cib497.htm

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                          CAPITAL INCOME BUILDER, INC.

                                     Part B
                      Statement of Additional Information

                                January 1, 2010

                         (as supplemented May 27, 2010)

 This document is not a prospectus but should be read in conjunction with the
current prospectus or retirement plan prospectus of Capital Income Builder, Inc.
(the "fund" or "CIB") dated January 1, 2010. You may obtain a prospectus from
your financial adviser or by writing to the fund at the following address:

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

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

Class A CAIBX Class 529-A CIRAX Class R-1 RIRAX
Class B CIBBX Class 529-B CIRBX Class R-2 RIRBX
Class C CIBCX Class 529-C CIRCX Class R-3 RIRCX
Class F-1 CIBFX Class 529-E CIREX Class R-4 RIREX
Class F-2 CAIFX Class 529-F-1 CIRFX Class R-5 RIRFX
Class R-6 RIRGX

TABLE OF CONTENTS

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

Certain investment limitations and guidelines . . . . . . . . . . . 2
Description of certain securities and investment techniques . . . . 3
Fund policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management of the fund . . . . . . . . . . . . . . . . . . . . . . 14
Execution of portfolio transactions . . . . . . . . . . . . . . . . 40
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 43
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 48
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 53
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 61
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Shareholder account services and privileges . . . . . . . . . . . . 67
General information . . . . . . . . . . . . . . . . . . . . . . . . 70
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Investment portfolio
Financial statements

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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

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

INCOME PRODUCING SECURITIES

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

EQUITY SECURITIES

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

DEBT SECURITIES

. The fund may invest up to 5% of its assets in nonconvertible debt
securities rated Ba1 or below by Moody's Investors Service ("Moody's") and
BB+ or below by Standard & Poor's Corporation ("S&P") or unrated but
determined by the fund's investment adviser to be of equivalent quality.

INVESTING OUTSIDE THE U.S.

. The fund may invest up to 50% of its assets in securities of issuers
domiciled outside the United States.

* * * * * *

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

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DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

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

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

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

INVESTING IN SMALLER CAPITALIZATION STOCKS -- The fund may invest in the stocks
of smaller capitalization companies (typically companies with market
capitalizations of less than $3.5 billion at the time of purchase). The
investment adviser believes that the issuers of smaller 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 Ba1 or below by Moody's and/or BB+ or below
by S&P or unrated but determined by the fund's investment adviser 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. Investment grade bonds in the ratings
categories A or Baa (Moody's) and A or BBB (S&P) may be more susceptible to
changes in market or economic conditions than bonds rated in the highest rating
categories.

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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 could 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 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
except where otherwise provided. 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

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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.

These securities may include hybrid securities, which also have equity and debt
characteristics. Such securities are normally at the bottom of an issuer's debt
capital structure. As such, they may be more sensitive to economic changes than
more senior debt securities. These securities may also be viewed as more
equity-like by the market when the issuer or its parent company experience
financial problems.

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 OUTSIDE THE U.S. -- 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, disclosure, and regulatory and legal standards and practices;
changing local, regional and global economic, political and social conditions;
expropriation; changes in tax policy; greater market volatility; different
securities market structures; higher transaction costs; and various
administrative difficulties, such as delays in clearing and settling portfolio
transactions or in receiving payment of dividends. However, in the opinion of
the investment adviser, investing outside the United States also can reduce
certain portfolio risks due to greater diversification opportunities.

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

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

In determining the domicile of an issuer, the fund's investment adviser will
consider the domicile determination of a leading provider of global indexes,
such as Morgan Stanley Capital International, and may also take into account
such factors as where the company's securities are listed, where the company is
legally organized, maintains principal corporate offices and/or conducts its
principal operations.

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

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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.

OBLIGATIONS 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 -- 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 Federal Financing Bank
(FFB), the Government National Mortgage Association (Ginnie Mae), the
Veterans Administration (VA), the Federal Housing Administration (FHA), the
Export-Import Bank (Exim Bank), the Overseas Private Investment Corporation
(OPIC), the Commodity Credit Corporation (CCC) and the Small Business
Administration (SBA).

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

On September 7, 2008, Freddie Mac and Fannie Mae were placed into
conservatorship by their new regulator, the Federal Housing Finance Agency.
Simultaneously, the U.S. Treasury made a commitment of indefinite duration to
maintain the positive net worth of both firms.

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

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

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

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

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

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

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financial condition of the issuer. Some asset-backed securities also may
receive prepayments that can change their effective maturities.

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

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

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

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

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transaction. Additionally, prior to receiving delivery of securities as part of
a transaction, the fund may sell such securities.

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

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

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

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

* * * * * *

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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. It may
also result in the realization of net capital gains, which are taxable when
distributed to shareholders, unless the shareholder is exempt from taxation.

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 October 31, 2009
and 2008 were 43% and 30%, 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.

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FUND POLICIES

All percentage limitations in the following fund policies are considered at the
time securities are purchased and are based on the fund's net assets unless
otherwise indicated. None of the following policies 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.

FUNDAMENTAL POLICIES -- The fund has adopted the following fundamental policies,
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 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.

These restrictions provide that the fund may not:

1. Purchase any security (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such investment, more than 5% of the fund's total assets would be
invested in securities of the issuer; except that, as to 25% of the fund's total
assets, up to 10% of its total assets may be invested in securities issued or
guaranteed as to payment of interest and principal by a foreign government or
its agencies or instrumentalities or by a multinational agency;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHANGES TO FUNDAMENTAL POLICIES - At a meeting of the fund's shareholders on
November 24, 2009, shareholders approved changes to the fundamental policies
listed above. The fund plans to implement the new fundamental policies in 2010
or early 2011; however, the fund reserves the right to delay the implementation.
The new policies are set forth in a joint proxy statement available on the SEC's
website at sec.gov.

Capital Income Builder -- Page 12
<PAGE>

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

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

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

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

Capital Income Builder -- Page 13
<PAGE>

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND OFFICERS

"INDEPENDENT" DIRECTORS/1/

NAME, AGE AND NUMBER OF
POSITION WITH FUND PORTFOLIOS/3/
(YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS/4/ HELD
AS A DIRECTOR/2/) DURING PAST FIVE YEARS BY DIRECTOR BY DIRECTOR
---------------------------------------------------------------------------------------------------------------
Joseph C. Berenato, 63 Chairman, Ducommun Incorporated 6 None
Director (2005) (aerospace components
manufacturer)
---------------------------------------------------------------------------------------------------------------
H. Frederick Christie, 76 Private investor; former 3 AECOM Technology
Chairman of the Board President and CEO, The Mission Corporation;
(Independent and Group (non-utility holding Capital Private Client
Non-Executive) (1987) company, subsidiary of Southern Services Funds;
California Edison Company) DineEquity, Inc.;
Ducommun Incorporated;
SouthWest Water Company
---------------------------------------------------------------------------------------------------------------
Robert J. Denison, 69 Chair, First Security Management 7 None
Director (2005) (private investment)
---------------------------------------------------------------------------------------------------------------
Mary Anne Dolan, 63 Founder and President, MAD Ink 9 None
Director (2010) (communications company)
---------------------------------------------------------------------------------------------------------------
R. Clark Hooper, 63 Private investor; former 44 JPMorgan Value Opportunities
Director (2010) President, Dumbarton Group LLC Fund, Inc.;
(securities industry The Swiss Helvetia Fund,
consulting); former Executive Inc.
Vice President - Policy and
Oversight, NASD
---------------------------------------------------------------------------------------------------------------
Koichi Itoh, 69 Chairman of the Board, Itoh 6 None
Director (2005) Building Co., Ltd. (building
management); former President,
Autosplice KK (electronics)
---------------------------------------------------------------------------------------------------------------
Merit E. Janow, 52 Professor, Columbia University, 41 The NASDAQ Stock Market LLC;
Director (2001) School of International and Trimble Navigation Limited
Public Affairs; former Member,
World Trade Organization
Appellate Body
---------------------------------------------------------------------------------------------------------------
Leonade D. Jones, 62 Co-founder, VentureThink LLC 9 None
Director (2010) (developed and managed
e-commerce businesses) and
Versura Inc. (education loan
exchange); former Treasurer, The
Washington Post Company
---------------------------------------------------------------------------------------------------------------

Capital Income Builder -- Page 14
<PAGE>

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
---------------------------------------------------------------------------------------------------------------
Gail L. Neale, 75 President, The Lovejoy 5 None
Director (1987) Consulting Group, Inc. (a pro
bono consulting group advising
nonprofit organizations)
---------------------------------------------------------------------------------------------------------------
Robert J. O'Neill, Ph.D., Member of the Board of 3 None
73 Directors, The Lowy Institute
Director (1992) for International Policy
Studies, Sydney, Australia;
Chairman, Academic Advisory
Committee, United States Studies
Centre, University of Sydney,
Australia; Chairman of
Directors, Forty Seven
FriendsPty Ltd (a not-for-profit
supporting a local art and craft
center in Australia); former
Planning Director and acting
CEO, United States Studies
Centre, University of Sydney,
Australia; former Deputy
Chairman of the Council and
Chairman of the International
Advisory Panel, Graduate School
of Government, University of
Sydney, Australia; former
Chairman of the Council,
Australian Strategic Policy
Institute; former Chichele
Professor of the History of War
and Fellow, All Souls College,
University of Oxford; former
Chairman of the Council,
International Institute for
Strategic Studies
---------------------------------------------------------------------------------------------------------------
Donald E. Petersen, 83 Retired; former Chairman of the 2 None
Director (1992) Board and CEO, Ford Motor
Company
---------------------------------------------------------------------------------------------------------------
Stefanie Powers, 67 Actor, Producer; Co-founder and 3 None
Director (1989 - 1996; President of The William Holden
1997) Wildlife Foundation;
conservation consultant to Land
Rover and Jaguar North America;
author of The Jaguar
Conservation Trust
---------------------------------------------------------------------------------------------------------------

