037		28,443		28,684
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.683% 20345		9,566		9,291
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 5-A-1, 6.00% 2035		12,235		12,200
Morgan Stanley Mortgage Loan Trust, Series 2006-3AR, Class 3-A-1, 6.022% 20365		1,097		1,097
Morgan Stanley Mortgage Loan Trust, Series 2007-11AR, Class 2-A-1, 6.639% 20375		15,174		15,323
Chase Mortgage Finance Trust, Series 2003-S9, Class A-1, 5.00% 2018		23,433		22,453
Chase Mortgage Finance Trust, Series 2003-S2, Class A-1, 5.00% 2018		16,046		15,375
GE Commercial Mortgage Corp., Series 2004-C1, Class A-2, 3.915% 2038		5,550		5,369
GE Commercial Mortgage Corp., Series 2006-C1, Class A-4, 5.339% 20445		13,000		12,526
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.333% 20455		17,000		16,802
GE Commercial Mortgage Corp., Series 2005-C4, Class A-M, 5.333% 20455		1,650		1,583
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7-A-1, 5.00% 2019		33,272		31,888
Banc of America Mortgage Securities, Inc., Series 2003-G, Class 2-A-1, 4.088% 20335		2,702		2,694
Citigroup Mortgage Loan Trust, Inc., Series 2003-UST1, Class A-3, 5.00% 2018		7,079		6,827
Citigroup Mortgage Loan Trust, Inc., Series 2006-AR5, Class 2-A7A, 6.214% 20365		24,893		24,966
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.851% 20365		31,558		31,182
Structured Asset Securities Corp., Series 2003-29, Class 1-A-1, 4.75% 2018		9,042		8,588
Structured Asset Securities Corp., Series 2004-15, Class 2-A-1, 4.75% 2019		21,885		20,786
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.515% 20274,5		290		289
Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.737% 20274,5		236		235
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036		9,285		9,522
Banc of America Commercial Mortgage Inc., Series 2005-5, Class A-3B, 5.228% 20455		17,730		17,422
GSR Mortgage Loan Trust, Series 2004-2F, Class VIIA-1, 4.50% 2019		18,979		17,998
GSR Mortgage Loan Trust, Series 2004-15F, Class 5A-1, 5.50% 2020		4,817		4,703
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20264		21,865		22,576
Residential Asset Securitization Trust, Series 2004-A6, Class A-1, 5.00% 2019		22,576		21,779
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 4.965% 20345		2,157		2,118
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.65% 20355		20,000		19,475
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.103% 20305		20,000		20,302
J.P. Morgan Alternative Loan Trust, Series 2006-S1, Class 3-A-5, 5.73% 20365		19,462		19,352
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC3, Class II-A-1, 5.25% 2020		8,687		8,555
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC8, Class A-4, 5.50% 2035		6,782		6,776
Bear Stearns Asset-backed Securities I Trust, Series 2006-AC2, Class II-1A-1, 6.00% 2036		3,687		3,684
Washington Mutual Mortgage, WMALT Series 2005-AR1, Class A-1-A, 5.58% 20355		10,899		10,889
Washington Mutual Mortgage, WMALT Series 2006-1, Class 4-CB, 6.50% 2036		7,458		7,460
Morgan Stanley Capital I Trust, Series 2005-HQ7, Class A-2, 5.203% 20425		17,875		17,579
CitiMortgage Alternative Loan Trust, Series 2005-A1, Class IIA-1, 5.00% 2020		18,270		17,531
Residential Funding Mortgage Securities I, Inc., Series 2004-S9, Class II-A-1, 4.75% 2019		18,120		17,287
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X, interest only, 1.004% 20314,5		72,949		1,488
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035		6,314		6,176
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035		7,665		7,877
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038		6,925		6,401
Commercial Mortgage Trust, Series 2004-LNB2, Class A-2, 3.60% 2039		7,203		7,026
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034		12,250		12,584
Bear Stearns ALT-A Trust, Series 2006-2, Class II-4-A-1, 5.926% 20365		12,196		12,157
Host Marriott Pool Trust, Series 1999-HMTA, Class D, 7.97% 20154		10,990		11,523
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030		4,572		4,578
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032		6,026		6,284
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031		10,236		10,535
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A-4-1, 5.243% 20375		10,000		9,813
American General Mortgage Loan Trust, Series 2006-1, Class A-5, 5.75% 20354,5		10,000		9,808
GMAC Mortgage Loan Trust, Series 2006-AR1, Class 2-A-1, 5.646% 20365		8,665		8,578
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033		1,444		1,456
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037		6,918		6,775
Banc of America Alternative Loan Trust, Series 2003-11, Class 5-A-1, 5.50% 2019		7,200		7,028
CSAB Mortgage-backed Trust, Series 2006-2, Class A-6-A, 5.72% 20365		6,923		6,881
American Home Mortgage Investment Trust, Series 2004-1, Class III-A, 3.28% 2044		6,642		6,320
Residential Asset Mortgage Products, Trust, Series 2003-RZ4, Class A-7, 4.79% 20335		6,529		6,260
Government National Mortgage Assn. 9.50% 2009		183		187
Government National Mortgage Assn. 9.00% 2016		41		45
Government National Mortgage Assn. 8.50% 2017		9		10
Government National Mortgage Assn. 8.50% 2017		4		4
Government National Mortgage Assn. 10.00% 2020		928		1,049
Government National Mortgage Assn. 8.50% 2021		213		230
Government National Mortgage Assn. 8.50% 2021		44		47
Government National Mortgage Assn. 8.50% 2021		7		7
Government National Mortgage Assn. 9.50% 2021		103		115
Government National Mortgage Assn. 10.00% 2021		1,338		1,512
Government National Mortgage Assn. 10.00% 2025		1,268		1,426
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 20144		4,669		4,607
HarborView Mortgage Loan Trust, Series 2005-15, Class 2-A1A2, 6.12% 20455		4,134		4,173
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.46% 2008		106		105
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-1, 6.341% 2033		1,073		1,074
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027		364		363
				4,072,643


CONSUMER DISCRETIONARY — 3.95%
Delphi Automotive Systems Corp. 6.55% 20067		17,105		19,500
Delphi Automotive Systems Corp. 6.50% 20097		54,466		62,091
Delphi Corp. 6.50% 20137		72,580		82,741
Delphi Automotive Systems Corp. 7.125% 20297		104,355		120,530
Delphi Trust I 8.25% 20337		30,031		35,887
General Motors Nova Scotia Finance Co. 6.85% 2008		1,675		1,616
General Motors Corp. 7.20% 2011		138,470		124,969
General Motors Corp. 7.125% 2013		68,665		58,537
General Motors Corp. 7.70% 2016		40,145		34,424
General Motors Corp. 8.80% 2021		27,375		23,953
General Motors Corp. 9.40% 2021		7,775		7,114
General Motors Corp. 8.25% 2023		7,000		5,740
General Motors Corp. 8.375% 2033		10,000		8,275
CCH II, LLC and CCH II Capital Corp. 10.25% 2010		9,000		9,203
Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corp. 13.50% 2011		4,375		4,495
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.00% 20124		59,548		58,357
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013		23,350		23,233
Charter Communications Operating, LLC, Term Loan Facilities B, Delayed Draw, 7.36% 20145,6		65,150		62,300
Charter Communications Operating, LLC, Term Loan Facilities B, 7.36% 20145,6		28,500		27,253
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.375% 20144		20,000		19,850
CCH I, LLC and CCH I Capital Corp. 11.00% 2015		20,000		20,100
Univision Communications Inc., Second Lien Term Loan, 7.82% 20095,6		4,315		4,196
Univision Communications Inc. 7.85% 2011		14,040		13,829
Univision Communications Inc., First Lien Term Loan B, 7.61% 20145,6		41,349		38,170
Univision Communications Inc. 9.75% 20154,8		90,305		82,629
Comcast Cable Communications, Inc. 6.20% 2008		49,000		49,452
Lenfest Communications, Inc. 7.625% 2008		2,000		2,019
Comcast Corp. 5.66% 20095		1,250		1,248
Comcast Cable Communications, Inc. 6.875% 2009		8,000		8,198
Comcast Cable Communications, Inc. 7.125% 2013		8,100		8,573
Comcast Corp. 5.85% 2015		19,200		18,757
Comcast Corp. 5.90% 2016		8,475		8,274
Comcast Corp. 5.65% 2035		2,650		2,274
Comcast Corp. 6.45% 2037		10,000		9,542
DaimlerChrysler North America Holding Corp. 4.05% 2008		2,560		2,524
DaimlerChrysler North America Holding Corp. 4.75% 2008		1,440		1,434
DaimlerChrysler North America Holding Corp., Series E, 5.71% 20095		10,000		10,004
DaimlerChrysler North America Holding Corp. 5.79% 20095		15,000		15,037
DaimlerChrysler North America Holding Corp. 7.20% 2009		11,000		11,346
DaimlerChrysler North America Holding Corp. 8.00% 2010		15,000		15,920
DaimlerChrysler North America Holding Corp. 7.75% 2011		26,500		28,172
Chrysler Finance, First Lien Term Loan, 9.359% 20125,6		13,245		12,583
Chrysler Finance, Second Lien Term Loan, 11.859% 20135,6		5,000		4,750
MGM MIRAGE 6.00% 2009		35,100		34,574
Mandalay Resort Group 6.50% 2009		7,122		7,051
MGM MIRAGE 8.50% 2010		22,830		23,172
MGM MIRAGE 6.75% 2012		9,150		8,601
MGM MIRAGE 6.75% 2013		8,200		7,606
MGM MIRAGE 7.50% 2016		4,000		3,740
Dex Media West LLC, Dex Media West Finance Co., Series B, 8.50% 2010		5,000		5,038
R.H. Donnelley Inc. 10.875% 20124		1,000		1,058
Dex Media, Inc., Series B, 0%/9.00% 20139		9,000		8,145
R.H. Donnelley Corp., Series A-2, 6.875% 2013		25,975		23,507
R.H. Donnelley Corp., Series A-1, 6.875% 2013		20,650		18,688
R.H. Donnelley Corp., Series A-3, 8.875% 2016		25,375		24,804
Michaels Stores, Inc., Term Loan B, 7.625% 20135,6		24,500		22,867
Michaels Stores, Inc. 10.00% 20144		43,000		41,925
Michaels Stores, Inc. 0%/13.00% 20164,9		17,700		9,647
Michaels Stores, Inc. 11.375% 20164		6,800		6,596
K. Hovnanian Enterprises, Inc. 10.50% 2007		6,000		6,030
K. Hovnanian Enterprises, Inc. 8.00% 2012		3,000		2,565
K. Hovnanian Enterprises, Inc. 8.875% 2012		10,515		8,675
K. Hovnanian Enterprises, Inc. 7.75% 2013		13,215		10,176
K. Hovnanian Enterprises, Inc. 6.375% 2014		2,000		1,550
K. Hovnanian Enterprises, Inc. 6.50% 2014		11,555		9,071
K. Hovnanian Enterprises, Inc. 6.25% 2016		7,000		5,355
K. Hovnanian Enterprises, Inc. 7.50% 2016		9,365		7,539
K. Hovnanian Enterprises, Inc. 8.625% 2017		34,655		28,764
Time Warner Inc. 8.18% 2007		20,000		20,050
Time Warner Inc. 5.59% 20095		10,000		10,011
Time Warner Inc. 5.50% 2011		1,000		994
AOL Time Warner Inc. 6.875% 2012		6,950		7,262
Time Warner Companies, Inc. 9.125% 2013		5,000		5,773
Time Warner Inc. 5.875% 2016		8,700		8,401
Time Warner Companies, Inc. 7.25% 2017		9,500		10,134
AOL Time Warner Inc. 7.625% 2031		10,750		11,506
Time Warner Inc. 6.50% 2036		500		476
Federated Retail Holdings, Inc. 5.35% 2012		13,660		13,579
Federated Retail Holdings, Inc. 5.90% 2016		46,300		44,861
Federated Department Stores, Inc. 6.79% 2027		500		431
Federated Department Stores, Inc. 7.00% 2028		1,692		1,527
Federated Department Stores, Inc. 6.90% 2029		8,890		7,869
Liberty Media Corp. 7.75% 2009		10,950		11,290
Liberty Media Corp. 7.875% 2009		37,983		39,743
Liberty Media Corp. 8.25% 2030		13,870		13,293
Clear Channel Communications, Inc. 4.625% 2008		14,000		13,843
Chancellor Media Corp. of Los Angeles 8.00% 2008		23,750		23,916
Clear Channel Communications, Inc. 7.65% 2010		15,000		14,969
Clear Channel Communications, Inc. 5.75% 2013		3,580		3,019
Clear Channel Communications, Inc. 5.50% 2014		9,170		7,202
NTL Cable PLC 8.75% 2014		26,689		26,822
NTL Cable PLC 9.125% 2016		32,000		32,480
J.C. Penney Co., Inc. 8.00% 2010		35,705		37,755
J.C. Penney Co., Inc. 9.00% 2012		10,506		11,861
J.C. Penney Corp., Inc. 5.75% 2018		2,000		1,917
J.C. Penney Corp., Inc. 6.375% 2036		4,800		4,471
Neiman Marcus Group, Inc. 9.00% 20158		52,810		55,318
Cox Communications, Inc. 5.91% 20075		8,250		8,265
Cox Communications, Inc. 7.875% 2009		12,500		13,048
Cox Communications, Inc. 4.625% 2010		8,250		8,063
Cox Communications, Inc. 7.75% 2010		10,000		10,613
Cox Communications, Inc. 5.45% 2014		13,500		12,891
Claire’s Stores, Inc., Term Loan, 8.11% 20135,6		22,030		20,157
Claire’s Stores, Inc. 9.25% 20154		32,075		28,386
Claire’s Stores, Inc. 10.50% 20174		4,700		3,737
Standard Pacific Corp. 6.50% 2008		6,675		6,408
Standard Pacific Corp. 5.125% 2009		17,750		15,886
Standard Pacific Corp. 6.50% 2010		8,532		7,466
Standard Pacific Corp. 6.875% 2011		6,500		5,493
Standard Pacific Corp. 7.75% 2013		4,975		4,179
Standard Pacific Corp. 6.25% 2014		7,910		6,229
Standard Pacific Corp. 7.00% 2015		5,075		4,085
Time Warner Cable Inc. 5.40% 20124		25,000		24,653
Time Warner Cable Inc. 6.55% 20374		25,000		23,955
Thomson Learning, Term Loan B, 8.10% 20145,6		13,625		12,893
Thomson Learning 0%/13.25% 20154,9		1,750		1,277
Thomson Learning 10.50% 20154		30,800		28,490
Thomson Corp. 5.50% 2035		5,000		4,358
CanWest Media Inc., Series B, 8.00% 2012		41,773		40,311
CanWest MediaWorks Inc. 9.25% 20154		2,775		2,706
Toys “R” Us, Inc. 7.625% 2011		35,015		30,813
Toys “R” Us-Delaware, Inc., Term Loan B, 9.61% 20125,6		12,000		11,880
Technical Olympic USA, Inc. 9.00% 2010		13,000		10,465
Technical Olympic USA, Inc. 9.00% 2010		9,990		7,942
Technical Olympic USA, Inc. 7.50% 2011		5,000		2,575
Technical Olympic USA, Inc. 9.00% 20114		19,000		15,105
Technical Olympic USA, Inc. 10.375% 2012		2,500		1,437
Technical Olympic USA, Inc. 7.50% 2015		7,600		3,724
Tenneco Automotive Inc., Series B, 10.25% 2013		15,325		16,398
Tenneco Automotive Inc. 8.625% 2014		24,000		24,120
Ford Motor Co. 9.50% 2011		1,000		972
Ford Motor Co., Term Loan B, 8.36% 20135,6		31,000		29,256
Ford Motor Co. 6.50% 2018		7,062		5,473
Ford Motor Co. 7.45% 2031		6,000		4,650
Mohegan Tribal Gaming Authority 6.375% 2009		19,780		19,409
Mohegan Tribal Gaming Authority 8.00% 2012		2,100		2,137
Mohegan Tribal Gaming Authority 6.125% 2013		4,175		3,914
Mohegan Tribal Gaming Authority 7.125% 2014		4,950		4,814
Mohegan Tribal Gaming Authority 6.875% 2015		8,775		8,216
Centex Corp. 5.25% 2015		17,315		14,821
Centex Corp. 6.50% 2016		24,930		22,759
KB Home 6.375% 2011		4,000		3,720
KB Home 5.875% 2015		6,270		5,235
KB Home 6.25% 2015		32,750		27,346
Boyd Gaming Corp. 7.75% 2012		28,400		28,542
Boyd Gaming Corp. 6.75% 2014		8,004		7,564
Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014		36,535		34,069
Radio One, Inc., Series B, 8.875% 2011		16,750		16,792
Radio One, Inc. 6.375% 2013		17,550		15,970
News America Holdings Inc. 8.00% 2016		6,000		6,782
News America Inc. 7.25% 2018		1,405		1,503
News America Holdings Inc. 8.25% 2018		7,000		8,032
News America Inc. 6.40% 2035		750		707
News America Inc. 6.75% 2038		15,000		15,694
Idearc Inc. 8.00% 2016		33,500		31,909
Royal Caribbean Cruises Ltd. 7.00% 2007		3,000		3,018
Royal Caribbean Cruises Ltd. 8.75% 2011		26,850		28,368
Harrah’s Operating Co., Inc. 5.50% 2010		26,375		24,017
Harrah’s Operating Co., Inc. 5.625% 2015		8,800		6,389
Vidéotron Ltée 6.875% 2014		21,069		19,805
Vidéotron Ltée 6.375% 2015		10,435		9,339
CSC Holdings, Inc. 7.25% 2008		8,000		8,010
CSC Holdings, Inc., Series B, 8.125% 2009		17,625		17,625
CSC Holdings, Inc., Series B, 6.75% 2012		400		365
Cablevision Systems Corp., Series B, 8.00% 2012		2,050		1,922
LBI Media, Inc. 10.125% 2012		10,395		10,941
LBI Media, Inc. 8.50% 20174		14,190		13,835
Beazer Homes USA, Inc. 8.375% 2012		11,298		9,660
Beazer Homes USA, Inc. 8.125% 2016		16,810		14,036
Limited Brands, Inc. 6.90% 2017		22,855		22,813
Hilton Hotels Corp. 7.625% 2008		2,450		2,481
Hilton Hotels Corp. 7.20% 2009		9,850		10,035
Hilton Hotels Corp. 8.25% 2011		9,618		10,051
American Media Operations, Inc., Series B, 10.25% 2009		16,005		14,605
American Media Operations, Inc. 8.875% 2011		8,930		7,948
Kabel Deutschland GmbH 10.625% 2014		19,675		20,462
Gap, Inc. 10.05% 20085		18,840		19,831
Warner Music Group 7.375% 2014		22,000		19,800
Viacom Inc. 5.75% 2011		3,000		2,992
Viacom Inc. 6.25% 2016		15,750		15,387
Viacom Inc. 6.875% 2036		1,500		1,415
Telenet Group Holding NV 0%/11.50% 20144,9		20,027		19,326
Education Management LLC and Education Management Finance Corp. 8.75% 2014		7,775		7,775
Education Management LLC and Education Management Finance Corp. 10.25% 2016		11,175		11,175
D.R. Horton, Inc. 8.00% 2009		16,650		16,590
D.R. Horton, Inc. 7.875% 2011		550		559
Bon-Ton Department Stores, Inc. 10.25% 2014		18,850		17,059
Goodyear Tire & Rubber Co. 9.135% 20094,5		7,125		7,125
Goodyear Tire & Rubber Co. 8.625% 20114		9,392		9,603
Meritage Corp. 7.00% 2014		1,250		1,069
Meritage Homes Corp. 6.25% 2015		19,350		15,383
Quebecor Media Inc. 7.75% 2016		16,675		15,758
Young Broadcasting Inc. 10.00% 2011		16,890		15,454
William Lyon Homes, Inc. 7.625% 2012		17,000		13,260
William Lyon Homes, Inc. 10.75% 2013		2,500		2,137
AMC Entertainment Inc., Series B, 8.625% 2012		14,650		15,053
Visteon Corp. 7.00% 2014		18,000		14,130
MDC Holdings, Inc. 7.00% 2012		5,000		5,069
MDC Holdings, Inc. 5.50% 2013		8,250		7,762
Toll Brothers, Inc. 4.95% 2014		5,000		4,514
Toll Brothers, Inc. 5.15% 2015		9,215		8,058
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013		12,187		12,400
Cooper-Standard Automotive Inc. 7.00% 2012		13,500		12,217
Ryland Group, Inc. 5.375% 2012		12,350		11,627
WCI Communities, Inc. 9.125% 2012		13,700		11,234
Seneca Gaming Corp. 7.25% 2012		8,000		7,920
Seneca Gaming Corp., Series B, 7.25% 2012		3,275		3,242
Burlington Coat Factory Warehouse Corp. 11.125% 2014		12,075		10,867
YUM! Brands, Inc. 7.70% 2012		10,000		10,843
British Sky Broadcasting Group PLC 6.875% 2009		10,000		10,216
Hanesbrands Inc., Series B, 8.784% 20145		10,295		10,141
NVR, Inc. 5.00% 2010		10,000		9,849
Staples, Inc. 7.375% 2012		9,000		9,757
Seminole Tribe of Florida 6.535% 20204,6		10,000		9,735
EchoStar DBS Corp. 5.75% 2008		9,300		9,253
Pinnacle Entertainment, Inc. 7.50% 20154		9,400		8,695
Regal Cinemas Corp., Series B, 9.375% 20121		7,250		7,604
Linens ‘n Things, Inc. 10.985% 20145		10,775		7,058
Walt Disney Co. 5.70% 2011		1,000		1,017
Walt Disney Co. 5.625% 2016		2,000		1,969
Walt Disney Co. 6.00% 2017		3,000		3,035
Warnaco, Inc. 8.875% 2013		5,625		5,934
Morris Publishing Group, LLC and Morris Publishing Finance Co., Series B, 7.00% 2013		6,700		5,879
Gamestop Corp. 8.00% 2012		5,000		5,081
Sealy Mattress Co. 8.25% 2014		5,125		5,074
Pulte Homes, Inc. 7.875% 2011		5,000		5,068
Carnival Corp. 3.75% 2007		5,000		4,975
Marriott International, Inc., Series I, 6.375% 2017		4,500		4,506
Local T.V. Finance LLC 9.25% 20154,8		4,525		4,321
Gaylord Entertainment Co. 6.75% 2014		4,000		3,740
Cinemark USA, Inc., Term Loan B, 7.09% 20135,6		3,772		3,638
Entercom Radio, LLC 7.625% 2014		3,750		3,600
XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. 9.75% 2014		2,850		2,779
Dollar General Corp. 10.625% 20154		665		585
				3,410,778


FINANCIALS — 3.56%
General Motors Acceptance Corp. 6.125% 2007		12,500		12,486
General Motors Acceptance Corp. 6.125% 2008		50,000		49,586
Residential Capital Corp. 6.66% 20085		20,000		19,233
Residential Capital Corp. 6.46% 20095		20,000		18,802
Residential Capital Corp. 7.69% 20094,5		26,250		24,675
Residential Capital Corp. 6.375% 2010		23,025		21,689
Residential Capital Corp. 6.00% 2011		19,750		18,218
General Motors Acceptance Corp. 6.875% 2011		92,370		85,970
General Motors Acceptance Corp. 7.25% 2011		59,895		56,802
Residential Capital, LLC 6.50% 2012		3,000		2,724
General Motors Acceptance Corp. 6.875% 2012		11,145		10,262
General Motors Acceptance Corp. 7.00% 2012		66,305		62,042
Residential Capital Corp. 6.50% 2013		32,500		29,198
General Motors Acceptance Corp. 6.75% 2014		36,475		32,828
General Motors Acceptance Corp. 7.56% 20145		37,000		34,479
Ford Motor Credit Co. 5.80% 2009		4,000		3,843
Ford Motor Credit Co. 7.875% 2010		7,000		6,698
Ford Motor Credit Co. 9.75% 20105		83,730		84,612
Ford Motor Credit Co. 7.25% 2011		4,450		4,071
Ford Motor Credit Co. 7.375% 2011		1,800		1,683
Ford Motor Credit Co. 9.875% 2011		7,500		7,601
Ford Motor Credit Co. 7.80% 2012		3,500		3,336
Ford Motor Credit Co. 8.11% 20125		68,405		65,376
Ford Motor Credit Co. 8.00% 2016		9,000		8,308
Washington Mutual, Inc. 5.00% 2012		7,000		6,795
Washington Mutual, Inc. 5.66% 20125		16,000		15,833
Washington Mutual Bank 5.78% 20135		10,000		9,769
Washington Mutual, Inc. 4.625% 2014		5,000		4,600
Washington Mutual Bank, FA 5.65% 2014		5,000		4,871
Washington Mutual Preferred Funding I Ltd., Series A-1, 6.534% (undated)4,5		72,100		67,375
Washington Mutual Preferred Funding II Ltd. 6.665% (undated)4,5		17,100		15,251
Washington Mutual Preferred Funding III Ltd. 6.895% (undated)4,5		26,200		24,876
ASIF Global Financing XVIII 3.85% 20074		8,500		8,459
International Lease Finance Corp. 5.00% 2010		10,000		9,883
International Lease Finance Corp. 5.125% 2010		15,000		14,897
International Lease Finance Corp. 5.00% 2012		5,000		4,874
International Lease Finance Corp., Series R, 5.40% 2012		10,000		9,970
American General Finance Corp., Series I, 5.40% 2015		17,250		16,619
ILFC E-Capital Trust I 5.90% 20654,5		10,000		9,886
ILFC E-Capital Trust II 6.25% 20654,5		18,790		18,137
American International Group, Inc., Series A-1, 6.25% 20875		15,850		14,647
Realogy Corp., Term Loan B, 8.36% 20135,6		18,392		17,277
Realogy Corp., Term Loan B, Letter of Credit, 8.36% 20135,6		3,908		3,671
Realogy Corp. 10.50% 20144		58,150		53,934
Realogy Corp. 11.00% 20144,8		10,000		8,863
Realogy Corp. 12.375% 20154		5,250		4,213
Rouse Co. 3.625% 2009		32,561		31,395
Rouse Co. 7.20% 2012		38,789		38,945
Rouse Co. 6.75% 20134		12,150		12,171
HSBK (Europe) B.V. 7.75% 2013		10,275		10,403
HSBK (Europe) B.V. 7.75% 20134		2,165		2,192
HSBK (Europe) B.V. 7.25% 20174		65,640		63,034
Simon Property Group, LP 4.875% 2010		11,375		11,219
Simon Property Group, LP 5.375% 2011		32,700		32,544
Simon Property Group, LP 5.00% 2012		8,000		7,807
Simon Property Group, LP 6.35% 2012		5,000		5,166
Simon Property Group, LP 5.25% 2016		5,000		4,760
Simon Property Group, LP 5.875% 2017		5,000		4,964
Capmark Financial Group, Inc. 6.007% 20104,5		35,000		35,095
Capmark Financial Group, Inc. 5.875% 20124		22,260		20,836
Capmark Financial Group, Inc. 6.30% 20174		7,000		6,212
TuranAlem Finance BV 8.00% 2014		2,390		2,175
TuranAlem Finance BV 8.50% 2015		19,110		17,486
TuranAlem Finance BV 8.50% 20154		10,000		9,150
TuranAlem Finance BV 8.25% 20374		35,000		31,063
E*TRADE Financial Corp. 8.00% 2011		22,775		23,344
E*TRADE Financial Corp. 7.375% 2013		8,750		8,838
E*TRADE Financial Corp. 7.875% 2015		24,700		25,565
Fifth Third Capital Trust IV 6.50% 20675		59,500		56,425
MBNA Corp. 5.625% 2007		10,000		10,007
Bank of America Corp. 4.25% 2010		10,000		9,702
MBNA Global Capital Funding, Series B, 6.156% 20275		35,000		34,980
Société Générale 5.922% (undated)4,5		900		866
SocGen Real Estate Co. LLC, Series A, 7.64% (undated)4,5		51,645		51,824
PNC Funding Corp., Series II, 6.113% (undated)4,5		13,800		13,156
PNC Funding Corp., Series I, 6.517% (undated)4,5		35,400		35,738
Host Marriott, LP, Series M, 7.00% 2012		28,085		27,664
Host Marriott, LP, Series K, 7.125% 2013		10,000		9,775
Host Hotels & Resorts, LP, Series S, 6.875% 2014		10,500		10,185
UnumProvident Corp. 5.859% 2009		11,500		11,580
UnumProvident Finance Co. PLC 6.85% 20154		33,500		34,025
iStar Financial, Inc. 7.00% 20082		6,525		6,577
iStar Financial, Inc., Series B, 4.875% 20092		5,000		4,954
iStar Financial, Inc. 5.375% 20102		10,925		10,762
iStar Financial, Inc. 6.00% 20102		3,750		3,772
iStar Financial, Inc., Series B, 5.125% 20112		10,000		9,705
iStar Financial, Inc. 5.80% 20112		5,000		4,991
iStar Financial, Inc. 6.05% 20152		4,285		4,177
J.P. Morgan Chase & Co. 4.891% 20155		10,000		9,852
JPMorgan Chase Capital XXI, Series U, 6.305% 20375		12,500		11,702
JPMorgan Chase Capital XX, Series T, 6.55% 2066		19,290		17,722
JPMorgan Chase Capital XVIII, Series R, 6.95% 2066		5,100		4,903
Sumitomo Mitsui Banking Corp. 5.625% (undated)4,5		44,400		42,233
Capital One Bank 4.875% 2008		20,000		19,888
Capital One Financial Corp. 6.25% 2013		20,000		20,202
HBOS PLC 5.375% (undated)4,5		36,610		35,713
HBOS PLC, Series B, 5.92% (undated)4,5		2,100		1,883
Bank of Scotland 7.00% (undated)4,5		1,800		1,806
Glen Meadow Pass Through Trust 6.505% 20674,5		38,500		36,593
Liberty Mutual Group Inc. 6.50% 20354		23,150		20,798
Liberty Mutual Group Inc. 7.50% 20364		3,600		3,556
Liberty Mutual Group Inc., Series A, 7.80% 20874		12,560		10,949
Lehman Brothers Holdings Inc., Series I, 5.50% 20105		2,000		1,994
Lehman Brothers Holdings Inc. 6.50% 2017		24,910		24,509
Lehman Brothers Holdings Inc. 6.875% 2037		1,000		972
Lehman Brothers Holdings Capital Trust VII 5.857% (undated)5		7,700		7,316
Kimco Realty Corp. 6.00% 2012		3,250		3,293
Kimco Realty Corp., Series C, 5.783% 2016		15,000		14,782
Kimco Realty Corp. 5.70% 2017		16,985		16,477
Santander Issuances, SA Unipersonal 5.72% 20164,5		17,200		17,300
Santander Issuances, SA Unipersonal 5.805% 20164,5		13,100		13,247
Abbey National PLC 6.70% (undated)5		3,635		3,672
Mangrove Bay Pass Through Trust 6.102% 20334,5		25,180		24,758
Twin Reefs Asset Trust (XLFA), Series B, 6.32% (undated)4,5		7,200		7,223
XL Capital Ltd., Series E, 6.50% (undated)5		2,340		2,092
BNP Paribas 7.195% (undated)4,5		33,900		33,633
Household Finance Corp. 4.125% 2009		15,000		14,588
HSBC Finance Corp. 4.625% 2010		14,000		13,700
Midland Bank 5.625% Eurodollar note (undated)5		5,000		4,250
UniCredito Italiano SpA 5.584% 20174,5		32,750		32,459
SLM Corp., Series A, 5.40% 2011		15,000		13,734
SLM Corp., Series A, 5.66% 20145		10,000		8,535
SLM Corp., Series A, 5.00% 2015		12,000		9,941
Kazkommerts International BV 8.50% 20134		2,500		2,488
Kazkommerts International BV 7.875% 20144		10,000		9,500
Kazkommerts International BV 8.00% 2015		14,500		13,485
Kazkommerts International BV, Series 4, 7.50% 2016		7,500		6,604
Lazard Group LLC 7.125% 2015		18,265		18,672
Lazard Group LLC 6.85% 20174		11,500		11,544
Merrill Lynch & Co., Inc., Series C, 5.59% 20125		6,000		5,885
Merrill Lynch & Co., Inc. 5.70% 2017		4,000		3,781
Merrill Lynch & Co., Inc. 6.11% 2037		21,000		19,018
Skandinaviska Enskilda Banken AB 4.958% (undated)4,5		17,290		16,047
Skandinaviska Enskilda Banken AB 5.471% (undated)4,5		900		843
Skandinaviska Enskilda Banken AB 7.50% (undated)4,5		10,405		10,762
Prudential Holdings, LLC, Series C, 8.695% 20234,6		22,250		27,412
CNA Financial Corp. 6.45% 2008		2,406		2,413
CNA Financial Corp. 6.60% 2008		7,130		7,218
CNA Financial Corp. 5.85% 2014		5,625		5,509
CNA Financial Corp. 7.25% 2023		11,625		11,847
Hospitality Properties Trust 7.00% 2008		1,210		1,220
Hospitality Properties Trust 6.75% 2013		23,315		24,125
Hospitality Properties Trust 6.30% 2016		1,500		1,515
Westfield Group 5.40% 20124		5,000		4,956
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 5.125% 20144		22,500		21,543
CIT Group Inc. 6.875% 2009		15,000		15,382
CIT Group Inc. 6.10% 20675		10,390		8,957
Development Bank of Singapore Ltd. 7.875% 20104		10,000		10,606
Development Bank of Singapore Ltd. 7.125% 20114		5,000		5,281
DBS Bank Ltd. 5.97% 20214,5		7,250		7,389
Standard Chartered Bank 5.563% Eurodollar note (undated)5		15,000		12,413
Standard Chartered PLC 6.409% (undated)4,5		9,100		8,319
Resona Bank, Ltd. 5.85% (undated)4,5		21,675		20,613
Countrywide Financial Corp., Series B, 5.78% 20125		8,500		8,369
Countrywide Financial Corp., Series B, 5.80% 2012		12,500		12,030
Downey Financial Corp. 6.50% 2014		20,000		19,711
BBVA International SA Unipersonal 5.919% (undated)4,5		22,300		19,551
State Street Capital Trust IV 6.355% 20775		20,000		18,966
Catlin Insurance Ltd. 7.249% (undated)4,5		20,145		18,529
ZFS Finance (USA) Trust V 6.50% 20374,5		8,500		7,974
ZFS Finance (USA) Trust I 6.15% 20654,5		4,000		3,978
ZFS Finance (USA) Trust II 6.45% 20654,5		6,500		6,123
Mizuho Capital Investment (USD) 1 Ltd. 6.686% noncumulative preferred (undated)4,5		18,850		17,936
AXA SA 6.379% (undated)4,5		4,815		4,127
AXA SA 6.463% (undated)4,5		15,000		13,403
Genworth Financial, Inc. 6.15% 20665		17,665		16,144
North Front Pass Through Trust 5.81% 20244,5		10,000		9,629
Nationwide Mutual Insurance Co. 7.875% 20334		5,000		5,849
Developers Diversified Realty Corp. 4.625% 2010		10,140		9,872
Developers Diversified Realty Corp. 5.50% 2015		5,000		4,830
Independence Community Bank Corp. 4.90% 2010		5,000		4,916
Independence Community Bank 3.75% 20145		10,000		9,710
Plum Creek Timberlands, LP 5.875% 2015		14,300		14,105
QBE Capital Funding II LP 6.797% (undated)4,5		14,765		13,810
American Express Co. 6.80% 20665		12,925		13,232
Banco Mercantil del Norte, SA 6.135% 20164		2,000		2,002
Banco Mercantil del Norte, SA 6.862% 20214		10,250		10,431
United Dominion Realty Trust, Inc., Series E, 4.50% 2008		10,000		9,948
United Dominion Realty Trust, Inc. 5.00% 2012		2,500		2,470
Citigroup Inc. 5.125% 2011		12,500		12,383
New York Life Global Funding 4.625% 20104		12,500		12,361
ORIX Corp. 5.48% 2011		12,000		11,950
Ambac Financial Group, Inc. 6.15% 20875		13,560		11,055
Federal Realty Investment Trust 6.125% 2007		10,000		10,010
Protective Life Insurance Co., Series 2005-C, 4.85% 2010		10,000		9,902
Popular North America, Inc., Series E, 3.875% 2008		10,000		9,789
United Overseas Bank Ltd. 5.375% 20194,5		10,000		9,649
Allstate Corp., Series B, 6.125% 20675		525		498
Allstate Corp., Series A, 6.50% 20675		9,775		9,050
Duke Realty LP 4.625% 2013		10,000		9,503
Credit Agricole SA 6.637% (undated)4,5		9,400		8,813
Goldman Sachs Group, Inc. 5.536% 20125		3,000		2,931
Goldman Sachs Group, Inc. 5.75% 2016		3,250		3,142
Goldman Sachs Group, Inc. 5.625% 2017		2,750		2,610
Canadian Imperial Bank of Commerce 5.563% Eurodollar note 20855		10,000		8,525
Bank of Nova Scotia 5.50% 20855		10,000		8,425
Monumental Global Funding III 5.56% 20144,5		8,000		8,079
Assurant, Inc. 5.625% 2014		7,500		7,263
Wells Fargo Bank, National Assn. 4.75% 2015		7,500		7,036
Lincoln National Corp. 7.00% 20665		5,940		5,978
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)4,5		5,000		5,113
LaBranche & Co Inc. 9.50% 2009		5,000		4,975
Silicon Valley Bank 5.70% 2012		5,000		4,922
Brandywine Operating Partnership, LP 5.75% 2012		4,190		4,200
Zions Bancorporation 5.50% 2015		4,000		3,858
Barclays Bank PLC 5.926% (undated)4,5		3,300		3,158
National Westminster Bank PLC 7.75% (undated)5		3,024		3,033
ProLogis 5.625% 2015		2,605		2,557
BOI Capital Funding (No. 2) LP 5.571% (undated)4,5		2,500		2,350
Financial Security Assurance Holdings Ltd. 6.40% 20664,5		2,500		2,202
Nationwide Financial Services, Inc. 6.75% 20675		530		463
				3,069,501