Capital Income Builder -- Page 15
<PAGE>

"INTERESTED" DIRECTORS/5/
PRINCIPAL OCCUPATION(S)
DURING PAST FIVE YEARS
NAME, AGE AND AND POSITIONS NUMBER OF
POSITION WITH FUND HELD WITH AFFILIATED ENTITIES PORTFOLIOS/3/
(YEAR FIRST ELECTED OR THE PRINCIPAL UNDERWRITER OVERSEEN OTHER DIRECTORSHIPS/4/ HELD
AS A DIRECTOR/OFFICER/2/) OF THE FUND BY DIRECTOR BY DIRECTOR OR OFFICER
-----------------------------------------------------------------------------------------------------------
James B. Lovelace, 54 Senior Vice President - Capital 12 None
Vice Chairman of the Research Global Investors,
Board (1992) Capital Research and Management
Company; Director, The Capital
Group Companies, Inc.*
-----------------------------------------------------------------------------------------------------------
Joyce E, Gordon, 53 Senior Vice President - Capital 2 None
President and Director Research Global Investors,
(1996) Capital Research and Management
Company; Director, Capital
Research and Management Company
-----------------------------------------------------------------------------------------------------------

Capital Income Builder -- Page 16
<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
-------------------------------------------------------------------------------
Mark R. Macdonald, Senior Vice President - Fixed Income, Capital
51 Research and Management Company; Director, Capital
Executive Vice Research and Management Company
President (2001)
-------------------------------------------------------------------------------
David A. Hoag, 44 Senior Vice President - Fixed Income, Capital
Senior Vice Research and Management Company
President (2006)
-------------------------------------------------------------------------------
David M. Riley, 43 Senior Vice President - Capital Research Global
Senior Vice Investors, Capital Research and Management Company
President (2006)
-------------------------------------------------------------------------------
Michael J. Thawley, Senior Vice President, Capital Research and
60 Management Company; Senior Vice President, Capital
Senior Vice Strategy Research, Inc.*; former Australian
President (2007) Ambassador to the United States
-------------------------------------------------------------------------------
Donald H. Rolfe, 37 Vice President and Associate Counsel - Fund Business
Vice President Management Group, Capital Research and Management
(2008) Company
-------------------------------------------------------------------------------
Vincent P. Corti, 53 Vice President - Fund Business Management Group,
Secretary (1987) Capital Research and Management Company
-------------------------------------------------------------------------------
Jeffrey P. Regal, 38 Vice President - Fund Business Management Group,
Treasurer (2001) Capital Research and Management Company
-------------------------------------------------------------------------------
Tanya Schneider, 37 Assistant Vice President - Fund Business Management
Assistant Secretary Group, Capital Research and Management Company
(2008)
-------------------------------------------------------------------------------
Neal F. Wellons, 38 Vice President - Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
(2008)
-------------------------------------------------------------------------------

* 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 16
   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 10 funds and is available through tax-deferred retirement
   plans and IRAs; and Endowments, which 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 are officers and/or directors/trustees of one or
   more of the other funds for which Capital Research and Management Company
   serves as investment adviser.

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


                       Capital Income Builder -- Page 17
<PAGE>

 FUND SHARES OWNED BY DIRECTOR AS OF DECEMBER 31, 2009:

                                                                               AGGREGATE
                                                                                DOLLAR
                                                                              RANGE/1/ OF
                                                                              INDEPENDENT
                                            AGGREGATE                          DIRECTORS
                                         DOLLAR RANGE/1/      DOLLAR           DEFERRED
                                            OF SHARES       RANGE/1 /OF     COMPENSATION/2/
                                            OWNED IN        INDEPENDENT      ALLOCATED TO
                                            ALL FUNDS        DIRECTORS         ALL FUNDS
                                             IN THE          DEFERRED           WITHIN
                        DOLLAR RANGE/1/  AMERICAN FUNDS   COMPENSATION/2/   AMERICAN FUNDS
                            OF FUND      FAMILY OVERSEEN     ALLOCATED      FAMILY OVERSEEN
         NAME            SHARES OWNED      BY DIRECTOR        TO FUND         BY DIRECTOR
--------------------------------------------------------------------------------------------
 "INDEPENDENT" DIRECTORS
--------------------------------------------------------------------------------------------
 Joseph C. Berenato        $10,001 -      Over $100,000    $1 - $10,000      Over $100,000
                            $50,000
--------------------------------------------------------------------------------------------
 H. Frederick            Over $100,000    Over $100,000    Over $100,000     Over $100,000
 Christie
--------------------------------------------------------------------------------------------
 Robert J. Denison         $10,001 -        $50,001 -           N/A               N/A
                            $50,000         $100,000
--------------------------------------------------------------------------------------------
 Mary Anne Dolan/3/      Over $100,000    Over $100,000         N/A               N/A
--------------------------------------------------------------------------------------------
 R. Clark Hooper/3/        $10,001 -      Over $100,000         N/A          Over $100,000
                            $50,000
--------------------------------------------------------------------------------------------
 Koichi Itoh             Over $100,000    Over $100,000    Over $100,000     Over $100,000
--------------------------------------------------------------------------------------------
 Merit E. Janow          Over $100,000    Over $100,000         N/A               N/A
--------------------------------------------------------------------------------------------
 Leonade D. Jones/3/         None         Over $100,000         N/A          Over $100,000
--------------------------------------------------------------------------------------------
 Gail L. Neale           Over $100,000    Over $100,000         N/A               N/A
--------------------------------------------------------------------------------------------
 Robert J. O'Neill           None             None              N/A               N/A
--------------------------------------------------------------------------------------------
 Donald E. Petersen      Over $100,000    Over $100,000         N/A               N/A
--------------------------------------------------------------------------------------------
 Stefanie Powers         Over $100,000    Over $100,000         N/A               N/A
--------------------------------------------------------------------------------------------
 Christopher E.            $10,001 -      Over $100,000         N/A               N/A
 Stone/3/                   $50,000
--------------------------------------------------------------------------------------------
 Steadman Upham              None         Over $100,000    Over $100,000     Over $100,000
--------------------------------------------------------------------------------------------
 Charles Wolf, Jr.       Over $100,000    Over $100,000         N/A               N/A
--------------------------------------------------------------------------------------------





                       Capital Income Builder -- Page 18
<PAGE>

                                                          AGGREGATE
                                                       DOLLAR RANGE/1/
                                                          OF SHARES
                                                           OWNED IN
                                                          ALL FUNDS
                                                            IN THE
                          DOLLAR RANGE/1/               AMERICAN FUNDS
                              OF FUND                  FAMILY OVERSEEN
       NAME                 SHARES OWNED                 BY DIRECTOR
-----------------------------------------------------------------------------
 "INTERESTED" DIRECTORS
-----------------------------------------------------------------------------
 James B. Lovelace         Over $100,000                Over $100,000
-----------------------------------------------------------------------------
 Joyce E. Gordon           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  Eligible directors may defer their compensation under a nonqualified deferred
   compensation plan. Deferred amounts accumulate at an earnings rate determined
   by the total return of one or more American Funds as designated by the
   director.

3 Christopher E. Stone was elected to the board effective June 18, 2009. Mary
Anne Dolan, R. Clark Hooper and Leonade D. Jones were newly elected to the
board effective January 1, 2010.

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 $13,125 to $25,000, based primarily on the total number
of board clusters on which that independent director serves.

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

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

No pension or retirement benefits are accrued as part of fund expenses.
Independent directors may elect, on a voluntary basis, to defer all or a portion
of their fees through a deferred compensation plan in effect for the fund. The
fund also reimburses certain expenses of the independent directors.

Capital Income Builder -- Page 19
<PAGE>

DIRECTOR COMPENSATION EARNED DURING THE FISCAL YEAR ENDED OCTOBER 31, 2009

TOTAL COMPENSATION (INCLUDING
AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/)
(INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY
DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT
NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/
-----------------------------------------------------------------------------------------------
Joseph C. Berenato/3/ $44,166 $326,458
-----------------------------------------------------------------------------------------------
H. Frederick Christie/3/ 58,075 318,290
-----------------------------------------------------------------------------------------------
Robert J. Denison 54,875 244,666
-----------------------------------------------------------------------------------------------
Mary Anne Dolan/4/ None 322,833
-----------------------------------------------------------------------------------------------
R. Clark Hooper/4/ None 392,066
-----------------------------------------------------------------------------------------------
Koichi Itoh/3/ 53,500 221,750
-----------------------------------------------------------------------------------------------
Merit E. Janow 49,625 221,633
-----------------------------------------------------------------------------------------------
Leonade D. Jones/4/ None 366,667
-----------------------------------------------------------------------------------------------
Gail L. Neale 54,875 229,250
-----------------------------------------------------------------------------------------------
Robert J. O'Neill 59,750 133,500
-----------------------------------------------------------------------------------------------
Donald E. Petersen 59,750 123,500
-----------------------------------------------------------------------------------------------
Stefanie Powers 54,000 110,000
-----------------------------------------------------------------------------------------------
Christopher E. Stone/4/ 22,396 166,021
-----------------------------------------------------------------------------------------------
Steadman Upham/3/ 54,965 247,541
-----------------------------------------------------------------------------------------------
Charles Wolf, Jr. 59,750 123,500
-----------------------------------------------------------------------------------------------

1 Amounts may be deferred by eligible directors under a nonqualified deferred
compensation plan adopted by the fund in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more American Funds
as designated by the directors. Compensation shown in this table for the fiscal
year ended October 31, 2009 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 16
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 10 funds and is available through tax-deferred retirement
plans and IRAs; and Endowments, which 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 2009
fiscal year for participating directors is as follows: Joseph C. Berenato
($3,322), H. Frederick Christie ($217,271), Koichi Itoh ($164,262) and Steadman
Upham ($339,317). Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the fund until paid to the
directors.

4  Christopher E. Stone was elected to the board effective June 18, 2009. Mary
   Anne Dolan, R. Clark Hooper and Leonade D. Jones were newly elected to the
   board effective January 1, 2010.


As of May 1, 2010, the officers and directors of the fund and their families, as
a group, owned beneficially or of record less than 1% of the outstanding shares
of the fund.


                       Capital Income Builder -- Page 20
<PAGE>


FUND ORGANIZATION AND THE BOARD OF DIRECTORS -- The fund, an open-end,
diversified management investment company, was organized as a Maryland
corporation on June 8, 1987. At a meeting of the fund's shareholders on November
24, 2009, shareholders approved the reorganization of the fund to a Delaware
statutory trust. The reorganization is expected to be completed in 2010 or early
2011; however, the fund reserves the right to delay the implementation. A
summary comparison of the governing documents and state laws affecting the
Delaware statutory trust and the current form of organization of the fund can be
found in a joint proxy statement available on the SEC's website at sec.gov.
Although the board of directors has delegated day-to-day oversight to the
investment adviser, all fund operations are supervised by the fund's board,
which meets periodically and performs duties required by applicable state and
federal laws.