U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES — 2.16%
U.S. Treasury 4.375% 2008		45,000		44,877
U.S. Treasury 4.50% 2009		30,000		29,939
U.S. Treasury 4.50% 2011		200,165		199,493
U.S. Treasury 3.625% 2013		40,000		37,984
U.S. Treasury 4.25% 2014		469,500		455,964
U.S. Treasury 8.875% 2017		120,000		158,156
U.S. Treasury 7.875% 2021		55,000		70,546
U.S. Treasury 6.875% 2025		66,750		81,394
U.S. Treasury 5.25% 2029		50,000		51,742
U.S. Treasury 4.50% 2036		79,660		74,544
Freddie Mac 4.125% 2010		40,375		39,375
Freddie Mac 5.25% 2011		202,750		203,940
Freddie Mac 5.00% 2018		170,000		160,103
Fannie Mae 5.25% 2012		74,000		73,710
Fannie Mae 4.625% 2013		80,000		77,164
Fannie Mae 6.25% 2029		41,000		44,238
Fannie Mae 7.25% 2030		25,000		30,288
Federal Home Loan Bank 5.625% 2016		10,000		10,030
Federal Agricultural Mortgage Corp. 4.25% 2008		6,000		5,953
Federal Agricultural Mortgage Corp. 4.875% 20114		1,000		996
Federal Agricultural Mortgage Corp. 5.50% 20114		3,000		3,040
United States Agency for International Development, Republic of Egypt 4.45% 2015		10,000		9,492
CoBank ACB 5.96% 20224,5		4,000		4,008
				1,866,976


TELECOMMUNICATION SERVICES — 2.05%
Nextel Communications, Inc., Series E, 6.875% 2013		96,350		92,579
Nextel Communications, Inc. 5.95% 2014		8,000		7,430
Nextel Communications, Inc., Series D, 7.375% 2015		134,905		130,969
U S WEST Communications, Inc. 5.625% 2008		18,020		17,952
U S WEST Capital Funding, Inc. 6.375% 2008		7,100		7,082
Qwest Capital Funding, Inc. 7.90% 2010		32,510		32,266
Qwest Capital Funding, Inc. 7.25% 2011		38,270		37,457
Qwest Communications International Inc. 7.25% 2011		30,025		29,274
Qwest Corp. 8.875% 2012		12,400		13,098
Qwest Capital Funding, Inc. 7.625% 2021		7,225		6,322
U S WEST Capital Funding, Inc. 6.875% 2028		21,175		16,755
Qwest Capital Funding, Inc. 7.75% 2031		39,335		33,041
Dobson Cellular Systems, Inc., Series B, 8.375% 2011		26,000		27,723
Dobson Cellular Systems, Inc. 8.375% 2011		6,000		6,398
American Cellular Corp., Series B, 10.00% 2011		9,877		10,334
Dobson Communications Corp. 9.61% 20125		21,000		21,315
Dobson Cellular Systems, Inc. 9.875% 2012		3,850		4,134
Dobson Communications Corp. 8.875% 2013		78,365		83,753
American Cellular Corp., Term Loan B, 7.36% 20145,6		20,075		19,918
SBC Communications Inc. 4.125% 2009		17,465		17,045
SBC Communications Inc. 6.25% 2011		5,500		5,628
AT&T Corp. 7.30% 20115		14,789		15,804
AT&T Wireless Services, Inc. 8.125% 2012		34,935		38,520
SBC Communications Inc. 5.10% 2014		38,500		36,516
SBC Communications Inc. 5.625% 2016		20,000		19,356
AT&T Corp 8.00% 2031		5,000		5,978
AT&T Inc. 6.80% 2036		11,235		11,668
Centennial Cellular Corp. 10.75% 2008		1,194		1,197
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC 10.125% 2013		16,000		16,860
Centennial Communications Corp. 11.11% 20135		44,800		45,696
Centennial Communications Corp., Centennial Cellular Operating Co. LLC and
Centennial Puerto Rico Operations Corp. 8.125% 20145		60,275		59,974
Intelsat, Ltd. 6.50% 2013		18,375		13,620
Intelsat (Bermuda), Ltd. 8.25% 2013		39,135		39,135
Intelsat (Bermuda), Ltd. 0%/9.25% 20159		7,075		5,589
Intelsat (Bermuda), Ltd. 8.625% 2015		6,560		6,609
Intelsat Corp. 9.00% 2016		10,000		10,075
Intelsat (Bermuda), Ltd. 9.25% 2016		23,650		24,241
Intelsat (Bermuda), Ltd. 11.25% 2016		6,800		7,140
American Tower Corp. 7.125% 2012		60,225		59,322
American Tower Corp. 7.50% 2012		43,300		43,083
Verizon Global Funding Corp. 4.90% 2015		3,560		3,344
Verizon Communications Inc. 5.50% 2017		38,800		37,255
Verizon Global Funding Corp. 7.75% 2030		8,175		9,054
Verizon Communications Inc. 6.25% 2037		50,000		48,163
Triton PCS, Inc. 8.50% 20132		94,050		94,991
Windstream Corp. 8.125% 2013		7,500		7,622
Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp. 7.75% 2015		17,125		17,484
Windstream Corp. 8.625% 2016		63,950		65,069
Telecom Italia Capital SA, Series B, 5.25% 2013		5,000		4,761
Telecom Italia Capital SA 5.25% 2015		19,500		18,173
Telecom Italia Capital SA 7.20% 2036		31,350		31,922
Rural Cellular Corp. 8.25% 2012		4,000		4,120
Rural Cellular Corp. 11.106% 20125		11,590		11,764
Rural Cellular Corp. 8.36% 20134,5		36,300		36,663
Cricket Communications, Inc. 9.375% 2014		27,900		27,656
Cricket Communications, Inc. 9.375% 20144		19,000		18,834
Hawaiian Telcom Communications, Inc. 9.75% 2013		16,945		16,691
Hawaiian Telcom Communications, Inc. 10.86% 20135		15,920		15,681
Hawaiian Telcom Communications, Inc., Series B, 12.50% 2015		7,075		7,464
France Télécom 7.75% 20115		32,950		35,407
Rogers Wireless Inc. 7.25% 2012		11,825		12,495
Rogers Wireless Inc. 7.50% 2015		16,750		17,898
MetroPCS Wireless, Inc., Term Loan B, 7.625% 20135,6		13,942		13,472
MetroPCS Wireless, Inc. 9.25% 20144		14,300		14,085
Cincinnati Bell Inc. 7.25% 2013		26,275		26,012
Singapore Telecommunications Ltd. 6.375% 20114		12,000		12,437
Singapore Telecommunications Ltd. 6.375% 2011		4,825		5,001
Koninklijke KPN NV 8.00% 2010		8,400		9,008
Koninklijke KPN NV 8.375% 2030		2,000		2,238
Embarq Corp. 6.738% 2013		10,000		10,183
PCCW-HKT Capital No. 3 Ltd. 5.25% 20154		11,000		10,150
Level 3 Financing, Inc. 9.25% 2014		10,000		9,600
British Telecommunications PLC 8.625% 20105		2,000		2,194
British Telecommunications PLC 9.125% 20305		4,600		6,040
Deutsche Telekom International Finance BV 8.00% 20105		7,150		7,643
NTELOS Inc., Term Loan B, 7.57% 20115,6		5,866		5,690
Nordic Telephone Co. Holding ApS 8.875% 20164		4,000		3,980
Trilogy International Partners LLC, Term Loan B, 8.86% 20125,6		4,000		3,880
Millicom International Cellular SA 10.00% 2013		2,800		2,975
				1,767,955