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


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

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


                       Capital Income Builder -- Page 21
<PAGE>


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 Joseph C. Berenato, Merit E. Janow, Leonade D. Jones, Robert J.
O'Neill, Donald E. Petersen, Stefanie Powers, Christopher E. Stone and Charles
Wolf, Jr., none of whom is an "interested person" of the fund within the meaning
of the 1940 Act. The committee provides oversight regarding the fund's
accounting and financial reporting policies and practices, its internal controls
and the internal controls of the fund's principal service providers. The
committee acts as a liaison between the fund's independent registered public
accounting firm and the full board of directors. Four audit committee meetings
were held during the 2009 fiscal year.


The fund has a nominating committee comprised of Robert J. Denison, Mary Anne
Dolan, R. Clark Hooper, Koichi Itoh, Gail L. Neale and Steadman Upham, none of
whom is an "interested person" of the fund within the meaning of the 1940 Act.
The committee periodically reviews such issues as the board's composition,
responsibilities, committees, compensation and other relevant issues, and
recommends any appropriate changes to the full board of directors. The committee
also evaluates, selects and nominates independent director candidates to the
full board of directors. While the committee normally is able to identify from
its own and other resources an ample number of qualified candidates, it will
consider shareholder suggestions of persons to be considered as nominees to fill
future vacancies on the board. Such suggestions must be sent in writing to the
nominating committee of the fund, addressed to the fund's secretary, and must be
accompanied by complete biographical and occupational data on the prospective
nominee, along with a written consent of the prospective nominee for
consideration of his or her name by the committee. Four nominating committee
meetings were held during the 2009 fiscal year.


                       Capital Income Builder -- Page 22
<PAGE>


The fund has a contracts committee comprised of Joseph C. Berenato, H. Frederick
Christie, Robert J. Denison, Mary Anne Dolan, R. Clark Hooper, Koichi Itoh,
Merit E. Janow, Leonade D. Jones, Gail L. Neale, Robert J. O'Neill, Donald E.
Petersen, Stefanie Powers, Christopher E. Stone, Steadman Upham and Charles
Wolf, Jr., none of whom is an "interested person" of the fund within the meaning
of the 1940 Act. The committee's principal function is to request, review and
consider the information deemed necessary to evaluate the terms of certain
agreements between the fund and its investment adviser or the investment
adviser's affiliates, such as the Investment Advisory and Service Agreement,
Principal Underwriting Agreement, Administrative Services Agreement and Plans of
Distribution adopted pursuant to rule 12b-1 under the 1940 Act, that the fund
may enter into, renew or continue, and to make its recommendations to the full
board of directors on these matters. One contracts committee meeting was held
during the 2009 fiscal year.


PROXY VOTING PROCEDURES AND PRINCIPLES -- The fund's investment adviser, in
consultation with the fund's board, has 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. Proxies are voted by a committee of the
appropriate equity investment division of the investment adviser under authority
delegated by the funds' boards. Therefore, if more than one fund invests in the
same company, they may vote differently on the same proposal. In addition, the
funds' boards monitor the proxy voting process and provide guidance with respect
to the Principles.


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 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.


                       Capital Income Builder -- Page 23
<PAGE>


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 than affirmative 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.

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


                       Capital Income Builder -- Page 24
<PAGE>


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

PRINCIPAL FUND SHAREHOLDERS -- The following table identifies those investors
who own of record or are known by the fund to own beneficially 5% or more of any
class of its shares as of the opening of business on May 1, 2010. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.



            NAME AND ADDRESS                OWNERSHIP   OWNERSHIP PERCENTAGE
-------------------------------------------------------------------------------
 Edward D. Jones & Co.                      Record      Class A        34.56%
 Omnibus Account                                        Class B        21.72
 Maryland Heights, MO
-------------------------------------------------------------------------------
 First Clearing, LLC                        Record      Class A         8.66
 Custody Account                                        Class B        10.90
 St. Louis, MO                                          Class C        13.82
                                                        Class F-1      10.20
                                                        Class R-1       5.36
-------------------------------------------------------------------------------
 Pershing, LLC                              Record      Class A         5.56
 Jersey City, NJ                                        Class B         7.08
                                                        Class C         7.20
                                                        Class F-1      18.29
-------------------------------------------------------------------------------
 Citigroup Global Markets, Inc.             Record      Class B         5.92
 Omnibus Account                                        Class C        12.08
 New York, NY                                           Class F-1       7.84
-------------------------------------------------------------------------------
 Merrill Lynch                              Record      Class B         5.34
 Omnibus Account                                        Class C        14.11
 Jacksonville, FL                                       Class F-2      24.99
-------------------------------------------------------------------------------
 Charles Schwab & Co., Inc.                 Record      Class F-1       7.99
 Custody Account                                        Class R-5      13.25
 San Francisco, CA
-------------------------------------------------------------------------------
 LPL Financial                              Record      Class F-1       6.31
 Omnibus Account
 San Diego, CA
-------------------------------------------------------------------------------
 Forest Lawn Endowment & Special Care       Record      Class F-2       7.31
 Funds
 Glendale, CA
-------------------------------------------------------------------------------
 Hartford Life Insurance Co. Separate       Record      Class R-1      47.84
 Account                                    Beneficial  Class R-3      17.76
 401K Plan
 Hartford, CT
-------------------------------------------------------------------------------
 NFS, LLC FEBO                              Record      Class R-4       5.01
 Retirement Plan                            Beneficial
 Phoenix, AZ
-------------------------------------------------------------------------------
 The Capital Group Companies                Record      Class R-5      19.62
 Retirement Plans                           Beneficial
 Los Angeles, CA
-------------------------------------------------------------------------------




                       Capital Income Builder -- Page 25

<PAGE>


            NAME AND ADDRESS                OWNERSHIP   OWNERSHIP PERCENTAGE
-------------------------------------------------------------------------------
 Edward D. Jones & Co.                      Record      Class R-5      17.93
 Retirement Plan                            Beneficial
 Norwood, MA
-------------------------------------------------------------------------------
 Mac & Co.                                  Record      Class R-5       6.74
 Retirement Plan                            Beneficial
 Pittsburgh, PA
-------------------------------------------------------------------------------
 Nationwide Trust Company                   Record      Class R-5       5.98
 Columbus, OH
-------------------------------------------------------------------------------
 American Funds 2020 Target Date            Record      Class R-6      18.70
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2010 Target Date            Record      Class R-6      16.15
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2030 Target Date            Record      Class R-6      15.22
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2025 Target Date            Record      Class R-6      15.14
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2015 Target Date            Record      Class R-6      15.02
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2035 Target Date            Record      Class R-6       8.19
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------



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.


                       Capital Income Builder -- Page 26
<PAGE>


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


Rather than remain as investment divisions, Capital World Investors and Capital
Research Global Investors may be incorporated into wholly owned subsidiaries of
Capital Research and Management Company. In that event, Capital Research and
Management Company would continue to be the investment adviser, and day-to-day
investment management of equity assets would continue to be carried out through
one or both of these subsidiaries. Although not currently contemplated, Capital
Research and Management Company could incorporate its Fixed Income division in
the future and engage it to provide day-to-day investment management of
fixed-income assets. Capital Research and Management Company and each of the
funds it advises have applied to the U.S. Securities and Exchange Commission for
an exemptive order that would give Capital Research and Management Company the
authority to use, upon approval of the fund's board, its management subsidiaries
and affiliates to provide day-to-day investment management services to the fund,
including making changes to the management subsidiaries and affiliates providing
such services. The fund's shareholders approved this arrangement at a meeting of
the fund's shareholders on November 24, 2009. There is no assurance that Capital
Research and Management Company will incorporate its investment divisions or
exercise any authority, if granted, under an exemptive order.


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 greater weight placed on the


                       Capital Income Builder -- Page 27
<PAGE>


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 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 each 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; results of the top 20% of MSCI US
Index constituents ranked by yield; results of the top 40% of MSCI All Country
World Index (ex-US) constituents ranked by yield; Barclays Capital U.S.
Government/Credit 1-7 Years ex. BBB Index; Lipper Short-Intermediate Investment
Grade Debt Funds Average; Lipper Short-Intermediate U.S. Government Funds
Average; and the total return of American Funds Money Market Fund.


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


THE FOLLOWING TABLE REFLECTS INFORMATION AS OF OCTOBER 31, 2009:

                                       NUMBER             NUMBER
                                      OF OTHER           OF OTHER          NUMBER
                                     REGISTERED           POOLED          OF OTHER
                                     INVESTMENT         INVESTMENT        ACCOUNTS
                                  COMPANIES (RICS)   VEHICLES (PIVS)      FOR WHICH
                                      FOR WHICH         FOR 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/
----------------------------------------------------------------------------------------
 James B.               Over         4      $172.0         None              None
 Lovelace            $1,000,000
-----------------------------------------------------------------------------------------
 Joyce E. Gordon        Over         4      $155.9         None              None
                     $1,000,000
-----------------------------------------------------------------------------------------
 Mark R.                Over         4      $144.3         None              None
 Macdonald           $1,000,000
-----------------------------------------------------------------------------------------
 David A. Hoag       $100,001 -      3      $104.8         None              None
                      $500,000
-----------------------------------------------------------------------------------------
 David M. Riley         Over         1      $ 93.7         None              None
                     $1,000,000
-----------------------------------------------------------------------------------------
 Timothy D.          $500,001 -      2      $ 25.4         None              None
 Armour              $1,000,000
-----------------------------------------------------------------------------------------




                       Capital Income Builder -- Page 28
<PAGE>


1  Ownership disclosure is made using the following ranges: None; $1 - $10,000;
   $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
   $1,000,000; and Over $1,000,000. The amounts listed include shares owned
   through The Capital Group Companies, Inc. retirement plan and 401(k) plan.
2  Indicates fund(s) where the portfolio counselor also has significant
   responsibilities for the day to day management of the fund(s). Assets noted are
   the total net assets of the registered investment companies and are not 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 or its affiliates 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 the total assets managed by the individual, which
   is a substantially lower amount. No fund or account has an advisory fee that is
   based on the performance of the fund or account.
4  Reflects other professionally managed accounts held at companies affiliated
   with Capital Research and Management Company. Personal brokerage accounts of
   portfolio counselors and their families are not reflected.


INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the investment adviser will
continue in effect until October 31, 2010, 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, the Agreement provides that the investment adviser may
delegate all, or a portion of, its investment management responsibilities to one
or more subsidiary advisers approved by the fund's board, pursuant to an
agreement between the investment adviser and such subsidiary. Any such
subsidiary adviser will be paid solely by the investment adviser out of its
fees.


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


                       Capital Income Builder -- Page 29
<PAGE>


postage used at the fund's offices. The fund pays all expenses not assumed by
the investment adviser, including, but not limited to: custodian, stock transfer
and dividend disbursing fees and expenses; shareholder recordkeeping and
administrative expenses; costs of the designing, printing and mailing of
reports, prospectuses, proxy statements and notices to its shareholders; taxes;
expenses of the issuance and redemption of fund shares (including stock
certificates, registration and qualification fees and expenses); expenses
pursuant to the fund's plans of distribution (described below); legal and
auditing expenses; compensation, fees and expenses paid to independent
directors; association dues; costs of stationery and forms prepared exclusively
for the fund; and costs of assembling and storing shareholder account data.


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


The management fee is based on the following annualized rates and daily net
asset levels:

                                Net asset level


       RATE                IN EXCESS OF                    UP TO
----------------------------------------------------------------------------
      0.240%             $              0             $  1,000,000,000
----------------------------------------------------------------------------
      0.200                 1,000,000,000                2,000,000,000
----------------------------------------------------------------------------
      0.180                 2,000,000,000                3,000,000,000
----------------------------------------------------------------------------
      0.165                 3,000,000,000                5,000,000,000
----------------------------------------------------------------------------
      0.155                 5,000,000,000                8,000,000,000
----------------------------------------------------------------------------
      0.150                 8,000,000,000               13,000,000,000
----------------------------------------------------------------------------
      0.145                13,000,000,000               17,000,000,000
----------------------------------------------------------------------------
      0.140                17,000,000,000               21,000,000,000
----------------------------------------------------------------------------
      0.135                21,000,000,000               27,000,000,000
----------------------------------------------------------------------------
      0.130                27,000,000,000               34,000,000,000
----------------------------------------------------------------------------
      0.125                34,000,000,000               44,000,000,000
----------------------------------------------------------------------------
      0.120                44,000,000,000               55,000,000,000
----------------------------------------------------------------------------
      0.117                55,000,000,000               71,000,000,000
----------------------------------------------------------------------------
      0.114                71,000,000,000               89,000,000,000
----------------------------------------------------------------------------
      0.112                89,000,000,000              115,000,000,000
----------------------------------------------------------------------------
      0.110               115,000,000,000
----------------------------------------------------------------------------



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


                       Capital Income Builder -- Page 30
<PAGE>

                              Monthly gross income


        RATE                IN EXCESS OF                    UP TO
----------------------------------------------------------------------------
       3.00%                $          0                $100,000,000
----------------------------------------------------------------------------
       2.50                  100,000,000
----------------------------------------------------------------------------


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


For the fiscal years ended October 31, 2009, 2008 and 2007, the investment
adviser was entitled to receive from the fund management fees of $190,754,000,
$257,291,000 and $235,205,000, respectively. After giving effect to the
management fee waivers described below, the fund paid the investment adviser
management fees of $187,488,000 (a reduction of $3,266,000), $231,562,000 (a
reduction of $25,729,000) and $211,684,000 (a reduction of $23,521,000) for the
fiscal years ended October 31, 2009, 2008 and 2007, 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. From April 1, 2005 through December 31, 2008,
this waiver increased to 10% of the management fees that the investment adviser
was otherwise entitled to receive. The waiver was discontinued effective January
1, 2009.


In addition, during the year ended October 31, 2009, the investment adviser
waived the fees in excess of the rates provided in the November 1, 2009 amended
investment advisory and service agreement.


ADMINISTRATIVE SERVICES AGREEMENT -- The Administrative Services Agreement (the
"Administrative Agreement") between the fund and the investment adviser relating
to the fund's Class C, F, R and 529 shares will continue in effect until October
31, 2010, 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
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.


                       Capital Income Builder -- Page 31
<PAGE>


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 and R-6 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 and R-6 shares, the
administrative services fee is calculated at the annual rate of up to 0.10% and
0.05%, respectively, of the average daily net assets of such class. 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. A
portion of the fees paid to American Funds Service Company for transfer agent
services is also paid directly from the relevant share class.


During the 2009 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:


                                             ADMINISTRATIVE SERVICES FEE
------------------------------------------------------------------------------
               CLASS C                               $12,981,000
------------------------------------------------------------------------------
              CLASS F-1                                3,793,000
------------------------------------------------------------------------------
              CLASS F-2                                  501,000
------------------------------------------------------------------------------
             CLASS 529-A                               1,091,000
------------------------------------------------------------------------------
             CLASS 529-B                                 161,000
------------------------------------------------------------------------------
             CLASS 529-C                                 456,000
------------------------------------------------------------------------------
             CLASS 529-E                                  52,000
------------------------------------------------------------------------------
            CLASS 529-F-1                                 31,000
------------------------------------------------------------------------------
              CLASS R-1                                  160,000
------------------------------------------------------------------------------
              CLASS R-2                                2,707,000
------------------------------------------------------------------------------
              CLASS R-3                                1,536,000
------------------------------------------------------------------------------
              CLASS R-4                                  385,000
------------------------------------------------------------------------------
              CLASS R-5                                  553,000
------------------------------------------------------------------------------
             CLASS R-6*                                   66,000
------------------------------------------------------------------------------

 * Class R-6 was first offered for sale on May 1, 2009.


                       Capital Income Builder -- Page 32
<PAGE>


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 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 sold prior to April 21, 2009, the
          Principal Underwriter sold 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 compensated investment dealers for sales of
          Class B and 529-B shares out of the proceeds of this sale and kept any
          amounts remaining after this compensation was 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
C and 529-C shares. The fund also reimbursed the Principal Underwriter for
advancing immediate service fees to qualified dealers on sales of Class B and
529-B shares prior to April 21, 2009. 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.


                       Capital Income Builder -- Page 33
<PAGE>


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

                                                                 COMMISSIONS,        ALLOWANCE OR
                                                                    REVENUE          COMPENSATION
                                           FISCAL YEAR/PERIOD  OR FEES RETAINED       TO DEALERS
-----------------------------------------------------------------------------------------------------
                 CLASS A                          2009            $20,083,000        $ 91,146,000
                                                  2008             53,993,000         238,902,000
                                                  2007             76,655,000         337,762,000
-----------------------------------------------------------------------------------------------------
                 CLASS B                          2009                663,000           3,614,000
                                                  2008              3,219,000          21,920,000
                                                  2007              4,843,000          32,776,000
-----------------------------------------------------------------------------------------------------
                 CLASS C                          2009              3,583,000           6,240,000
                                                  2008              9,630,000          21,932,000
                                                  2007                     --          36,507,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-A                        2009                912,000           4,393,000
                                                  2008              1,662,000           7,749,000
                                                  2007              1,856,000           8,556,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-B                        2009                 48,000             257,000
                                                  2008                124,000             962,000
                                                  2007                140,000             929,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-C                        2009                 83,000             668,000
                                                  2008                 40,000           1,245,000
                                                  2007                     --           1,326,000
-----------------------------------------------------------------------------------------------------



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.


                       Capital Income Builder -- Page 34
<PAGE>


Each Plan is specific to a particular share class of the fund. As the fund has
not adopted a Plan for Class F-2, Class R-5 or Class R-6, no 12b-1 fees are paid
from Class F-2, Class R-5 or Class R-6 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 0.30% for Class A shares and up to 0.50% for Class 529-A shares under
     the applicable Plan.

     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:


                       Capital Income Builder -- Page 35
<PAGE>
                                                                        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.


During the 2009 fiscal year, 12b-1 expenses accrued and paid, and if applicable,
unpaid, were:

                                                      12B-1 UNPAID LIABILITY
                               12B-1 EXPENSES              OUTSTANDING
------------------------------------------------------------------------------
        CLASS A                 $119,204,000               $16,767,000
------------------------------------------------------------------------------
        CLASS B                   33,948,000                 3,538,000
------------------------------------------------------------------------------
        CLASS C                   78,222,000                11,562,000
------------------------------------------------------------------------------
       CLASS F-1                   7,584,000                 1,408,000
------------------------------------------------------------------------------
      CLASS 529-A                  2,099,000                   346,000
------------------------------------------------------------------------------
      CLASS 529-B                  1,324,000                   155,000
------------------------------------------------------------------------------
      CLASS 529-C                  3,949,000                   689,000
------------------------------------------------------------------------------
      CLASS 529-E                    246,000                    44,000
------------------------------------------------------------------------------
     CLASS 529-F-1                        --                        --
------------------------------------------------------------------------------
       CLASS R-1                   1,080,000                   210,000
------------------------------------------------------------------------------
       CLASS R-2                   4,007,000                   738,000
------------------------------------------------------------------------------
       CLASS R-3                   3,460,000                   616,000
------------------------------------------------------------------------------
       CLASS R-4                     666,000                   134,000
------------------------------------------------------------------------------




                       Capital Income Builder -- Page 36
<PAGE>


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.


FEE TO VIRGINIA COLLEGE SAVINGS PLAN -- With respect to Class 529 shares, as
compensation for its oversight and administration, Virginia College Savings Plan
receives a quarterly fee accrued daily and calculated at the annual rate of
0.10% on the first $30 billion of the net assets invested in Class 529 shares of
the American Funds, 0.09% on net assets between $30 billion and $60 billion,
0.08% on net assets between $60 billion and $90 billion, 0.07% on net assets
between $90 billion and $120 billion, and 0.06% on net assets between $120
billion and $150 billion. The fee for any given calendar quarter is accrued and
calculated on the basis of average net assets of Class 529 shares of the
American Funds for the last month of the prior calendar quarter.


                       Capital Income Builder -- Page 37
<PAGE>


OTHER COMPENSATION TO DEALERS -- As of July 2009, 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
              American General Securities Incorporated
              FSC Securities Corporation
              Royal Alliance Associates, Inc.
              SagePoint Financial, Inc.
     AXA Advisors, LLC
     Cadaret, Grant & Co., Inc
     Cambridge Investment Research, Inc.
     Commonwealth Financial Network
     Cuna Brokerage Services, Inc.
     Edward Jones
     Genworth Financial Securities Corporation
     Hefren-Tillotson, Inc.
     HTK / Janney Montgomery Group
              Hornor, Townsend & Kent, Inc.
              Janney Montgomery Scott LLC
     ING Advisors Network Inc.
              Bancnorth Investment Group, Inc.
              Financial Network Investment Corporation
              Guaranty Brokerage Services, Inc.
              ING Financial Partners, Inc.
              Multi-Financial Securities Corporation
              Primevest Financial Services, Inc.
     Intersecurities / Transamerica
              InterSecurities, Inc.
              Transamerica Financial Advisors, Inc.
     J. J. B. Hilliard, W. L. Lyons, LLC
     JJB Hilliard/PNC Bank
              PNC Bank, National Association
              PNC Investments LLC
     Lincoln Financial Advisors Corporation
     Lincoln Financial Securities 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
              Tower Square Securities, Inc.
              Walnut Street Securities, Inc.
     MML Investors Services, Inc.


                       Capital Income Builder -- Page 38
<PAGE>


     Morgan Keegan & Company, Inc.
     Morgan Stanley Smith Barney LLC
     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
     PFS Investments Inc.
     Raymond James Group
              Raymond James & Associates, Inc.
              Raymond James Financial Services Inc.
     RBC Capital Markets Corporation
     Robert W. Baird & Co. Incorporated
     Securian / C.R.I.
              CRI Securities, LLC
              Securian Financial Services, Inc.
     U.S. Bancorp Investments, Inc.
     UBS Financial Services Inc.
     Wells Fargo Network
              A. G. Edwards, A Division Of Wells Fargo Advisors, LLC
              First Clearing LLC
              H.D. Vest Investment Securities, Inc.
              Wells Fargo Advisors Financial Network, LLC
              Wells Fargo Advisors Investment Services Group
              Wells Fargo Advisors Latin American Channel
              Wells Fargo Advisors Private Client Group
           Wells Fargo Investments, LLC


                       Capital Income Builder -- Page 39
<PAGE>


                      EXECUTION OF PORTFOLIO TRANSACTIONS

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


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


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


                       Capital Income Builder -- Page 40
<PAGE>


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 in connection with its good
faith determination of reasonableness, the investment adviser does not attribute
a dollar value to such services, but rather takes various factors into
consideration, including the quantity, quality and usefulness of the services to
the investment adviser.


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


                       Capital Income Builder -- Page 41
<PAGE>


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 of 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
October 31, 2009, 2008 and 2007 amounted to $32,856,000, $39,503,000 and
$39,137,000, respectively. The volume of trading activity decreased during the
year, resulting in a decrease in  brokerage commissions paid on portfolio
transactions.


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


At the end of the fund's most recent fiscal year, the fund's regular
broker-dealers included Charles Schwab & Co., Inc., Citigroup Global Markets
Inc., Goldman Sachs & Co. and Morgan Stanley. As of the fund's most recent
fiscal year-end, the fund held debt securities of Charles Schwab Corp. in the
amount of $12,569,000, Citigroup Inc. in the amount of $132,442,000, Goldman
Sachs Group, Inc. in the amount of $131,844,000 and Morgan Stanley in the amount
of $81,556,000.


                       Capital Income Builder -- Page 42
<PAGE>


                        DISCLOSURE OF PORTFOLIO HOLDINGS

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


Under these policies and procedures, the fund's complete list of portfolio
holdings available for public disclosure, dated as of the end of each calendar
quarter, is permitted to be posted on the American Funds website no earlier than
the tenth day after such calendar quarter. In practice, the public portfolio
typically is posted on the website approximately 45 days after the end of the
calendar quarter. In addition, the fund's list of top 10 equity portfolio
holdings measured by percentage of net assets invested, dated as of the end of
each calendar month, is permitted to be posted on the American Funds website no
earlier than the tenth day after such month. Such portfolio holdings information
may then be disclosed to any person pursuant to an ongoing arrangement to
disclose portfolio holdings information to such person no earlier than one day
after the day on which the information is posted on the American Funds website.
The fund's custodian, outside counsel and auditor, each of which requires
portfolio holdings information for legitimate business and fund oversight
purposes, may receive the information earlier.


Affiliated persons of the fund, including officers of the fund and employees of
the investment adviser and its affiliates, 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 not to trade in securities based on confidential and proprietary
investment information, to maintain the confidentiality of such information, and
to preclear securities trades and report securities transactions activity, as
applicable. For more information on these restrictions and limitations, please
see the "Code of Ethics" section in this statement of additional information and
the Code of Ethics. Third party service providers of the fund, as described in
this statement of additional information, 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 will be bound by agreements (including confidentiality agreements)
or fiduciary obligations 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.


                       Capital Income Builder -- Page 43
<PAGE>


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


                       Capital Income Builder -- Page 44
<PAGE>


                                PRICE OF SHARES

Shares are purchased at the offering price or sold at the net asset value price
next determined after the purchase or sell order is received by the fund or the
Transfer Agent provided that your request contains all information and legal
documentation necessary to process the transaction. The Transfer Agent may
accept written orders for the sale of fund shares on a future date. These orders
are subject to the Transfer Agent's policies, which generally allow shareholders
to provide a written request to sell shares at the net asset value on a
specified date no more than five business days after receipt of the order by the
Transfer Agent. Any request to sell shares on a future date will be rejected if
the request is not in writing, if the requested transaction date is more than
five business days after the Transfer Agent receives the request or if the
request does not contain all information and legal documentation necessary to
process the transaction.


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 American Funds Money Market Fund/(R)/) 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.


Equity securities, including depositary receipts, are generally 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.


                       Capital Income Builder -- Page 45
<PAGE>


Fixed-income securities, including short-term securities purchased with more
than 60 days left to maturity, are generally valued at prices obtained as of
approximately 3 p.m. from one or more independent pricing vendors. The pricing
vendors base bond prices on, among other things, benchmark yields, transactions,
bids, offers, quotations from dealers and trading systems, new issues,
underlying equity of the issuer, interest rate volatilities, spreads and other
relationships observed in the markets among comparable securities and
proprietary pricing models such as yield measures calculated using factors such
as cash flows, prepayment information, default rates, delinquency and loss
assumptions, financial or collateral characteristics or performance, credit
enhancements, liquidation value calculations, specific deal information and
other reference data. The fund's investment adviser performs certain checks on
these prices prior to calculation of the fund's net asset value. Where the
investment adviser deems it appropriate to do so, such securities will be valued
in good faith at the mean quoted bid and asked prices that are reasonably and
timely available (or bid prices, if asked prices are not available) or at prices
for securities of comparable maturity, quality and type.


Securities with both fixed-income and equity characteristics (e.g., convertible
bonds, preferred stocks, units comprised of more than one type of security,
etc.), or equity securities traded principally among fixed-income dealers, are
generally 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 other assets for which representative market quotations are not
readily available or are considered unreliable by the investment adviser 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 consider certain relevant principles and factors 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. Fair valuations and valuations of investments that are not
actively trading involve judgment and may differ materially from valuations that
would have been used had greater market activity occurred. The valuation
committee considers relevant indications of value that are reasonably and timely
available to it in determining the fair value to be assigned to a particular
security, such as 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


                       Capital Income Builder -- Page 46
<PAGE>


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).


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


Net assets so obtained for each share class are 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.


                       Capital Income Builder -- Page 47
<PAGE>


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


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


                       Capital Income Builder -- Page 48
<PAGE>


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. When a dividend or a capital gain is distributed by the fund,
the net asset value per share is reduced by the amount of the payment.


     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 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.


                       Capital Income Builder -- Page 49
<PAGE>


     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 to corporate shareholders 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 Income Builder -- Page 50
<PAGE>


     CAPITAL GAIN DISTRIBUTIONS -- The fund also intends to distribute its net
     capital gain each year. The fund's net capital gain is 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.

     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 net capital gain 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. For non-corporate shareholders, 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 (including any undistributed
     amounts treated as distributed capital gains, as described above) 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.


                       Capital Income Builder -- Page 51
<PAGE>


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


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


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


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


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


                       Capital Income Builder -- Page 52
<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 transaction confirmation and mailing the form, along
     with a check made payable to the fund, using the envelope provided with
     your confirmation.

     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 either of the following addresses:

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

           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.

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

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


                       Capital Income Builder -- Page 53
<PAGE>


           Your bank should include the following information when wiring funds:

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

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

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

OTHER PURCHASE INFORMATION -- Class 529 shares may be purchased only through
CollegeAmerica by investors establishing qualified higher education savings
accounts. Class 529-E shares may be purchased only by investors participating in
CollegeAmerica through an eligible employer plan. The 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. In
addition, the fund and the Principal Underwriter reserve the right to reject any
purchase order.


Class R-5 and R-6 shares may be made available to certain charitable foundations
organized and maintained by The Capital Group Companies, Inc. or its affiliates.

Class R-5 and R-6 shares may also be made available to the Virginia College
Savings Plan for use in the Virginia Education Savings Trust and the Virginia
Prepaid Education Program and other registered investment companies approved by
the fund.


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.


                       Capital Income Builder -- Page 54
<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 Capital Group Private
          Client Services division.

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


EXCHANGES -- You may only exchange shares into other American Funds within the
same share class. However, exchanges from Class A shares of American Funds Money
Market Fund may be made to Class C shares of other American Funds for dollar
cost averaging purposes. Exchanges are not permitted from Class A shares of
American Funds Money Market Fund to Class C shares of Intermediate Bond Fund of
America, Limited Term Tax-Exempt Bond Fund of America or 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 Fund are subject to applicable sales
charges, unless the American Funds 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).


                       Capital Income Builder -- Page 55
<PAGE>


FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain
redemptions may trigger a purchase block lasting 30 calendar days under the
fund's "purchase blocking policy." Under this policy, systematic redemptions
will not trigger a purchase block and systematic purchases will not be prevented
where the entity maintaining the shareholder account is able to identify the
transaction as a systematic redemption or purchase. 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. Generally,
purchases and redemptions will not be considered "systematic" unless the
transaction is pre-scheduled for a specific date.


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.


                       Capital Income Builder -- Page 56
<PAGE>


     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. Notwithstanding
     the previous sentence, you can exchange Class F shares received in a
     conversion from Class C shares for Class A shares at any time without
     paying an initial Class A sales charge if you notify American Funds Service
     Company of the conversion when you make 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.