INDUSTRIALS — 1.32%
Calair LLC and Calair Capital Corp. 8.125% 2008		8,500		8,553
Continental Airlines, Inc. 8.75% 2011		29,250		27,788
Continental Airlines, Inc., Series 2000-2, Class A-2, 7.487% 20126		11,700		12,154
Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 20176		6,315		6,222
Continental Airlines, Inc., Series 1998-1, Class B, 6.748% 20186		2,010		1,950
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20196		22,651		22,828
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20196		5,450		5,557
Continental Airlines, Inc., Series 2000-2, Class B, 8.307% 20196		878		887
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 20206		16,677		16,860
Continental Airlines, Inc., Series 1999-1, Class B, 6.795% 20206		887		852
Continental Airlines, Inc., Series 2003-ERJ3, Class A, 7.875% 20206		13,201		13,341
Continental Airlines, Inc., Series 1999-2, Class A-1, 7.256% 20216		761		788
Continental Airlines, Inc., Series 1999-2, Class B, 7.566% 20216		5,537		5,428
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20226		15,697		15,825
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20226		3,000		3,028
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20226		2,843		3,015
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 20226		7,191		7,753
Continental Airlines, Inc., Series 2000-1, Class B, 8.388% 20226		6,103		6,259
United Air Lines, Inc., Series 2001-1, Class A-2, 6.201% 20106		8,330		8,337
United Air Lines, Inc., Series 2000-2, Class B, 7.811% 20116,7		5,302		6,233
United Air Lines, Inc., Series 2000-2, Class A-2, 7.186% 20126		50,446		51,612
United Air Lines, Inc., Series 2001-1, Class A-1, 6.071% 20146		6,187		6,218
United Air Lines, Inc., Term Loan B, 7.375% 20145,6		18,830		17,700
United Air Lines, Inc., Series 2001-1, Class A-3, 6.602% 20156		3,261		3,287
United Air Lines, Inc., Series 1996-A2, 7.87% 20196,7		3,372		1,248
United Air Lines, Inc., Series 2007-1, Class B, 7.336% 20216		5,775		5,443
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 20126		1,600		1,536
American Airlines, Inc., Series 2001-1, Class A-2, 6.817% 20126		17,745		17,484
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 20126		3,037		3,060
American Airlines, Inc., Series 2001-2, Class B, 8.608% 20126		4,595		4,711
AMR Corp. 9.00% 2012		11,000		11,000
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20136		17,138		18,129
AMR Corp. 9.00% 2016		2,000		1,940
American Airlines, Inc., Series 2001-1, Class B, 7.377% 20196		16,285		14,825
AMR Corp. 10.00% 2021		3,000		2,895
American Airlines, Inc., Series 2001-1, Class A-1, 6.977% 20226		8,073		7,633
Delta Air Lines, Inc., Series 2000-1, Class A-2, 7.57% 20126		8,050		8,171
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20146		46,035		46,146
Delta Air Lines, Inc., Series 1992-A2, 9.20% 20146,7		4,312		4,458
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20246		21,516		21,960
Nielsen Finance LLC, Term Loan B, 7.61% 20135,6		2,025		1,947
Nielsen Finance LLC and Nielsen Finance Co. 10.00% 20144		41,625		42,249
Nielsen Finance LLC and Nielsen Finance Co. 0%/12.50% 20164,9		51,090		33,719
Northwest Airlines, Inc., Term Loan B, 8.86% 20135,6		7,319		7,246
Northwest Airlines, Inc., Term Loan A, 7.10% 20185,6		63,075		61,459
Allied Waste North America, Inc., Series B, 6.50% 2010		16,000		15,720
Allied Waste North America, Inc., Series B, 5.75% 2011		18,800		17,766
Allied Waste North America, Inc. 7.875% 2013		2,500		2,487
Allied Waste North America, Inc., Series B, 6.125% 2014		13,275		12,230
Allied Waste North America, Inc., Series B, 7.375% 2014		4,500		4,264
Allied Waste North America, Inc. 7.25% 2015		8,500		8,245
Allied Waste North America, Inc. 6.875% 2017		7,250		6,779
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 20114,6		30,574		31,609
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20134,6		11,231		11,815
Ashtead Group PLC 8.625% 20154		12,700		12,636
Ashtead Capital, Inc. 9.00% 20164		21,900		22,119
NTK Holdings Inc. 0%/10.75% 20149		12,500		7,687
THL Buildco, Inc. 8.50% 2014		27,325		23,636
Hutchison Whampoa International Ltd. 7.00% 20114		5,000		5,219
Hutchison Whampoa International Ltd. 6.50% 20134		25,000		25,714
General Electric Co. 5.00% 2013		5,000		4,887
General Electric Capital Corp., Series A, 5.736% 20265		25,000		25,014
USG Corp. 6.30% 2016		28,500		28,211
American Standard Inc. 7.375% 2008		5,935		5,975
American Standard Inc. 7.625% 2010		16,501		17,309
ARAMARK Corp., Term Loan B, Letter of Credit, 5.35% 20145,6		554		523
ARAMARK Corp., Term Loan B, 7.36% 20145,6		7,875		7,434
ARAMARK Corp. 8.50% 20154		14,700		13,928
ARAMARK Corp. 8.856% 20154,5		1,425		1,332
Waste Management, Inc. 6.50% 2008		5,000		5,059
Waste Management, Inc. 5.00% 2014		7,000		6,648
WMX Technologies, Inc. 7.10% 2026		10,125		10,600
Tyco International Group SA 6.125% 2008		8,000		8,080
Tyco International Group SA 7.00% 2028		4,345		4,692
Tyco International Group SA 6.875% 2029		8,310		9,017
Hawker Beechcraft 8.50% 20154		5,300		5,313
Hawker Beechcraft 8.875% 20154,8		11,530		11,444
Hawker Beechcraft 9.75% 20174		4,105		4,074
Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012		11,100		11,849
H-Lines Finance Holding Corp. 0%/11.00% 20139		8,448		8,427
John Deere Capital Corp., Series D, 4.375% 2008		9,000		8,942
John Deere Capital Corp. 4.875% 2009		4,000		3,977
John Deere Capital Corp. 5.40% 2011		2,000		2,003
John Deere Capital Corp., Series D, 5.50% 2017		3,000		2,944
ACIH, Inc. 0%/11.50% 20124,9		6,125		4,441
Atrium Companies, Inc., Term Loan B, 8.61% 20125,6		14,146		13,273
Accuride Corp. 8.50% 2015		17,200		16,426
Goodman Global Holdings, Inc., Series B, 7.875% 2012		15,550		15,628
Southwest Airlines Co. 5.25% 2014		15,000		14,024
Atlas Copco AB 5.60% 20174		11,405		11,095
DRS Technologies, Inc. 6.875% 2013		275		265
DRS Technologies, Inc. 6.625% 2016		10,250		9,789
DRS Technologies, Inc. 7.625% 2018		200		193
DynCorp International and DIV Capital Corp., Series A, 9.50% 2013		9,230		9,461
Caterpillar Financial Services Corp. 2.70% 2008		3,000		2,927
Caterpillar Financial Services Corp., Series F, 5.43% 20085		400		400
Caterpillar Financial Services Corp., Series F, 5.50% 2016		5,000		4,972
Esco Corp. 8.625% 20134		4,000		3,940
Esco Corp. 9.235% 20134,5		3,725		3,604
RSC Equipment Rental, Second Lien Term Loan B, 8.86% 20135,6		7,355		7,060
Esterline Technologies Corp. 6.625% 20174		7,500		7,031
TransDigm Group Inc. 7.75% 20144		6,865		6,762
RBS Global, Inc. and Rexnord LLC 9.50% 2014		5,500		5,335
RBS Global, Inc. and Rexnord LLC 8.875% 2016		575		535
Deluxe Corp. 7.375% 20154		5,000		4,900
Hertz Corp. 10.50% 2016		4,500		4,680
Terex Corp. 7.375% 2014		3,500		3,448
H&E Equipment Services, Inc. 8.375% 2016		3,025		3,101
Mobile Storage Group, Inc. 9.75% 20144		1,650		1,741
Alion Science and Technology Corp. 10.25% 2015		1,740		1,679
Williams Scotsman, Inc. 8.50% 2015		500		540
				1,142,592


ENERGY — 1.17%
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20094,6		25,946		25,420
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20096		499		489
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 20144,6		13,329		14,773
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 20146		4,325		4,794
Ras Laffan Liquefied Natural Gas II 5.298% 20204,6		49,350		47,129
Ras Laffan Liquefied Natural Gas III 5.838% 20274,6		55,650		52,940
Williams Companies, Inc. and Credit Linked Certificate Trust 6.75% 20094		8,000		8,000
Williams Companies, Inc. 6.375% 20104		4,700		4,630
Williams Companies, Inc. 7.36% 20104,5		8,000		8,050
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011		10,000		10,375
Williams Companies, Inc. 7.125% 2011		38,750		38,944
Williams Companies, Inc. 8.125% 2012		14,810		15,402
Williams Partners L.P. and Williams Partners Finance Corp. 7.25% 2017		12,325		12,017
Williams Companies, Inc. 7.875% 2021		10,000		10,450
Williams Companies, Inc. 8.75% 2032		12,500		13,875
Southern Natural Gas Co. 5.90% 20174		11,740		11,401
El Paso Natural Gas Co. 5.95% 20174		7,500		7,309
Tennessee Gas Pipeline Co. 7.00% 2028		71,500		72,431
Newfield Exploration Co., Series B, 7.45% 2007		6,000		6,015
Newfield Exploration Co. 6.625% 2014		32,075		30,792
Newfield Exploration Co. 6.625% 2016		44,400		42,180
TransCanada PipeLines Ltd. 6.35% 20675		74,770		70,107
Pogo Producing Co. 7.875% 2013		31,250		31,797
Pogo Producing Co. 6.625% 2015		2,400		2,418
Pogo Producing Co. 6.875% 2017		33,650		33,986
Enterprise Products Operating LP, Series B, 5.00% 2015		7,000		6,511
Enterprise Products Operating LP 8.375% 20665		34,135		34,881
Enterprise Products Operating LP 7.034% 20685		21,365		19,569
Gaz Capital SA 6.51% 20224		42,310		40,567
Premcor Refining Group Inc. 6.125% 2011		14,500		14,708
Premcor Refining Group Inc. 6.75% 2011		11,150		11,539
Premcor Refining Group Inc. 9.50% 2013		12,275		12,996
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 20144,6		28,500		27,930
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 20146		9,000		8,820
Drummond Co., Inc. 7.375% 20164		37,705		35,254
Forest Oil Corp. 7.25% 20194		33,600		31,500
Devon Financing Corp., ULC 6.875% 2011		29,500		31,059
Kinder Morgan Inc., Term Loan B, 6.82% 20135,6		21,000		20,150
Sunoco, Inc. 4.875% 2014		10,060		9,541
Sunoco, Inc. 5.75% 2017		10,000		9,755
Qatar Petroleum 5.579% 20114,6		17,778		17,881
Enbridge Inc. 5.60% 2017		17,200		16,579
Canadian Natural Resources Ltd. 5.70% 2017		14,600		14,164
XTO Energy Inc. 5.65% 2016		10,000		9,769
Kinder Morgan Energy Partners LP 5.125% 2014		10,325		9,747
Petroplus Finance Ltd. 6.75% 20144		3,750		3,441
Petroplus Finance Ltd. 7.00% 20174		3,750		3,441
Massey Energy Co. 6.875% 2013		7,500		6,647
Pemex Project Funding Master Trust 7.875% 2009		1,600		1,651
Pemex Project Funding Master Trust 7.375% 2014		3,500		3,731
Pemex Project Funding Master Trust 8.625% 2022		750		896
Petrobas International Finance Co. 6.125% 2016		6,000		5,835
Sabine Pass LNG, L.P. 7.25% 20134		6,000		5,745
Energy Transfer Partners, LP 5.95% 2015		5,200		5,059
PETRONAS Capital Ltd. 7.00% 20124		4,000		4,211
Peabody Energy Corp., Series B, 6.875% 2013		4,300		4,203
Delek & Avner-Yam Tethys Ltd. 5.326% 20134,6		3,507		3,444
TNK-BP Finance SA 7.50% 20164		1,500		1,509
OXYMAR 7.50% 20164,6		670		668
				1,009,125


HEALTH CARE — 0.94%
HCA Inc., Term Loan B, 7.61% 20135,6		163,280		156,272
HCA Inc. 9.125% 20144		7,790		7,712
HCA Inc. 9.25% 20164		19,770		19,671
HCA Inc. 9.625% 20164,8		13,520		13,452
HealthSouth Corp. 11.409% 20145		41,025		41,640
HealthSouth Corp. 10.75% 2016		85,700		86,986
Tenet Healthcare Corp. 6.375% 2011		10,810		9,243
Tenet Healthcare Corp. 9.875% 2014		75,295		67,389
Tenet Healthcare Corp. 9.25% 2015		31,420		27,021
VWR International, Inc. 10.25% 20154,8		73,210		69,000
Warner Chilcott Corp. 8.75% 2015		51,369		50,342
PTS Acquisition Corp. 9.50% 20154,8		48,205		43,385
Cardinal Health, Inc. 4.00% 2015		25,000		21,948
Cardinal Health, Inc. 5.80% 20164		10,000		9,849
AMR HoldCo, Inc. and EmCare HoldCo, Inc. 10.00% 2015		28,340		29,899
Elan Finance PLC and Elan Finance Corp. 8.875% 2013		19,350		19,157
Elan Finance PLC and Elan Finance Corp. 9.485% 20135		10,095		9,843
Team Finance LLC and Health Finance Corp. 11.25% 2013		26,600		28,329
Hospira, Inc. 5.84% 20105		10,000		10,032
Hospira, Inc. 5.55% 2012		5,295		5,304
Hospira, Inc. 6.05% 2017		8,500		8,380
UnitedHealth Group Inc. 6.00% 20174		15,000		15,060
Community Health Systems Inc. 8.875% 20154		11,275		11,007
Humana Inc. 6.45% 2016		10,000		10,123
Boston Scientific Corp. 6.40% 2016		3,435		3,041
Boston Scientific Corp. 7.00% 2035		8,040		6,736
Amgen Inc. 4.00% 2009		9,125		8,857
Viant Holdings Inc. 10.125% 20174		8,685		8,207
Surgical Care Affiliates, Inc. 8.875% 20154,8		4,250		4,059
Surgical Care Affiliates, Inc. 10.00% 20174		2,500		2,388
Aetna Inc. 7.875% 2011		4,500		4,861
Accellent Inc. 10.50% 2013		3,105		2,996
Universal Hospital Services, Inc. 8.50% 20154,8		460		417
Universal Hospital Services, Inc. 8.759% 20154,5		1,040		975
				813,581