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

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

     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.


                       Capital Income Builder -- Page 57
<PAGE>


                                 SALES CHARGES

CLASS A PURCHASES


     PURCHASES BY CERTAIN 403(B) PLANS

     A 403(b) plan may not invest in Class A or C shares unless such plan was
     invested in Class A or C shares before January 1, 2009.

     Participant accounts of a 403(b) plan that were treated as an
     individual-type plan for sales charge purposes before January 1, 2009, may
     continue to be treated as accounts of an individual-type plan for sales
     charge purposes. Participant accounts of a 403(b) plan that were treated as
     an employer-sponsored plan for sales charge purposes before January 1,
     2009, may continue to be treated as accounts of an employer-sponsored plan
     for sales charge purposes. Participant accounts of a 403(b) plan that is
     established on or after January 1, 2009 are treated as accounts of an
     employer-sponsored plan for sales charge purposes.

     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.

     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


                       Capital Income Builder -- Page 58
<PAGE>


          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 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.


                       Capital Income Builder -- Page 59
<PAGE>


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%.


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


                       Capital Income Builder -- Page 60
<PAGE>


                      SALES CHARGE REDUCTIONS AND WAIVERS

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


     STATEMENT OF INTENTION -- By establishing a statement of intention (the
     "Statement"), you enter into a nonbinding commitment to purchase shares of
     the American Funds (excluding American Funds Money Market Fund) 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,
     unless the Statement is upgraded as described below.

     The Statement period starts on the date on which your first purchase made
     toward satisfying the Statement is processed. Your accumulated holdings (as
     described in the paragraph titled "Rights of accumulation") eligible to be
     aggregated as of the day immediately before the start of the Statement
     period may be credited toward satisfying the Statement.

     You may revise the commitment you have made in your Statement upward at any
     time during the Statement period. If your prior commitment has not been met
     by the time of the revision, the Statement period during which purchases
     must be made will remain unchanged. Purchases made from the date of the
     revision will receive the reduced sales charge, if any, resulting from the
     revised Statement. If your prior commitment has been met by the time of the
     revision, your original Statement will be considered met and a new
     Statement will be established.

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

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

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


                       Capital Income Builder -- Page 61
<PAGE>


     plans will be deemed completed and will terminate. In addition, effective
     May 1, 2009, the Statements for these plans will expire if they have not
     been met by the next anniversary of the establishment of such Statement.
     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,
          single-participant Keogh-type plan, or a participant account of a
          403(b) plan that is treated as an individual-type plan for sales
          charge purposes (see "Purchases by certain 403(b) plans" under "Sales
          charges" in this statement of additional information);

     .    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;


                       Capital Income Builder -- Page 62
<PAGE>


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

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

     .    for participant accounts of a 403(b) plan that is treated as an
          employer-sponsored plan for sales charge purposes (see "Purchases by
          certain 403(b) plans" under "Sales charges" in this statement of
          additional information), or made for participant accounts of two or
          more such plans, 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 American
     Funds Money Market Fund 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 Fund 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 Fund 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") as of the day prior to your American Funds investment 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.


                       Capital Income Builder -- Page 63
<PAGE>


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

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

     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 post-purchase 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


                       Capital Income Builder -- Page 64
<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 your investment in the applicable
class of 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.


                       Capital Income Builder -- Page 65
<PAGE>


                                 SELLING SHARES

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


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


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


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


Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 10
business days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the 1940 Act), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.


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


                       Capital Income Builder -- Page 66
<PAGE>


                  SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The following services and privileges are generally available to all
shareholders. However, certain services and privileges described in the
prospectus and this statement of additional information 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 may be automatically converted to having all dividends and other
distributions reinvested in additional shares.


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


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

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

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


                       Capital Income Builder -- Page 67
<PAGE>


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


AUTOMATIC WITHDRAWALS -- Depending on the type of account, for all share classes
except R 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. You should consult with your adviser or intermediary to determine if
your account is eligible for automatic withdrawals.


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


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


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


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


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


                       Capital Income Builder -- Page 68
<PAGE>


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 Fund 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 with
portfolio securities or other fund assets under conditions and circumstances
determined by the fund's board of directors. For example, redemptions could be
made in this manner if the board determined that making payments wholly in cash
over a particular period would be unfair and/or harmful to other fund
shareholders.



SHARE CERTIFICATES -- Shares are credited to your account. The fund's board may
determine if the fund issues share certificates.



                       Capital Income Builder -- Page 69
<PAGE>


                              GENERAL INFORMATION

CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as
Custodian. If the fund holds securities of 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 $65,518,000 for Class A shares and $4,352,000 for
Class B shares for the 2009 fiscal year. American Funds Service Company is also
compensated for certain transfer agency services provided to all share classes
from the administrative services fees paid to Capital Research and Management
Company and from the relevant share class, as described under "Administrative
services agreement."


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


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- PricewaterhouseCoopers LLP, 350
South Grand Avenue, Los Angeles, CA 90071, serves as the fund's independent
registered public accounting firm, providing audit services, preparation of tax
returns and review of certain documents to be filed with the Securities and
Exchange Commission. The financial statements included in this statement of
additional information from the annual report have been audited by
PricewaterhouseCoopers 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 -- O'Melveny & Myers LLP, 400 South Hope 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 the shares offered by the prospectus have been passed upon
for the fund by O'Melveny & Myers LLP. Counsel does not provide legal services
to the fund's investment adviser or any of its affiliated companies or control
persons. A determination with respect to the independence of the fund's counsel
will be made at least annually by the independent directors of the fund, as
prescribed by the 1940 Act and related rules.

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


                       Capital Income Builder -- Page 70
<PAGE>


portfolio, financial statements and other information. Shareholders may request
a copy of the fund's current prospectus at no cost by calling 800/421-0180 or by
sending an e-mail request to prospectus@americanfunds.com. Shareholders may also
access the fund's current summary prospectus, prospectus, statement of
additional information and shareholder reports at americanfunds.com/prospectus.
The fund's annual financial statements are audited by the fund's independent
registered public accounting firm, PricewaterhouseCoopers LLP. In addition,
shareholders may also receive proxy statements for the fund. In an effort to
reduce the volume of mail shareholders receive from the fund when a household
owns more than one account, the Transfer Agent has taken steps to eliminate
duplicate mailings of summary prospectuses, shareholder reports and proxy
statements. To receive additional copies of a summary prospectus, report or
proxy statement, shareholders should contact the Transfer Agent.


Shareholders may also elect to receive updated summary prospectuses, annual
reports and semi-annual reports electronically by signing up for electronic
delivery on our website, americanfunds.com. Upon electing the electronic
delivery of updated summary 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 summary prospectuses and other reports in
paper form by mail.


Summary prospectuses, 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.


                       Capital Income Builder -- Page 71
<PAGE>


DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- OCTOBER 31, 2009




Net asset value and redemption price per share
  (Net assets divided by shares outstanding). .                     $46.41
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). . . . . . . . . . . . . . . .                      $49.24



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.


                       Capital Income Builder -- Page 72
<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
International Growth and
Income Fund/SM/ . . . . . .     034      234      334       434         634
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/(R)/ . . . .     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 Funds Short-Term
Tax-Exempt Bond Fund/SM/  .     039      N/A      N/A       439         639
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 FUND
American Funds Money Market
Fund/(R)/ . . . . . . . . .     059      259      359       459         659
___________
*Qualified for sale only in certain jurisdictions.




                       Capital Income Builder -- Page 73
<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
International Growth and Income
Fund . . . . . . . . . . . . .    1034     1234     1334     1534       1434
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
American Funds Money Market
Fund . . . . . . . . . . . . .    1059     1259     1359     1559       1459





                       Capital Income Builder -- Page 74
<PAGE>

                                               FUND NUMBERS
                                     ------------------------------------------
                                     CLASS  CLASS  CLASS  CLASS  CLASS   CLASS
FUND                                  R-1    R-2    R-3    R-4    R-5     R-6
-------------------------------------------------------------------------------
STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . . .   2102   2202   2302   2402   2502    2602
American Balanced Fund . . . . . .   2111   2211   2311   2411   2511    2611
American Mutual Fund . . . . . . .   2103   2203   2303   2403   2503    2603
Capital Income Builder . . . . . .   2112   2212   2312   2412   2512    2612
Capital World Growth and Income
Fund . . . . . . . . . . . . . . .   2133   2233   2333   2433   2533    2633
EuroPacific Growth Fund  . . . . .   2116   2216   2316   2416   2516    2616
Fundamental Investors  . . . . . .   2110   2210   2310   2410   2510    2610
The Growth Fund of America . . . .   2105   2205   2305   2405   2505    2605
The Income Fund of America . . . .   2106   2206   2306   2406   2506    2606
International Growth and Income
Fund . . . . . . . . . . . . . . .   2134   2234   2334   2434   2534    2634
The Investment Company of America    2104   2204   2304   2404   2504    2604
The New Economy Fund . . . . . . .   2114   2214   2314   2414   2514    2614
New Perspective Fund . . . . . . .   2107   2207   2307   2407   2507    2607
New World Fund . . . . . . . . . .   2136   2236   2336   2436   2536    2636
SMALLCAP World Fund  . . . . . . .   2135   2235   2335   2435   2535    2635
Washington Mutual Investors Fund .   2101   2201   2301   2401   2501    2601
BOND FUNDS
American High-Income Trust . . . .   2121   2221   2321   2421   2521    2621
The Bond Fund of America . . . . .   2108   2208   2308   2408   2508    2608
Capital World Bond Fund  . . . . .   2131   2231   2331   2431   2531    2631
Intermediate Bond Fund of America    2123   2223   2323   2423   2523    2623
Short-Term Bond Fund of America. .   2148   2248   2348   2448   2548    2648
U.S. Government Securities Fund  .   2122   2222   2322   2422   2522    2622
MONEY MARKET FUND
American Funds Money Market Fund .   2159   2259   2359   2459   2559    2659