INFORMATION TECHNOLOGY — 0.90%
Electronic Data Systems Corp. 7.125% 2009		15,515		15,990
Electronic Data Systems Corp., Series B, 6.50% 20135		127,650		125,206
Electronic Data Systems Corp. 7.45% 2029		10,555		10,605
NXP BV and NXP Funding LLC 8.11% 20135		15,700		14,699
NXP BV and NXP Funding LLC 7.875% 2014		46,850		43,512
NXP BV and NXP Funding LLC 9.50% 2015		99,375		84,966
Celestica Inc. 7.875% 2011		63,905		60,230
Celestica Inc. 7.625% 2013		36,945		33,435
Sanmina-SCI Corp. 8.11% 20104,5		3,500		3,465
Sanmina-SCI Corp. 6.75% 2013		11,000		9,735
Sanmina-SCI Corp. 8.11% 20144,5		15,500		15,345
Sanmina-SCI Corp. 8.125% 2016		70,650		62,878
SunGard Data Systems Inc. 3.75% 2009		11,050		10,580
SunGard Data Systems Inc. 9.125% 2013		48,900		49,389
Jabil Circuit, Inc. 5.875% 2010		54,140		53,915
Western Union Co. 5.51% 20085		22,000		22,002
Western Union Co. 5.40% 2011		5,000		4,929
Western Union Co. 5.93% 2016		24,000		23,558
Freescale Semiconductor, Inc., Term Loan B, 7.11% 20135,6		15,451		14,338
Firestone Acquisition Corp. 8.875% 20144		4,555		4,179
Firestone Acquisition Corp. 10.125% 20164		9,825		8,695
Xerox Corp. 7.125% 2010		21,000		21,852
Sensata Technologies BV, Term Loan B, 7.11% 20135,6		9,776		9,452
Sensata Technologies BV 8.00% 20145		11,000		10,175
Hughes Communications, Inc. 9.50% 2014		15,750		15,750
National Semiconductor Corp. 6.15% 2012		15,000		15,077
Serena Software, Inc. 10.375% 2016		9,635		9,876
Cisco Systems, Inc. 5.25% 2011		9,500		9,460
Nortel Networks Ltd. 9.61% 20114,5		6,500		6,614
MagnaChip Semiconductor SA and MagnaChip Semiconductor Finance Co. 8.00% 2014		7,505		4,578
				774,485


MATERIALS — 0.84%
Abitibi-Consolidated Co. of Canada 5.25% 2008		25,650		24,816
Abitibi-Consolidated Finance LP 7.875% 2009		6,136		5,875
Abitibi-Consolidated Inc. 8.55% 2010		12,693		11,804
Abitibi-Consolidated Inc. 7.75% 2011		6,025		5,332
Abitibi-Consolidated Co. of Canada 8.86% 20115		5,225		4,676
Abitibi-Consolidated Co. of Canada 6.00% 2013		3,960		3,148
Abitibi-Consolidated Co. of Canada 8.375% 2015		17,585		14,420
Owens-Illinois, Inc. 7.35% 2008		11,400		11,429
Owens-Brockway Glass Container Inc. 8.875% 2009		18,436		18,759
Owens-Illinois, Inc. 7.50% 2010		750		743
Owens-Brockway Glass Container Inc. 7.75% 2011		13,500		13,770
Owens-Brockway Glass Container Inc. 8.75% 2012		6,000		6,255
Owens-Brockway Glass Container Inc. 8.25% 2013		14,000		14,140
Jefferson Smurfit Corp. (U.S.) 8.25% 2012		3,700		3,580
Stone Container Corp. 8.375% 2012		19,558		18,336
Jefferson Smurfit Corp. (U.S.) 7.50% 2013		18,275		17,224
Smurfit-Stone Container Enterprises, Inc. 8.00% 2017		19,965		18,767
Domtar Inc. 5.375% 2013		13,350		11,481
Domtar Corp., Term Loan B, 6.695% 20145,6		2,025		1,960
Domtar Inc. 7.125% 2015		42,750		40,078
Freeport-McMoRan Copper & Gold Inc. 8.25% 2015		26,110		27,416
Freeport-McMoRan Copper & Gold Inc. 8.564% 20155		6,000		6,195
Freeport-McMoRan Copper & Gold Inc. 8.375% 2017		17,735		18,666
Georgia Gulf Corp. 9.50% 2014		42,230		40,330
Georgia Gulf Corp. 10.75% 2016		4,535		4,263
C5 Capital (SPV) Ltd. 6.196% (undated)4,5		3,000		2,955
C8 Capital (SPV) Ltd. 6.64% (undated)4,5		20,000		19,099
C10 Capital (SPV) Ltd. 6.722% (undated)4,5		17,895		16,907
Boise Cascade, LLC and Boise Cascade Finance Corp. 7.125% 2014		41,710		38,582
Nalco Co. 7.75% 2011		20,010		19,710
Nalco Co. 8.875% 2013		3,500		3,465
Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. 0%/9.00% 20149		7,200		6,300
Stora Enso Oyj 6.404% 20164		14,500		14,503
Stora Enso Oyj 7.25% 20364		13,000		12,842
Georgia-Pacific Corp. 8.125% 2011		9,825		9,948
Georgia-Pacific Corp. 9.50% 2011		5,000		5,150
Georgia-Pacific Corp., First Lien Term Loan B, 7.11% 20125,6		11,310		10,749
Equistar Chemicals, LP 10.125% 2008		7,321		7,614
Equistar Chemicals, LP and Equistar Funding Corp. 8.75% 2009		625		644
Lyondell Chemical Co. 10.50% 2013		13,835		15,011
Graphic Packaging International, Inc. 8.50% 2011		20,750		20,698
Norske Skogindustrier ASA 7.625% 20114		19,640		20,149
Algoma Steel Inc. 9.875% 20154		19,750		18,763
NewPage Corp., Series A, 11.606% 20125		10,000		10,750
NewPage Corp., Series A, 12.00% 2013		5,000		5,231
FMG Finance Pty Ltd. 10.625% 20164		11,500		13,225
Momentive Performance Materials Inc. 9.75% 20144		12,000		11,580
Allegheny Technologies, Inc. 8.375% 2011		10,500		10,920
AEP Industries Inc. 7.875% 2013		10,500		10,448
AMH Holdings, Inc. 0%/11.25% 20149		16,795		10,413
Ainsworth Lumber Co. Ltd. 7.25% 2012		4,150		3,019
Ainsworth Lumber Co. Ltd. 6.75% 2014		10,000		6,825
Ainsworth Lumber Co. Ltd. 6.75% 2014		650		445
Metals USA Holdings Corp. 11.36% 20124,5,8		10,675		9,607
Building Materials Corp. of America 7.75% 2014		8,400		7,518
UPM-Kymmene Corp. 5.625% 20144		7,500		7,185
JSG Funding PLC 7.75% 2015		6,500		6,240
Weyerhaeuser Co. 5.95% 2008		5,331		5,367
Ispat Inland ULC 9.75% 2014		3,207		3,498
Rockwood Specialties Group, Inc. 7.50% 2014		3,240		3,151
Berry Plastics Holding Corp. 10.25% 2016		2,950		2,802
Packaging Corp. of America 4.375% 20082		2,500		2,467
Arbermarle Corp. 5.10% 2015		2,570		2,430
Plastipak Holdings, Inc. 8.50% 20154		2,275		2,309
Airgas, Inc. 6.25% 2014		1,750		1,662
Mosaic Co. 7.375% 20144		1,600		1,600
Corporación Nacional del Cobre de Chile 6.375% 20124		1,500		1,536
Neenah Paper, Inc. 7.375% 2014		332		314
				727,094


UTILITIES — 0.84%
AES Corp. 9.50% 2009		49,815		51,060
AES Corp. 9.375% 2010		17,502		18,027
AES Corp. 8.75% 20134		62,100		65,671
AES Red Oak, LLC, Series A, 8.54% 20196		32,415		33,792
AES Red Oak, LLC, Series B, 9.20% 20296		7,000		7,910
Edison Mission Energy 7.50% 2013		32,525		31,549
Edison Mission Energy 7.75% 2016		35,300		33,976
Midwest Generation, LLC, Series B, 8.56% 20166		11,625		12,006
Edison Mission Energy 7.00% 20174		34,875		31,649
Edison Mission Energy 7.20% 20194		39,450		35,406
Homer City Funding LLC 8.734% 20266		12,659		13,861
Edison Mission Energy 7.625% 20274		5,500		4,826
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2006-E, 5.55% 2037		6,500		6,013
NRG Energy, Inc. 7.25% 2014		24,525		23,728
NRG Energy, Inc. 7.375% 2016		76,625		74,135
Israel Electric Corp. Ltd. 7.95% 20114		5,000		5,330
Israel Electric Corp. Ltd. 7.70% 20184		22,500		24,872
Israel Electric Corp. Ltd. 8.10% 20964		4,905		5,539
Nevada Power Co., General and Refunding Mortgage Bonds, Series A, 8.25% 2011		6,000		6,521
Nevada Power Co., General and Refunding Mortgage Notes, Series I, 6.50% 2012		4,250		4,348
Sierra Pacific Resources 8.625% 2014		2,725		2,865
Nevada Power Co., General and Refunding Mortgage Notes, Series L, 5.875% 2015		5,675		5,547
Nevada Power Co., General and Refunding Mortgage Notes, Series M, 5.95% 2016		13,700		13,369
Sierra Pacific Resources 6.75% 2017		3,000		2,811
PSEG Energy Holdings Inc. 8.625% 2008		3,593		3,651
PSEG Power LLC 7.75% 2011		13,806		14,800
PSEG Power LLC 5.00% 2014		10,000		9,457
MidAmerican Energy Co. 4.65% 2014		3,200		3,014
MidAmerican Energy Co. 5.95% 2017		7,000		7,052
MidAmerican Energy Holdings Co. 6.125% 2036		11,650		11,170
Cilcorp Inc. 8.70% 2009		9,000		9,223
Union Electric Co. 5.40% 2016		8,000		7,685
Cilcorp Inc. 9.375% 2029		3,000		3,327
Abu Dhabi National Energy Co. PJSC (TAQA) 5.875% 20164		11,000		10,865
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 20364		7,750		7,658
Dominion Resources, Inc., Series 2002-D, 5.125% 2009		8,500		8,460
Virginia Electric and Power Co., Series 2003-A, 4.75% 2013		6,000		5,731
Virginia Electric and Power Co., Series A, 6.00% 2037		2,250		2,159
Exelon Corp. 6.75% 2011		1,000		1,033
Exelon Generation Co., LLC 6.95% 2011		1,300		1,353
Commonwealth Edison Co., First Mortgage Bonds, Series 104, 5.95% 2016		5,000		4,956
Commonwealth Edison Co., First Mortgage Bonds, Series 103, 5.90% 2036		3,850		3,565
PECO Energy Co., First and Refunding Mortgage Bonds, 5.70% 2037		5,000		4,759
Appalachian Power Co., Series G, 3.60% 2008		6,770		6,675
Appalachian Power Co., Series M, 5.55% 2011		3,000		2,995
Ohio Power Co., Series K, 6.00% 2016		5,000		5,034
Alabama Power Co., Series X, 3.125% 2008		3,750		3,687
Alabama Power Co., Series R, 4.70% 2010		1,250		1,227
Alabama Power Co., Series Q, 5.50% 2017		5,000		4,904
Mirant Americas Generation, Inc. 8.30% 2011		9,000		8,865
Constellation Energy Group, Inc. 6.125% 2009		8,000		8,098
AES Panamá, SA 6.35% 20164		8,000		7,721
Intergen Power 9.00% 20174		7,000		6,930
Carolina Power & Light Co. d/b/a Progress Energy Carolinas, Inc. 5.25% 2015		6,000		5,834
NiSource Finance Corp. 7.875% 2010		5,000		5,337
Scottish Power PLC 5.375% 2015		5,000		4,925
Duke Energy Corp., First and Refunding Mortgage Bonds, 5.30% 2015		5,000		4,839
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034		4,000		3,896
Enersis SA 7.375% 2014		3,500		3,628
Centerpoint Energy, Inc., Series B, 6.85% 2015		3,000		3,148
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 20184,6		2,657		2,644
FPL Energy National Wind Portfolio, LLC 6.125% 20194,6		1,928		1,907
				727,023


ASSET-BACKED OBLIGATIONS6— 0.57%
Drive Auto Receivables Trust, Series 2005-1, Class A-4, MBIA insured, 4.01% 2012		9,147		9,058
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 20124		8,900		8,821
Drive Auto Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09% 20134		20,000		19,994
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 20144		20,000		20,103
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-2, FGIC insured, 6.054% 20375		12,500		12,535
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-3, FGIC insured, 6.193% 20375		18,000		18,096
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-6, FGIC insured, 6.249% 20375		7,500		7,494
Residential Funding Mortgage Securities II, Inc., Series 2006-HSA2, Class A-I-5, FGIC insured, 5.63% 20365		10,000		9,702
Residential Funding Mortgage Securities II, Inc., Series 2007-HSA2, Class A-1F, MBIA insured, 8.47% 20375		21,590		21,159
ARG Funding Corp., Series 2005-1, Class A-1, MBIA insured, 4.02% 20094		10,000		9,930
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 20114		20,000		19,849
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 20124		7,500		7,528
CPS Auto Receivables Trust, Series 2006-C, Class A-4, XLCA insured, 5.14% 20134		10,000		10,000
CPS Auto Receivables Trust, Series 2007-B, Class A-4, FSA insured, 5.60% 20144		10,000		10,134
Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 20257		12,449		3,735
Green Tree Financial Corp., Series 1995-2, Class B-2, 8.80% 20267		9,004		4,682
Green Tree Financial Corp., Series 1996-2, Class B-2, 7.90% 20277		8,186		1
Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 20297		6,004		1
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 2029		17,267		13,750
Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 20307		3,999		40
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011		11,000		10,997
Triad Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC insured, 4.22% 2012		10,000		9,868
Prestige Auto Receivables Trust, Series 2005-1A, Class A-2, FSA insured, 4.37% 20124		8,216		8,154
Prestige Auto Receivables Trust, Series 2006-1A, Class A-2, FSA insured, 5.25% 20134		10,000		10,008
Advanta Business Card Master Trust, Series 2005-A2, Class A-2, 5.45% 20135		18,000		18,048
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 2012		10,000		9,806
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014		8,040		7,988
Drivetime Auto Owner Trust, Series 2005-C, Class A-3, MBIA insured, 5.006% 20114		6,709		6,696
Drivetime Auto Owner Trust, Series 2006-A, Class A-3, XLCA insured, 5.501% 20114,5		10,000		10,039
Santander Drive Auto Receivables Trust, Series 2007-1, Class A-3, FGIC insured, 5.05% 2011		15,000		14,984
Susquehanna Auto Lease Trust, Series 2007-1, Class A-3, 5.25% 20104		14,250		14,270
J.P. Morgan Mortgage Acquisition Corp., Series 2005-FRE1, Class A-F-4, 5.488% 20355		11,978		11,630
Long Beach Acceptance Auto Receivables Trust, Series 2006-B, Class A-4, FSA insured, 5.18% 2013		11,500		11,509
CWABS, Inc., Series 2005-11, Class AF-2, 4.657% 2036		11,330		11,241
BMW Vehicle Owner Trust, Series 2006-A, Class A-4, 5.07% 2011		11,044		11,041
UPFC Auto Receivables Trust, Series 2004-A, Class A-3, AMBAC insured, 3.27% 2010		1,432		1,418
UPFC Auto Receivables Trust, Series 2005-B, Class A-3, XLCA insured, 4.98% 2011		9,320		9,301
Capital One Multi-asset Execution Trust, Series 2006-10, Class A, 5.15% 2014		10,425		10,397
Home Equity Asset Trust, Series 2004-7, Class M-1, 5.94% 20355		10,000		10,025
Providian Master Note Trust, Series 2005-A1, Class A, 5.38% 20124,5		10,000		10,005
CWHEQ Home Equity Loan Trust, Series 2006-S2, Class A-5, FGIC insured, 5.753% 2027		10,000		9,869
AEP Texas Central Transitioning Funding II LLC, Senior Secured Transition Bonds, Series A, Class A-3, 5.09% 2015		8,265		8,070
Argent Securities Trust, Series 2006-M2, Class A-2D, 5.56% 20365		8,000		7,911
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024		7,706		7,876
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-A, MBIA insured, 5.55% 2014		7,000		7,061
Ameriquest Mortgage Securities Inc., Series 2003-12, Class M-1, 6.07% 20345		7,000		7,050
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-2, Class A-6, AMBAC insured, 5.08% 20114		6,375		6,337
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031		5,869		5,851
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 5.92% 20335		191		191
Bear Stearns Asset-backed Securities I Trust, Series 2005-CL1, Class A-1, 5.82% 20345		5,897		5,820
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 5.92% 20135		5,000		5,069
First USA Credit Card Master Trust, Series 1998-6, Class C, 6.16% 20114		2,000		2,009
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1, Class A, MBIA insured, 6.68% 20164		691		694
Specialty Underwriting and Residential Finance Trust, Series 2004-BC4, Class A-2B, 5.63% 20355		32		32
				487,877


CONSUMER STAPLES — 0.44%
Tyson Foods, Inc. 6.85% 20165		60,100		61,278
SUPERVALU INC., Term Loan B, 6.86% 20125,6		20,492		19,878
SUPERVALU INC. 7.50% 2012		5,090		5,104
Albertson’s, Inc. 7.25% 2013		21,355		20,756
Albertson’s, Inc. 8.00% 2031		12,650		11,797
Yankee Candle Co., Inc., Series B, 8.50% 2015		28,150		26,039
Yankee Candle Co., Inc., Series B, 9.75% 2017		23,445		20,983
Stater Bros. Holdings Inc. 8.125% 2012		30,625		29,706
Stater Bros. Holdings Inc. 7.75% 20154		13,500		12,623
Spectrum Brands, Inc., Term Loan B, Letter of Credit, 5.17% 20135,6		850		814
Spectrum Brands, Inc., Term Loan B2, 9.32% 20135,6		3,125		2,969
Spectrum Brands, Inc., Term Loan B, 9.357% 20135,6		17,675		16,924
Spectrum Brands, Inc. 7.375% 2015		27,850		17,963
Dole Food Co., Inc. 8.625% 2009		12,850		12,464
Dole Food Co., Inc. 7.25% 2010		8,825		8,141
Dole Food Co., Inc. 8.875% 2011		11,450		10,706
Rite Aid Corp. 7.50% 2015		2,500		2,350
Rite Aid Corp. 8.625% 2015		3,000		2,595
Rite Aid Corp. 7.50% 2017		2,500		2,306
Rite Aid Corp. 7.70% 2027		9,000		6,795
Rite Aid Corp. 6.875% 2028		2,500		1,787
Duane Reade Inc. 9.75% 2011		14,120		13,414
Ahold Finance U.S.A., Inc. 6.25% 2009		12,015		12,250
Vitamin Shoppe Industries Inc. 12.86% 20125		11,650		11,766
CVS Corp. 5.298% 20274,6		4,397		4,160
CVS Corp. 6.036% 20284,6		6,962		6,698
Playtex Products, Inc. 8.00% 2011		10,000		10,375
Delhaize Group 6.50% 20174		3,850		3,741
Delhaize America, Inc. 9.00% 2031		5,000		5,548
Smithfield Foods, Inc. 7.625% 2008		1,975		1,990
Smithfield Foods, Inc., Series B, 8.00% 2009		875		897
Smithfield Foods, Inc., Series B, 7.00% 2011		750		731
Smithfield Foods, Inc., Series B, 7.75% 2013		2,800		2,772
Smithfield Foods, Inc. 7.75% 2017		1,775		1,722
Elizabeth Arden, Inc. 7.75% 2014		3,675		3,556
Constellation Brands, Inc. 7.25% 20174		3,000		2,820
Winn-Dixie Pass Through Trust, Series 1999-1, Class A-1, 7.803% 20171,4,6,7		432		380
				376,798


NON-U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES — 0.14%
Russian Federation 8.25% 20106		16,834		17,522
Russian Federation 8.25% 20104,6		6,667		6,940
Russian Federation 7.50% 20306		24,646		27,064
United Mexican States Government Global 8.375% 2011		3,000		3,252
United Mexican States Government Global 7.50% 2012		5,470		5,867
United Mexican States Government Global 6.375% 2013		14,765		15,289
United Mexican States Government Global 11.375% 2016		9,118		12,569
United Mexican States Government Global 6.75% 2034		7,740		8,146
State of Qatar 9.75% 2030		4,000		5,710
El Salvador (Republic of) 7.75% 2023		3,000		3,375
El Salvador (Republic of) 7.75% 20234		1,250		1,406
El Salvador (Republic of) 7.65% 20354		750		834
Banque Centrale de Tunisie 7.375% 2012		3,500		3,756
Bulgaria (Republic of) 8.25% 2015		3,000		3,482
Aries Vermögensverwaltungs GmbH, Series C, 9.60% 2014		2,500		3,087
Corporación Andina de Fomento 5.75% 2017		2,000		1,986
				120,285


MUNICIPALS — 0.02%
State of California, Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds, Series 2003-A-1, 6.25% 2033 (prerefunded 2013)		8,500		9,292
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025		4,048		4,063
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, Class A, 6.36% 2025		3,388		3,387
				16,742


Total bonds & notes (cost: $20,662,718,000)				20,383,455


Short-term securities — 8.79%

Federal Home Loan Bank 5.113%–5.137% due 8/10–10/24/2007		654,955		650,548
Freddie Mac 5.11%–5.145% due 8/13–10/22/2007		539,000		534,334
Procter & Gamble International Funding S.C.A. 5.20%–5.26% due 8/1–10/26/20074,10		483,632		480,226
JPMorgan Chase & Co. 5.21%–5.23% due 8/17–10/22/2007		252,000		250,506
Park Avenue Receivables Co., LLC 5.23%–5.24% due 8/28–10/15/20074		176,791		175,871
Jupiter Securitization Co., LLC 5.28% due 8/2/20074		51,327		51,312
Variable Funding Capital Corp. 5.235%–5.27% due 8/2–10/10/20074,10		474,150		471,470
Bank of America Corp. 5.205%–5.245% due 8/2–11/13/2007		449,100		445,455
Ranger Funding Co. LLC 5.26% due 9/10/20074,10		22,600		22,466
Wal-Mart Stores Inc. 5.18%–5.19% due 8/7–10/23/20074		460,200		456,984
Clipper Receivables Co., LLC 5.23%–5.26% due 8/1–10/11/20074		383,100		380,257
State Street Corp. 5.22% due 8/2/2007		50,000		49,986
International Lease Finance Corp. 5.19%–5.21% due 8/10–10/22/2007		285,996		284,225
American General Finance Corp. 5.21% due 9/11/2007		50,000		49,697
AIG Funding, Inc. 5.205% due 8/16/2007		30,000		29,933
IBM Corp. 5.19%–5.23% due 8/3–8/10/20074		199,400		199,222
IBM Capital Inc. 5.22%–5.23% due 9/18/20074		90,709		90,068
CAFCO, LLC 5.225%–5.245% due 8/9–9/14/20074		150,000		149,314
Ciesco LLC 5.24%–5.25% due 9/6–10/4/20074,10		139,100		137,970
HSBC Finance Corp. 5.22%–5.24% due 8/20–9/12/200710		275,000		273,561
Coca-Cola Co. 5.15%–5.22% due 8/22–10/30/20074		244,700		242,395
General Electric Capital Services, Inc. 5.21%–5.22% due 8/1–9/21/2007		239,500		238,562
General Electric Capital Corp. 5.34% due 8/1/2007		400		400
Johnson & Johnson 5.18%–5.20% due 8/23–10/26/20074		209,600		208,097
Paccar Financial Corp. 5.20%–5.22% due 8/2–10/17/2007		179,850		178,975
Honeywell International Inc. 5.18%–5.21% due 8/14–9/11/20074,10		150,000		149,396
Hewlett-Packard Co. 5.25%–5.26% due 8/1–9/20/20074		150,000		149,282
Private Export Funding Corp. 5.19%–5.22% due 8/21–10/10/20074		137,415		136,487
CIT Group, Inc. 5.24%–5.27% due 8/22–9/10/20074,10		136,700		136,130
Union Bank of California, N.A. 5.30% due 10/17–10/23/2007		100,000		99,996
Fannie Mae 5.09%–5.12% due 8/8–9/7/200710		96,350		96,031
E.I. duPont de Nemours and Co. 5.22% due 9/13/20074		85,000		84,458
NetJets Inc. 5.21%–5.23% due 8/27–9/27/20074		69,345		68,888
Three Pillars Funding, LLC 5.26%–5.28% due 8/29–9/17/20074		61,966		61,670
Caterpillar Financial Services Corp. 5.22% due 8/9–9/13/2007		52,000		51,795
Abbott Laboratories 5.24% due 8/21/20074		50,000		49,847
Anheuser-Busch Cos. Inc. 5.185%–5.20% due 8/27–9/17/20074		50,000		49,729
Prudential Funding, LLC 5.22% due 9/27/2007		50,000		49,579
Federal Farm Credit Banks 5.12% due 8/20/2007		48,000		47,875
Harvard University 5.20% due 8/6/2007		41,600		41,564
Wells Fargo Bank, N.A. 5.27% due 8/30/2007		39,000		39,000
Harley-Davidson Funding Corp. 5.22% due 10/26/20074		36,350		35,892
FCAR Owner Trust I 5.27% due 9/20/2007		32,449		32,218
Illinois Tool Works Inc. 5.24% due 8/16/2007		25,000		24,944
Brown-Forman Corp. 5.27% due 8/21/20074		25,000		24,924
Becton, Dickinson and Co. 5.21% due 9/6/200710		25,000		24,866
Wm. Wrigley Jr. Co. 5.22% due 9/21/20074		25,000		24,811
United Parcel Service Inc. 5.20% due 8/27/20074		22,000		21,915
USAA Capital Corp. 5.19% due 8/15/2007		20,000		19,958
Kimberly-Clark Worldwide Inc. 5.21% due 9/14/20074		13,500		13,412

Total short-term securities (cost: $7,585,706,000)				7,586,501


Total investment securities (cost: $74,224,520,000)				86,492,823
Other assets less liabilities				(197,362	)

Net assets			$	86,295,461

“Miscellaneous” securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.

1	Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in “Miscellaneous,” was $13,477,985,000.

2	Represents an affiliated company as defined under the Investment Company Act of 1940.

3	Security did not produce income during the last 12 months.

4	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 was $8,590,213,000, which represented 9.95% of the net assets of the fund.

5	Coupon rate may change periodically.

6	Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.

7	Scheduled interest and/or principal payment was not received.

8	Payment in kind; the issuer has the option of paying additional securities in lieu of cash.

9	Step bond; coupon rate will increase at a later date.

10	This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.

ADR = American Depositary Receipts

GDR = Global Depositary Receipts

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.

MFGEFP-906-0907O-S10922

(dollars in thousands)
Undistributed ordinary income	$	796,599
Post-October non-U.S. currency loss deferrals (realized during the period November 1, 2006, through July 31, 2007)*		(1,487	)
Undistributed long-term capital gain		2,732,234
Gross unrealized appreciation on investment securities		13,534,219
Gross unrealized depreciation on investment securities		(1,298,044	)
Net unrealized appreciation on investment securities		12,236,175
Cost of investment securities		74,256,648

*These deferrals are considered incurred in the subsequent year.