                       Capital Income Builder -- Page 75
<PAGE>

                                           FUND NUMBERS
                            ---------------------------------------------------
                                     CLASS  CLASS  CLASS  CLASS  CLASS   CLASS
FUND                        CLASS A   R-1    R-2    R-3    R-4    R-5     R-6
-------------------------------------------------------------------------------
AMERICAN FUNDS TARGET DATE RETIREMENT SERIES/(R)/
American Funds 2055 Target
Date Retirement Fund/SM/      082    2182   2282   2382   2482   2582    2682
American Funds 2050 Target
Date Retirement Fund/(R)/     069    2169   2269   2369   2469   2569    2669
American Funds 2045 Target
Date Retirement Fund/(R)/     068    2168   2268   2368   2468   2568    2668
American Funds 2040 Target
Date Retirement Fund/(R)/     067    2167   2267   2367   2467   2567    2667
American Funds 2035 Target
Date Retirement Fund/(R)/     066    2166   2266   2366   2466   2566    2666
American Funds 2030 Target
Date Retirement Fund/(R)/     065    2165   2265   2365   2465   2565    2665
American Funds 2025 Target
Date Retirement Fund/(R)/     064    2164   2264   2364   2464   2564    2664
American Funds 2020 Target
Date Retirement Fund/(R)/     063    2163   2263   2363   2463   2563    2663
American Funds 2015 Target
Date Retirement Fund/(R)/     062    2162   2262   2362   2462   2562    2662
American Funds 2010 Target
Date Retirement Fund/(R)/     061    2161   2261   2361   2461   2561    2661





                       Capital Income Builder -- Page 76
<PAGE>


                                    APPENDIX

                    DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S
COMMERCIAL PAPER RATINGS (HIGHEST THREE RATINGS)

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


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


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


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

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


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


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


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



                       Capital Income Builder -- Page 77
<PAGE>

                          DESCRIPTION OF BOND RATINGS

MOODY'S
LONG-TERM RATING DEFINITIONS

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


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


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


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


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


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


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


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


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


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


                       Capital Income Builder -- Page 78
<PAGE>


STANDARD & POOR'S
LONG-TERM ISSUE CREDIT RATINGS

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


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


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


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


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


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


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


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


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


                       Capital Income Builder -- Page 79
<PAGE>


C
A C rating is assigned to obligations that are currently highly vulnerable to
nonpayment, obligations that have payment arrearages allowed by the terms of the
documents, or obligations of an issuer that is the subject of a bankruptcy
petition or similar action which have not experienced a payment default. Among
others, the C rating may be assigned to subordinated debt, preferred stock or
other obligations on which cash payments have been suspended in accordance with
the instrument's terms.


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


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


                       Capital Income Builder -- Page 80

....

[logo – American Funds®]

Capital Income Builder®

Investment portfolio

October 31, 2009

Common stocks — 62.66%	Shares			Value (000)

TELECOMMUNICATION SERVICES — 8.56%
AT&T Inc.		52,431,230		$	1,345,910
Verizon Communications Inc.		33,541,700			992,499
América Móvil, SAB de CV, Series L (ADR)		18,738,000			826,908
CenturyTel, Inc.1		19,053,597			618,480
Koninklijke KPN NV2		27,589,050			500,815
Telefónica, SA2		17,460,000			487,955
Telekom Austria AG, non-registered shares2		15,492,711			254,001
Singapore Telecommunications Ltd.2		115,233,500			238,989
Belgacom SA2		6,034,800			226,636
Vodafone Group PLC2		75,200,000			166,638
Telekomunikacja Polska SA2		25,467,566			149,223
France Télécom SA2		5,743,000			142,179
Türk Telekomünikasyon AS, Class D2		46,737,000			141,060
Advanced Info Service PCL2		50,509,000			129,263
Taiwan Mobile Co., Ltd.2		33,484,516			59,551
DiGi.Com Bhd.2		8,852,000			56,546
Philippine Long Distance Telephone Co.2		1,053,250			56,359
Telecom Italia SpA, nonvoting2		46,468,726			51,253
StarHub Ltd2		25,787,250			34,545
Telkom SA Ltd.2		5,227,300			28,929
OJSC Mobile TeleSystems (ADR)		565,500			25,617
MTN Group Ltd.2		1,495,800			22,352
BT Group PLC2		10,000,000			21,383
China Mobile Ltd.2		2,000,000			18,729
Far EasTone Telecommunications Co., Ltd.2		1,634,111			1,836
					6,597,656


FINANCIALS — 8.52%
Banco Santander, SA2		82,073,972			1,322,796
BNP Paribas SA2		6,312,291			475,461
Banco Bradesco SA, preferred nominative		22,083,300			434,500
HSBC Holdings PLC (Hong Kong)2		26,741,178			292,962
HSBC Holdings PLC (United Kingdom)2		9,728,436			107,824
Hang Seng Bank Ltd.2		24,991,100			354,651
Westpac Banking Corp.2		15,251,722			354,634
Bank of China Ltd., Class H2		574,785,000			331,360
JPMorgan Chase & Co.		6,145,000			256,677
Royal Bank of Canada		4,396,111			222,917
Industrial and Commercial Bank of China Ltd., Class H2		257,486,000			204,820
Bank of Nova Scotia		4,847,200			202,957
HCP, Inc.		6,680,500			197,676
Sampo Oyj, Class A2		6,873,962			164,753
Société Générale2		2,403,118			159,817
Itaú Unibanco Holding SA, preferred nominative		7,483,630			142,728
Admiral Group PLC2		7,584,570			127,701
CapitaMall Trust, units2		112,596,592			126,135
Prudential PLC2		10,222,231			92,896
Westfield Group2		8,249,175			88,171
Equity Residential, shares of beneficial interest		2,755,800			79,587
S P Setia Bhd.1,2		58,027,000			65,341
Arthur J. Gallagher & Co.		2,903,589			64,779
Bank of the Philippine Islands2		57,933,564			55,925
Wells Fargo & Co.		1,970,000			54,214
Starwood Property Trust, Inc.1		2,675,000			53,848
Bank of New York Mellon Corp.		1,924,536			51,308
Weingarten Realty Investors		2,634,750			48,743
Sun Hung Kai Properties Ltd.2		2,925,000			44,365
Kimco Realty Corp.		3,103,500			39,228
Champion Real Estate Investment Trust2		89,272,000			37,518
TrygVesta A/S2		514,300			37,119
Frasers Centrepoint Trust1,2		39,264,000			33,431
Unibail-Rodamco SE, non-registered shares2		150,000			33,255
United Bankshares, Inc.		1,775,000			31,684
SM Prime Holdings, Inc.2		125,000,000			25,618
Eurobank Properties REIT2		1,950,000			24,587
CapitaRetail China Trust2		30,837,000			24,468
Kerry Properties Ltd.2		4,240,696			23,809
ProLogis, shares of beneficial interest		1,750,000			19,827
CapitaCommercial Trust2		26,272,300			19,774
Colony Financial, Inc.1,3		750,000			14,587
Banco Bilbao Vizcaya Argentaria, SA2		672,677			12,064
Fannie Mae3		10,000,000			10,800
Freddie Mac3		5,300,000			6,519
					6,573,834


CONSUMER STAPLES — 6.73%
Philip Morris International Inc.		30,030,800			1,422,259
PepsiCo, Inc.		10,980,000			664,839
Nestlé SA2		10,975,000			511,070
Coca-Cola Co.		8,972,000			478,297
Kraft Foods Inc., Class A		13,527,870			372,287
Altria Group, Inc.		19,755,000			357,763
Kellogg Co.		5,349,000			275,687
Diageo PLC2		14,085,000			229,918
Sara Lee Corp.		16,840,600			190,130
Reynolds American Inc.		3,480,000			168,710
Clorox Co.		1,685,000			99,803
Kimberly-Clark Corp.		1,500,000			91,740
H.J. Heinz Co.		2,000,000			80,480
Foster’s Group Ltd.2		13,500,000			65,671
ConAgra Foods, Inc.		3,000,000			63,000
Imperial Tobacco Group PLC2		1,390,000			41,027
SABMiller PLC2		1,050,000			27,617
Nestlé India Ltd.2		480,000			26,161
Procter & Gamble Co.		390,000			22,620
					5,189,079


UTILITIES — 6.70%
GDF Suez2		16,302,320			683,129
Exelon Corp.		9,601,500			450,886
Dominion Resources, Inc.		11,251,980			383,580
Scottish and Southern Energy PLC2		20,452,784			362,654
Hongkong Electric Holdings Ltd.2		65,466,500			349,786
FirstEnergy Corp.		7,755,500			335,658
Fortum Oyj2		11,366,230			269,292
Veolia Environnement2		8,245,682			268,830
Gas Natural SDG, SA2		10,854,000			218,305
PPL Corp.		7,246,893			213,349
RWE AG2		2,400,000			210,414
Public Service Enterprise Group Inc.		6,865,700			204,598
Southern Co.		5,500,000			171,545
Progress Energy, Inc.		3,875,000			145,429
Ameren Corp.		4,816,420			117,232
Xcel Energy Inc.		5,516,000			104,032
DTE Energy Co.		2,750,000			101,695
FPL Group, Inc.		2,000,000			98,200
SUEZ Environnement Co.2		3,837,375			85,497
Cheung Kong Infrastructure Holdings Ltd.2		20,671,000			73,698
Entergy Corp.		752,500			57,732
E.ON AG2		1,500,000			57,407
Electricité de France SA2		850,989			47,385
Electricity Generating PCL2		19,226,428			42,981
Consolidated Edison, Inc.		900,000			36,612
NiSource Inc.		2,289,307			29,578
National Grid PLC2		2,632,652			26,217
Pinnacle West Capital Corp.		738,200			23,120
					5,168,841


ENERGY — 6.56%
Royal Dutch Shell PLC, Class A (ADR)		9,328,000			554,177
Royal Dutch Shell PLC, Class B2		5,067,187			147,013
Royal Dutch Shell PLC, Class B (ADR)		1,866,228			108,540
Royal Dutch Shell PLC, Class A2		3,055,000			90,976
BP PLC2		94,932,042			895,435
Sasol Ltd.2		22,431,827			836,568
Eni SpA2		28,260,866			701,552
Eni SpA (ADR)		912,492			45,241
ConocoPhillips		8,257,970			414,385
Woodside Petroleum Ltd.2		7,880,000			330,590
TOTAL SA2		3,756,000			223,939
TOTAL SA (ADR)		600,000			36,042
Enbridge Inc.		3,523,468			137,228
OAO LUKOIL (ADR)2		2,240,800			129,474
Husky Energy Inc.		4,850,000			127,903
StatoilHydro ASA2		3,500,532			83,188
China National Offshore Oil Corp.2		44,764,000			67,119
PetroChina Co. Ltd., Class H2		44,418,000			53,628
Spectra Energy Corp		2,783,220			53,215
Chevron Corp.		259,700			19,877
					5,056,090