Long-term capital gains	$	1,730,881,000
Qualified dividend income		2,200,650,000
Corporate dividends received deduction		1,380,621,000
U.S. government income that may be exempt from state taxation		85,557,000

				Market			Percent
				value			of net
Common stocks - 64.14%	Shares				(000	)	assets

Financials - 14.50%
Citigroup Inc.		28,464,500		$	1,325,592			1.54	%
Washington Mutual, Inc.		24,300,000			911,979			1.06
Wells Fargo & Co.		21,540,000			727,406			.84
Fannie Mae		11,304,322			676,451			.78
Société Générale (1)		3,811,500			653,086			.76
SunTrust Banks, Inc.		7,340,000			574,722			.67
Bank of America Corp.		10,766,550			510,550			.59
Lloyds TSB Group PLC (1)		42,839,900			481,342			.56
Fifth Third Bancorp		12,000,000			442,680			.51
Equity Residential, shares of beneficial interest		10,092,800			401,794			.46
Other securities					5,806,617			6.73
					12,512,219			14.50

Telecommunication services - 7.90%
AT&T Inc.		63,399,871			2,482,739			2.88
Verizon Communications Inc.		39,689,000			1,691,545			1.96
Vodafone Group PLC (1)		273,610,000			831,630			.96
Koninklijke KPN NV (1)		52,115,000			805,092			.93
Other securities					1,006,610			1.17
					6,817,616			7.90

Utilities - 6.89%
E.ON AG (1)		4,100,000			647,194			.75
Entergy Corp.		5,022,600			502,059			.58
SUEZ SA (1)		8,098,500			424,761			.49
Duke Energy Corp.		23,080,000			393,052			.46
RWE AG (1)		3,520,000			371,980			.43
Other securities					3,604,697			4.18
					5,943,743			6.89

Consumer staples - 6.45%
Coca-Cola Co.		17,560,000			915,052			1.06
H.J. Heinz Co. (2)		18,104,640			792,259			.92
Altria Group, Inc.		10,530,000			699,929			.81
Reynolds American Inc.		8,380,000			512,604			.59
General Mills, Inc.		8,171,800			454,515			.53
Other securities					2,190,727			2.54
					5,565,086			6.45

Industrials - 6.38%
General Electric Co.		50,370,000			1,952,341			2.26
Waste Management, Inc.		14,450,000			549,534			.64
Sandvik AB (1)		23,580,000			475,195			.55
Emerson Electric Co.		9,370,000			441,046			.51
Other securities					2,091,820			2.42
					5,509,936			6.38

Health care - 5.27%
Merck & Co., Inc.		26,260,000			1,303,809			1.51
Bristol-Myers Squibb Co.		44,375,500			1,260,708			1.46
Eli Lilly and Co.		14,485,000			783,494			.91
Pfizer Inc		26,050,000			612,436			.71
Other securities					586,972			.68
					4,547,419			5.27

Energy - 4.95%
Chevron Corp.		26,275,000			2,240,207			2.60
Royal Dutch Shell PLC, Class A (ADR)		6,919,000			536,845			.62
Marathon Oil Corp.		7,790,000			430,008			.50
Other securities					1,066,219			1.23
					4,273,279			4.95

Materials - 4.40%
Weyerhaeuser Co.		10,728,000			764,263			.89
E.I. du Pont de Nemours and Co.		14,869,200			694,838			.80
International Paper Co.		14,973,820			555,080			.64
Dow Chemical Co.		8,980,000			390,450			.45
Other securities					1,398,035			1.62
					3,802,666			4.40

Consumer discretionary - 2.74%
Esprit Holdings Ltd. (1)		40,949,000			554,663			.64
Other securities					1,807,060			2.10
					2,361,723			2.74

Information technology - 1.12%
Microchip Technology Inc. (2)		11,265,000			409,032			.47
Other securities					554,572			.65
					963,604			1.12

Miscellaneous - 3.54%
Other common stocks in initial period of acquisition					3,055,878			3.54


Total common stocks (cost: $43,156,500,000)					55,353,169			64.14



				Market			Percent
				value			of net
Preferred stocks - 1.14%	Shares				(000	)	assets

Financials - 1.08%
Fannie Mae, Series O, 7.495% (3) (4)		2,190,000			114,017			.13
Other securities					819,896			.95
					933,913			1.08

Miscellaneous - 0.06%
Other preferred stocks in initial period of acquisition					46,313			.06


Total preferred stocks (cost: $1,002,594,000)					980,226			1.14



				Market			Percent
				value			of net
Warrants - 0.00%					(000	)	assets

Telecommunication services - 0.00%
Other securities					23			.00


Total warrants (cost: $816,000)					23			.00



				Market			Percent
				value			of net
Convertible securities - 2.54%	Shares				(000	)	assets

Financials - 0.50%
Fannie Mae, Series 2004-1, 5.375% convertible preferred		1,690			166,042			.19
Other securities					268,114			.31
					434,156			.50

Other - 1.76%
Other securities					1,517,701			1.76


Miscellaneous - 0.28%
Other convertible securities in initial period of acquisition					237,592			.28


Total convertible securities (cost: $1,816,186,000)					2,189,449			2.54



	Principal			Market			Percent
	amount			value			of net
Bonds & notes - 23.62%		(000	)		(000	)	assets

Mortgage-backed obligations (5) - 4.72%
Fannie Mae 4.00%-11.882% 2010-2042 (4)	$	1,400,092			1,372,544			1.59
Freddie Mac 2.64%-11.424% 2008-2037 (4)		388,167			381,623			.44
Other securities					2,318,476			2.69
					4,072,643			4.72

Consumer discretionary - 3.95%
Other securities					3,410,778			3.95


Financials - 3.56%
Washington Mutual Preferred Funding I Ltd., Series A-1, 6.534% (undated) (3) (4)		72,100			67,375
Washington Mutual, Inc. 4.625%-5.66% 2012-2014 (4)		28,000			27,228
Washington Mutual Preferred Funding III Ltd. 6.895% (undated) (3) (4)		26,200			24,876
Washington Mutual Preferred Funding II Ltd. 6.665% (undated) (3) (4)		17,100			15,251
Washington Mutual Bank 5.78% 2013 (4)		10,000			9,769
Washington Mutual Bank, FA 5.65% 2014		5,000			4,871			.17
MBNA Global Capital Funding, Series B, 6.156% 2027 (4)		35,000			34,980
MBNA Corp. 5.625% 2007		10,000			10,007
Bank of America Corp. 4.25% 2010		10,000			9,702			.06
Citigroup Inc. 5.125% 2011		12,500			12,383			.02
Other securities					2,853,059			3.31
					3,069,501			3.56

U.S. government & government agency bonds & notes - 2.16%
U.S. Treasury:
4.25% 2014		469,500			455,964
3.625%-8.875% 2008-2036		686,575			748,675			1.39
Freddie Mac 4.125%-5.25% 2010-2018		413,125			403,418			.47
Fannie Mae 4.625%-7.25% 2012-2030		220,000			225,400			.26
Other securities					33,519			.04
					1,866,976			2.16

Telecommunication services - 2.05%
SBC Communications Inc. 4.125%-6.25% 2009-2016		81,465			78,545
AT&T Wireless Services, Inc. 8.125% 2012		34,935			38,520
AT&T Corp. 7.30%-8.00% 2011-2031 (4)		19,789			21,782
AT&T Inc. 6.80% 2036		11,235			11,668			.18
Verizon Communications Inc. 5.50%-6.25% 2017-2037		88,800			85,418
Verizon Global Funding Corp. 4.90%-7.75% 2015-2030		11,735			12,398			.11
Other securities					1,519,624			1.76
					1,767,955			2.05

Industrials - 1.32%
General Electric Capital Corp., Series A, 5.736% 2026 (4)		25,000			25,014
General Electric Co. 5.00% 2013		5,000			4,887			.03
Other securities					1,112,691			1.29
					1,142,592			1.32

Energy - 1.17%
Other securities					1,009,125			1.17


Other - 4.69%
Other securities					4,043,885			4.69


Total bonds & notes (cost: $20,662,718,000)					20,383,455			23.62



	Principal			Market			Percent
	amount			value			of net
Short-term securities - 8.79%		(000	)		(000	)	assets


Federal Home Loan Bank 5.113%-5.137% due 8/10-10/24/2007	$	654,955			650,548			.75
Freddie Mac 5.11%-5.145% due 8/13-10/22/2007		539,000			534,334			.62
Procter & Gamble International Funding S.C.A. 5.20%-5.26% due 8/1-10/26/2007 (3) (6)		483,632			480,226			.56
JPMorgan Chase & Co. 5.21%-5.23% due 8/17-10/22/2007		252,000			250,506
Park Avenue Receivables Co., LLC 5.23%-5.24% due 8/28-10/15/2007 (3)		176,791			175,871
Jupiter Securitization Co., LLC 5.28% due 8/2/2007 (3)		51,327			51,312			.55
Variable Funding Capital Corp. 5.235%-5.27% due 8/2-10/10/2007 (3) (6)		474,150			471,470			.55
Bank of America Corp. 5.205%-5.245% due 8/2-11/13/2007		449,100			445,455
Ranger Funding Co. LLC 5.26% due 9/10/2007 (3) (6)		22,600			22,466			.54
Wal-Mart Stores Inc. 5.18%-5.19% due 8/7-10/23/2007 (3)		460,200			456,984			.53
Clipper Receivables Co., LLC 5.23%-5.26% due 8/1-10/11/2007 (3)		383,100			380,257
State Street Corp. 5.22% due 8/2/2007		50,000			49,986			.50
CAFCO, LLC 5.225%-5.245% due 8/9-9/14/2007 (3)		150,000			149,314
Ciesco LLC 5.24%-5.25% due 9/6-10/4/2007 (3) (6)		139,100			137,970			.33
Coca-Cola Co. 5.15%-5.22% due 8/22-10/30/2007 (3)		244,700			242,395			.28
General Electric Capital Services, Inc. 5.21%-5.22% due 8/1-9/21/2007		239,500			238,562
General Electric Capital Corp. 5.34% due 8/1/2007		400			400			.28
Fannie Mae 5.09%-5.12% due 8/8-9/7/2007 (6)		96,350			96,031			.11
Other securities					2,752,414			3.19


Total short-term securities (cost: $7,585,706,000)					7,586,501			8.79


Total investment securities (cost: $74,224,520,000)					86,492,823			100.23
Other assets less liabilities					(197,362	)		(.23	)

Net assets				$	86,295,461			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.

									Dividend			Market
	Beginning						Ending		or			value of
	shares or						shares or		interest			affiliates
	principal						principal		income			at 7/31/07
Company	amount		Purchases		Sales		amount			(000	)		(000	)

H.J. Heinz Co.		14,535,000		3,569,640		-		18,104,640	$	20,785		$	792,259
Microchip Technology Inc.		-		11,265,000		-		11,265,000		5,974			409,032
MeadWestvaco Corp.		10,565,696		1,300,000		1,000,000		10,865,696		9,490			353,570
iStar Financial, Inc.		7,240,000		967,550		-		8,207,550		21,085			298,180
iStar Financial, Inc. 5.375% 2010	$	10,925,000	$	-	$	-	$	10,925,000		593			10,762
iStar Financial, Inc., Series B, 5.125% 2011	$	10,000,000	$	-	$	-	$	10,000,000		547			9,705
iStar Financial, Inc., Series F, 7.80% cumulative redeemable		400,000		-		-		400,000		780			9,520
iStar Financial, Inc. 7.00% 2008	$	6,525,000	$	-	$	-	$	6,525,000		346			6,577
iStar Financial, Inc. 5.80% 2011	$	5,000,000	$	-	$	-	$	5,000,000		291			4,991
iStar Financial, Inc., Series B, 4.875% 2009	$	5,000,000	$	-	$	-	$	5,000,000		283			4,954
iStar Financial, Inc. 6.05% 2015	$	4,285,000	$	-	$	-	$	4,285,000		260			4,177
iStar Financial, Inc. 6.00% 2010	$	3,750,000	$	-	$	-	$	3,750,000		228			3,772
iStar Financial, Inc. 8.75% 2008	$	1,028,000	$	-	$	1,028,000	$	-		10			-
Brookdale Senior Living Inc.		4,785,000		1,121,600		-		5,906,600		9,692			236,323
SunCom Wireless Holdings, Inc., Class A (7)		-		47,322,770		42,590,493		4,732,277		-			115,610
Triton PCS, Inc. 8.50% 2013	$	94,050,000	$	-	$	-	$	94,050,000		8,227			94,991
Triton PCS, Inc. 8.75% 2011	$	25,200,000	$	1,500,000	$	26,700,000	$	-		2,484			-
Triton PCS, Inc. 9.375% 2011	$	39,845,000	$	-	$	39,845,000	$	-		3,669			-
Packaging Corp. of America		6,736,800		56,000		-		6,792,800		6,779			173,352
Packaging Corp. of America 4.375% 2008	$	2,500,000	$	-	$	-	$	2,500,000		112			2,467
Macquarie Korea Infrastructure Fund (1)		-		21,023,070		-		21,023,070		9,755			168,693
Arthur J. Gallagher & Co.		5,403,700		-		-		5,403,700		6,592			149,034
Goodman Fielder Ltd. (1)		67,000,000		-		-		67,000,000		5,776			143,709
Tupperware Brands Corp.		3,865,000		-		-		3,865,000		3,401			100,529
Sunstone Hotel Investors, Inc.		3,593,400		445,000		-		4,038,400		4,763			100,233
Beverly Hills Bancorp Inc.		1,848,400		-		898,400		950,000		636			7,106
Clarent Hospital Corp. (1) (7)		484,684		-		-		484,684		-			48
ConAgra Foods, Inc. (8)		26,327,600		-		14,180,400		12,147,200		8,767			-
Montpelier Re Holdings Ltd. (8)		4,465,000		-		4,465,000		-		152			-
Premier Farnell PLC (8)		21,050,000		-		21,050,000		-		-			-
Worthington Industries, Inc. (8)		3,414,900		2,358,100		4,938,600		834,400		3,056			-
									$	134,533		$	3,199,594

Statement of assets and liabilities
at July 31, 2007	(dollars and shares in thousands, except per-share amounts)

Assets:
Investment securities at market:
Unaffiliated issuers (cost: $71,336,978)		$	83,293,229
Affiliated issuers (cost: $2,887,542)			3,199,594	$	86,492,823
Cash					7,926
Receivables for:
Sales of investments			483,468
Sales of fund's shares			197,501
Dividends and interest			471,920
Other			324		1,153,213
					87,653,962
Liabilities:
Payables for:
Purchases of investments			886,521
Repurchases of fund's shares			73,752
Dividends on fund's shares			334,950
Investment advisory services			15,094
Services provided by affiliates			44,857
Deferred directors' compensation			2,847
Other			480		1,358,501
Net assets at July 31, 2007				$	86,295,461

Net assets consist of:
Capital paid in on shares of capital stock				$	70,868,624
Undistributed net investment income					461,625
Undistributed net realized gain					2,696,674
Net unrealized appreciation					12,268,538
Net assets at July 31, 2007				$	86,295,461

Total authorized capital stock - 5,500,000 shares, $.001 par value (4,205,628 total shares outstanding)
	Net assets		Shares outstanding		Net asset value per share *

Class A	$	65,712,685		3,198,530	$	20.54
Class B		5,094,499		249,422		20.43
Class C		8,911,519		436,959		20.39
Class F		3,075,407		149,896		20.52
Class 529-A		654,957		31,912		20.52
Class 529-B		117,285		5,728		20.47
Class 529-C		284,845		13,904		20.49
Class 529-E		32,385		1,580		20.49
Class 529-F		19,822		966		20.52
Class R-1		75,233		3,673		20.48
Class R-2		538,962		26,396		20.42
Class R-3		977,717		47,691		20.50
Class R-4		450,568		21,952		20.53
Class R-5		349,577		17,019		20.54

*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 $21.79 and $21.77, respectively.


See Notes to Financial Statements

Statement of operations
for the year ended July 31, 2007	(dollars in thousands)

Investment income:
Income:
Dividends (net of non-U.S. taxes of $58,113;
also includes $117,483 from affiliates)	$	2,153,555
Interest (net of non-U.S. taxes of $1;
also includes $17,050 from affiliates)		1,639,543		$	3,793,098

Fees and expenses*:
Investment advisory services		193,966
Distribution services		298,930
Transfer agent services		39,000
Administrative services		17,690
Reports to shareholders		1,930
Registration statement and prospectus		2,629
Postage, stationery and supplies		3,891
Directors' compensation		891
Auditing and legal		188
Custodian		2,958
State and local taxes		1
Other		146
Total fees and expenses before reimbursements/waivers		562,220
Less reimbursements/waivers of fees and expenses:
Investment advisory services		19,397
Administrative services		107
Total fees and expenses after reimbursements/waivers					542,716
Net investment income					3,250,382

Net realized gain and unrealized appreciation on
investments and non-U.S. currency:
Net realized gain (loss) on:
Investments (including $80,066 net loss from affiliates)		2,820,830
Non-U.S. currency transactions		(1,789	)		2,819,041
Net unrealized appreciation on:
Investments		3,452,796
Non-U.S. currency translations		77			3,452,873
Net realized gain and unrealized appreciation
on investments and non-U.S. currency					6,271,914
Net increase in net assets resulting from operations				$	9,522,296

*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 July 31
	2007			2006
Operations:
Net investment income	$	3,250,382		$	2,667,261
Net realized gain on investments and non-U.S. currency transactions		2,819,041			1,718,266
Net unrealized appreciation on investments and non-U.S. currency translations		3,452,873			1,592,617

Net increase in net assets resulting from operations		9,522,296			5,978,144

Dividends and distributions paid or accrued to shareholders:
Dividends from net investment income and non-U.S. currency gain		(3,454,007	)		(2,496,685	)
Distributions from net realized gain on investments		(1,728,252	)		(1,211,543	)
Total dividends and distributions paid or accrued to shareholders		(5,182,259	)		(3,708,228	)

Net capital share transactions		13,497,369			6,036,571

Total increase in net assets		17,837,406			8,306,487

Net assets:
Beginning of year		68,458,055			60,151,568
End of year (including undistributed net investment
income: $461,625 and $674,755, respectively)	$	86,295,461		$	68,458,055

See Notes to Financial Statements

	Year ended July 31, 2007						Year ended July 31, 2006
	Ordinary income		Long-term capital gains		Total distributions paid or accrued		Ordinary income		Long-term capital gains		Total distributions paid or accrued
Share class
Class A	$	2,741,287	$	1,330,299	$	4,071,586	$	2,018,662	$	945,614	$	2,964,276
Class B		184,596		108,711		293,307		140,500		81,514		222,014
Class C		296,266		174,425		470,691		201,163		117,973		319,136
Class F		115,303		55,201		170,504		70,225		33,305		103,530
Class 529-A		24,723		11,936		36,659		15,421		7,171		22,592
Class 529-B		3,874		2,332		6,206		2,598		1,542		4,140
Class 529-C		8,909		5,270		14,179		5,562		3,248		8,810
Class 529-E		1,167		605		1,772		740		373		1,113
Class 529-F		678		297		975		313		134		447
Class R-1		2,010		1,091		3,101		864		485		1,349
Class R-2		17,170		10,098		27,268		10,343		5,960		16,303
Class R-3		32,101		16,294		48,395		17,725		8,906		26,631
Class R-4		15,313		7,141		22,454		7,679		3,433		11,112
Class R-5		10,610		4,552		15,162		4,890		1,885		6,775
Total	$	3,454,007	$	1,728,252	$	5,182,259	$	2,496,685	$	1,211,543	$	3,708,228

			Income from investment operations(2)						Dividends and distributions

	Net asset value, beginning of period		Net investment income		Net gains 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 (3) (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			(4	)	Ratio of net income to average net assets			(4	)
Class A:
Year ended 7/31/2007	$	19.33	$	.87	$	1.73	$	2.60	$	(.93	)	$	(.46	)	$	(1.39	)	$	20.54		13.66	%	$	65,713		.56	%				.54	%				4.22	%
Year ended 7/31/2006		18.70		.81		.94		1.75		(.76	)		(.36	)		(1.12	)		19.33		9.77			53,188		.56					.53					4.35
Year ended 7/31/2005		17.10		.77		1.61		2.38		(.65	)		(.13	)		(.78	)		18.70		14.12			47,196		.55					.54					4.26
Year ended 7/31/2004		15.44		.70		1.70		2.40		(.74	)		-			(.74	)		17.10		15.76			36,075		.57					.57					4.15
Year ended 7/31/2003		14.49		.72		.98		1.70		(.73	)		(.02	)		(.75	)		15.44		12.18			25,891		.61					.61					4.98
Class B:
Year ended 7/31/2007		19.22		.70		1.74		2.44		(.77	)		(.46	)		(1.23	)		20.43		12.83			5,094		1.32					1.30					3.46
Year ended 7/31/2006		18.61		.66		.93		1.59		(.62	)		(.36	)		(.98	)		19.22		8.87			4,442		1.33					1.31					3.58
Year ended 7/31/2005		17.01		.63		1.61		2.24		(.51	)		(.13	)		(.64	)		18.61		13.32			4,135		1.34					1.32					3.48
Year ended 7/31/2004		15.36		.56		1.69		2.25		(.60	)		-			(.60	)		17.01		14.84			3,231		1.35					1.35					3.37
Year ended 7/31/2003		14.42		.61		.97		1.58		(.62	)		(.02	)		(.64	)		15.36		11.37			2,015		1.39					1.39					4.17
Class C:
Year ended 7/31/2007		19.19		.69		1.73		2.42		(.76	)		(.46	)		(1.22	)		20.39		12.80			8,911		1.37					1.35					3.41
Year ended 7/31/2006		18.58		.65		.93		1.58		(.61	)		(.36	)		(.97	)		19.19		8.83			6,675		1.38					1.36					3.52
Year ended 7/31/2005		16.99		.61		1.60		2.21		(.49	)		(.13	)		(.62	)		18.58		13.17			5,756		1.43					1.41					3.38
Year ended 7/31/2004		15.34		.55		1.69		2.24		(.59	)		-			(.59	)		16.99		14.75			3,833		1.44					1.44					3.26
Year ended 7/31/2003		14.41		.59		.97		1.56		(.61	)		(.02	)		(.63	)		15.34		11.23			1,850		1.48					1.48					4.07
Class F:
Year ended 7/31/2007		19.30		.86		1.74		2.60		(.92	)		(.46	)		(1.38	)		20.52		13.69			3,075		.60					.57					4.18
Year ended 7/31/2006		18.68		.80		.93		1.73		(.75	)		(.36	)		(1.11	)		19.30		9.68			1,957		.60					.57					4.30
Year ended 7/31/2005		17.08		.75		1.61		2.36		(.63	)		(.13	)		(.76	)		18.68		14.01			1,603		.67					.65					4.14
Year ended 7/31/2004		15.42		.67		1.71		2.38		(.72	)		-			(.72	)		17.08		15.65			1,000		.69					.69					4.02
Year ended 7/31/2003		14.47		.71		.97		1.68		(.71	)		(.02	)		(.73	)		15.42		12.11			471		.72					.72					4.83
Class 529-A:
Year ended 7/31/2007		19.31		.85		1.73		2.58		(.91	)		(.46	)		(1.37	)		20.52		13.57			655		.65					.63					4.14
Year ended 7/31/2006		18.68		.80		.94		1.74		(.75	)		(.36	)		(1.11	)		19.31		9.70			452		.63					.61					4.27
Year ended 7/31/2005		17.08		.75		1.61		2.36		(.63	)		(.13	)		(.76	)		18.68		13.98			328		.70					.68					4.13
Year ended 7/31/2004		15.42		.68		1.70		2.38		(.72	)		-			(.72	)		17.08		15.61			195		.67					.67					4.06
Year ended 7/31/2003		14.48		.71		.97		1.68		(.72	)		(.02	)		(.74	)		15.42		12.10			93		.68					.68					4.87
Class 529-B:
Year ended 7/31/2007		19.26		.68		1.73		2.41		(.74	)		(.46	)		(1.20	)		20.47		12.71			117		1.45					1.43					3.34
Year ended 7/31/2006		18.65		.64		.92		1.56		(.59	)		(.36	)		(.95	)		19.26		8.71			92		1.47					1.44					3.44
Year ended 7/31/2005		17.05		.59		1.61		2.20		(.47	)		(.13	)		(.60	)		18.65		13.05			74		1.55					1.53					3.28
Year ended 7/31/2004		15.36		.53		1.70		2.23		(.54	)		-			(.54	)		17.05		14.67			51		1.57					1.57					3.16
Year ended 7/31/2003		14.46		.58		.97		1.55		(.63	)		(.02	)		(.65	)		15.36		11.10			28		1.60					1.60					3.95
Class 529-C:
Year ended 7/31/2007		19.27		.69		1.74		2.43		(.75	)		(.46	)		(1.21	)		20.49		12.77			285		1.45					1.42					3.35
Year ended 7/31/2006		18.65		.64		.93		1.57		(.59	)		(.36	)		(.95	)		19.27		8.77			201		1.46					1.43					3.45
Year ended 7/31/2005		17.06		.59		1.60		2.19		(.47	)		(.13	)		(.60	)		18.65		13.00			153		1.54					1.52					3.29
Year ended 7/31/2004		15.39		.53		1.71		2.24		(.57	)		-			(.57	)		17.06		14.69			95		1.56					1.56					3.17
Year ended 7/31/2003		14.46		.58		.97		1.55		(.60	)		(.02	)		(.62	)		15.39		11.10			44		1.59					1.59					3.96
Class 529-E:
Year ended 7/31/2007		19.28		.79		1.73		2.52		(.85	)		(.46	)		(1.31	)		20.49		13.27			32		.94					.91					3.86
Year ended 7/31/2006		18.66		.74		.93		1.67		(.69	)		(.36	)		(1.05	)		19.28		9.32			23		.94					.92					3.96
Year ended 7/31/2005		17.06		.69		1.61		2.30		(.57	)		(.13	)		(.70	)		18.66		13.63			17		1.02					1.01					3.80
Year ended 7/31/2004		15.40		.62		1.70		2.32		(.66	)		-			(.66	)		17.06		15.24			10		1.04					1.04					3.69
Year ended 7/31/2003		14.47		.66		.96		1.62		(.67	)		(.02	)		(.69	)		15.40		11.66			5		1.06					1.06					4.48



Class 529-F:
Year ended 7/31/2007	$	19.30	$	.90	$	1.73	$	2.63	$	(.95	)	$	(.46	)	$	(1.41	)	$	20.52		13.87	%	$	20		.44	%				.41	%				4.37	%
Year ended 7/31/2006		18.68		.83		.93		1.76		(.78	)		(.36	)		(1.14	)		19.30		9.85			10		.44					.42					4.46
Year ended 7/31/2005		17.08		.75		1.60		2.35		(.62	)		(.13	)		(.75	)		18.68		13.96			5		.70					.68					4.14
Year ended 7/31/2004		15.42		.67		1.69		2.36		(.70	)		-			(.70	)		17.08		15.53			3		.79					.79					3.95
Period from 9/17/2002 to 7/31/2003		14.11		.60		1.24		1.84		(.51	)		(.02	)		(.53	)		15.42		13.38			1		.81		(5	)		.81		(5	)		4.68		(5	)
Class R-1:
Year ended 7/31/2007		19.27		.70		1.72		2.42		(.75	)		(.46	)		(1.21	)		20.48		12.75			75		1.41					1.39					3.41
Year ended 7/31/2006		18.65		.64		.94		1.58		(.60	)		(.36	)		(.96	)		19.27		8.79			37		1.45					1.41					3.46
Year ended 7/31/2005		17.05		.61		1.61		2.22		(.49	)		(.13	)		(.62	)		18.65		13.15			19		1.50					1.45					3.36
Year ended 7/31/2004		15.39		.55		1.70		2.25		(.59	)		-			(.59	)		17.05		14.75			8		1.55					1.48					3.27
Year ended 7/31/2003		14.47		.60		.96		1.56		(.62	)		(.02	)		(.64	)		15.39		11.19			2		1.92					1.50					4.02
Class R-2:
Year ended 7/31/2007		19.22		.69		1.72		2.41		(.75	)		(.46	)		(1.21	)		20.42		12.73			539		1.44					1.39					3.38
Year ended 7/31/2006		18.60		.64		.94		1.58		(.60	)		(.36	)		(.96	)		19.22		8.83			379		1.52					1.40					3.48
Year ended 7/31/2005		17.01		.61		1.60		2.21		(.49	)		(.13	)		(.62	)		18.60		13.16			271		1.58					1.42					3.39
Year ended 7/31/2004		15.36		.55		1.69		2.24		(.59	)		-			(.59	)		17.01		14.75			139		1.75					1.44					3.30
Year ended 7/31/2003		14.48		.59		.95		1.54		(.64	)		(.02	)		(.66	)		15.36		11.12			52		1.81					1.46					4.02
Class R-3:
Year ended 7/31/2007		19.29		.79		1.73		2.52		(.85	)		(.46	)		(1.31	)		20.50		13.26			978		.94					.92					3.86
Year ended 7/31/2006		18.67		.73		.93		1.66		(.68	)		(.36	)		(1.04	)		19.29		9.29			579		.96					.94					3.94
Year ended 7/31/2005		17.07		.70		1.60		2.30		(.57	)		(.13	)		(.70	)		18.67		13.68			394		.97					.96					3.85
Year ended 7/31/2004		15.41		.62		1.70		2.32		(.66	)		-			(.66	)		17.07		15.25			176		1.02					1.02					3.70
Year ended 7/31/2003		14.48		.65		.98		1.63		(.68	)		(.02	)		(.70	)		15.41		11.68			56		1.12					1.08					4.42
Class R-4:
Year ended 7/31/2007		19.31		.85		1.74		2.59		(.91	)		(.46	)		(1.37	)		20.53		13.57			451		.65					.63					4.15
Year ended 7/31/2006		18.69		.79		.93		1.72		(.74	)		(.36	)		(1.10	)		19.31		9.60			255		.66					.64					4.22
Year ended 7/31/2005		17.09		.76		1.60		2.36		(.63	)		(.13	)		(.76	)		18.69		14.00			120		.67					.65					4.17
Year ended 7/31/2004		15.43		.68		1.70		2.38		(.72	)		-			(.72	)		17.09		15.64			30		.69					.69					4.05
Year ended 7/31/2003		14.49		.70		.98		1.68		(.72	)		(.02	)		(.74	)		15.43		12.07			12		.72					.72					4.81
Class R-5:
Year ended 7/31/2007		19.32		.91		1.74		2.65		(.97	)		(.46	)		(1.43	)		20.54		13.94			350		.36					.33					4.42
Year ended 7/31/2006		18.70		.85		.93		1.78		(.80	)		(.36	)		(1.16	)		19.32		9.92			168		.36					.34					4.56
Year ended 7/31/2005		17.10		.80		1.61		2.41		(.68	)		(.13	)		(.81	)		18.70		14.33			81		.37					.35					4.45
Year ended 7/31/2004		15.44		.73		1.71		2.44		(.78	)		-			(.78	)		17.10		16.01			57		.37					.37					4.35
Year ended 7/31/2003		14.49		.75		.98		1.73		(.76	)		(.02	)		(.78	)		15.44		12.43			39		.40					.40					5.17