INDUSTRIALS — 5.73%
Siemens AG2		6,126,000			552,705
Geberit AG2		1,718,000			285,023
United Technologies Corp.		4,355,000			267,615
Eaton Corp.		4,321,000			261,204
MAp Group1,2		93,268,737			238,404
Lockheed Martin Corp.		3,183,000			218,959
Schneider Electric SA2		2,034,500			211,585
FirstGroup PLC1,2		31,300,000			192,962
Singapore Technologies Engineering Ltd.2		91,974,000			185,762
Leighton Holdings Ltd.2		5,728,928			180,478
Burlington Northern Santa Fe Corp.		1,803,000			135,802
Waste Management, Inc.		4,150,000			124,002
Emerson Electric Co.		3,165,000			119,479
ASSA ABLOY AB, Class B2		6,460,000			115,394
Hays PLC1,2		71,032,000			114,103
CSX Corp.		2,605,000			109,879
Robert Half International Inc.		4,360,000			101,152
AB Volvo, Class B2		10,062,000			97,187
De La Rue PLC1,2		6,374,619			95,600
Österreichische Post AG2		2,872,569			84,005
General Electric Co.		5,230,000			74,580
Norfolk Southern Corp.		1,540,000			71,795
Uponor Oyj2		3,480,800			63,205
Spirax-Sarco Engineering PLC2		3,045,391			54,392
Transport International Holdings Ltd.2		18,625,900			52,482
Société BIC SA2		690,000			48,080
BELIMO Holding AG1,2		42,250			43,314
AB SKF, Class B2		2,670,000			43,177
Singapore Post Private Ltd.2		60,400,000			40,540
Seco Tools AB, Class B2		2,702,640			36,315
Go-Ahead Group PLC2		1,525,000			35,522
Hopewell Highway Infrastructure Ltd.2		46,145,630			27,798
Steelcase Inc., Class A		4,440,000			25,619
Jiangsu Expressway Co. Ltd., Class H2		26,436,000			23,455
IMI PLC2		3,060,000			21,654
SIA Engineering Co. Ltd.2		8,617,000			17,139
Pfeiffer Vacuum Technology AG, non-registered shares2		215,000			16,190
Watsco, Inc.		285,000			14,598
DCC PLC2		390,000			10,262
Seaspan Corp.		449,100			3,889
					4,415,306


HEALTH CARE — 5.36%
Merck & Co., Inc.		28,266,100			874,270
Bayer AG2		8,184,000			567,577
Novartis AG2		8,565,000			447,563
Roche Holding AG2		2,721,000			436,730
Johnson & Johnson		6,500,000			383,825
Bristol-Myers Squibb Co.		16,450,000			358,610
Pfizer Inc		20,000,000			340,600
Abbott Laboratories		3,520,000			178,006
GlaxoSmithKline PLC2		6,792,000			139,701
Orion Oyj, Class B2		5,837,194			111,074
Sonic Healthcare Ltd.2		7,459,270			92,223
Schering-Plough Corp.		2,246,600			63,354
Takeda Pharmaceutical Co. Ltd.2		1,460,000			58,735
Daiichi Sankyo Co., Ltd.2		2,650,000			52,462
Oriola-KD Oyj, Class B2		4,205,677			22,137
Clínica Baviera, SA2,3		790,430			9,499
					4,136,366


INFORMATION TECHNOLOGY — 3.95%
Taiwan Semiconductor Manufacturing Co. Ltd.2		275,461,272			499,375
Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)		10,455,599			99,746
Microsoft Corp.		15,321,800			424,874
Delta Electronics, Inc.2		74,564,430			207,337
Redecard SA, ordinary nominative		13,737,600			204,520
HTC Corp.2		20,106,975			200,379
MediaTek Inc.2		13,126,446			185,222
Paychex, Inc.		5,480,000			155,687
Acer Inc.2		59,938,444			141,427
Automatic Data Processing, Inc.		3,500,000			139,300
Maxim Integrated Products, Inc.		8,290,700			138,206
Intel Corp.		6,957,200			132,952
Wincor Nixdorf AG1,2		2,150,312			125,865
Canon, Inc.2		2,523,800			94,745
Halma PLC2		15,195,069			56,731
Xilinx, Inc.		2,585,900			56,243
Murata Manufacturing Co., Ltd.2		1,101,900			54,329
Siliconware Precision Industries Co., Ltd.2		40,070,300			53,371
Spectris PLC2		2,864,765			31,807
Neopost SA2		310,200			27,204
Oakton Ltd.1,2		4,617,960			14,304
Renishaw PLC2		655,000			5,863
					3,049,487


CONSUMER DISCRETIONARY — 3.18%
OPAP SA1,2		16,421,040			420,092
McDonald’s Corp.		4,120,000			241,473
Esprit Holdings Ltd.2		34,501,800			225,886
Johnson Controls, Inc.		9,077,990			217,146
Toyota Motor Corp.2		3,297,000			130,514
Mattel, Inc.		6,710,000			127,020
Industria de Diseño Textil, SA2		1,985,599			116,699
Daimler AG2		2,261,400			110,217
Greene King PLC1,2		13,877,742			90,021
Yue Yuen Industrial (Holdings) Ltd.2		31,731,500			88,139
Limited Brands, Inc.		5,000,000			88,000
British Sky Broadcasting Group PLC2		9,849,000			85,997
Kingfisher PLC2		18,845,000			69,045
Leggett & Platt, Inc.		2,490,000			48,132
Genuine Parts Co.		1,280,000			44,787
DSG international PLC2,3		85,412,161			42,876
Li & Fung Ltd.2		9,530,000			39,468
Ekornes ASA1,2		1,980,425			36,807
Intercontinental Hotels Group PLC2		2,412,352			30,940
Bijou Brigitte modische Accessoires AG2		182,900			29,644
Halfords Group PLC2		4,590,000			29,506
Kesa Electricals PLC2		13,430,200			29,190
Carnival Corp., units		1,000,000			29,120
Marks and Spencer Group PLC2		4,780,000			26,826
Headlam Group PLC2		2,938,547			14,990
Aristocrat Leisure Ltd.2		3,791,027			14,977
Fairfax Media Ltd.2		10,000,000			14,155
Autoliv AB		416,500			13,986
					2,455,653


MATERIALS — 2.80%
Akzo Nobel NV2		8,673,000			513,189
Koninklijke DSM NV2		8,539,000			374,068
Israel Chemicals Ltd.2		26,930,907			314,641
RPM International, Inc.1		8,340,000			146,951
Symrise AG1,2		6,835,085			125,969
Fletcher Building Ltd.2		21,176,596			124,845
Impala Platinum Holdings Ltd.2		4,420,000			96,072
Packaging Corp. of America		5,000,000			91,400
CRH PLC2		3,486,962			85,155
OneSteel Ltd.2		25,809,715			69,825
Weyerhaeuser Co.		1,500,000			54,510
Worthington Industries, Inc.		3,639,800			40,220
Lafarge Malayan Cement Bhd.2		22,590,530			39,986
voestalpine AG2		900,000			30,714
Rautaruukki Oyj2		1,431,029			29,191
Ambuja Cements Ltd.2		11,804,916			22,120
					2,158,856


MISCELLANEOUS — 4.57%
Other common stocks in initial period of acquisition					3,527,138


Total common stocks (cost: $47,138,147,000)					48,328,306



Preferred stocks — 0.75%

FINANCIALS — 0.65%
Barclays Bank PLC 7.434%4,5		38,889,000			36,361
Barclays Bank PLC 14.00%5		10,395,000			22,470
Barclays Bank PLC 8.55%4,5		6,011,000			5,801
Barclays Bank PLC 6.86%4,5		4,687,000			3,867
Barclays Bank PLC, Series 1, 6.278% noncumulative5		3,200,000			2,508
Barclays Bank PLC 7.375%4,5		458,000			419
PNC Preferred Funding Trust I 6.517%4,5		53,100,000			37,553
PNC Preferred Funding Trust III 8.70%4,5		32,000,000			31,930
Wells Fargo & Co. 7.98%5		47,224,000			44,450
Wachovia Capital Trust III 5.80%5		21,932,000			15,912
Banco Santander, SA, Series 10, 10.50%3		1,748,757			47,990
JPMorgan Chase & Co., Series I, 7.90%5		44,025,000			44,410
Banco Bilbao Vizcaya Argentaria, SA, 5.919%5		51,660,000			41,387
Mizuho Capital Investment (USD) 2 Ltd. 14.95%4,5		25,000,000			31,482
AXA SA, Series B, 6.379%4,5		28,500,000			24,581
BNP Paribas 7.195%4,5		26,500,000			24,512
QBE Capital Funding II LP 6.797%4,5		28,900,000			23,549
Public Storage, Inc., Series F, 6.45%		1,000,000			21,250
SMFG Preferred Capital USD 2 Ltd. 8.75% noncumulative4		7,031,000			7,043
SMFG Preferred Capital USD 3 Ltd. 9.50%4,5		6,029,000			6,617
Société Générale 5.922%4,5		12,805,000			10,194
Fannie Mae, Series S, 8.25% noncumulative3		2,000,000			2,325
Fannie Mae, Series O, 0%3,4,5		874,555			1,924
Fannie Mae, Series P, 4.50% noncumulative3		1,600,000			1,280
Fannie Mae, Series E, 5.10%3		608,441			1,027
Fannie Mae, Series L, 5.125%3		570,000			832
Freddie Mac, Series V, 5.57%3		3,485,635			3,703
Freddie Mac, Series Z, 8.375%3		2,041,640			2,271
Freddie Mac, Series W, 5.66%3		650,000			658
Freddie Mac, Series Y, 6.55%3		350,250			368
					498,674


U.S. GOVERNMENT AGENCY SECURITIES — 0.08%
CoBank, ACB, Series C, 11.00%4		1,120,000			52,325
US AgBank 6.11%4,5		13,000,000			7,926
					60,251


UTILITIES — 0.02%
Alabama Power Co. 5.625%		800,000			18,025


Total preferred stocks (cost: $869,512,000)					576,950


	Shares or
Convertible securities — 0.27%	principal amount

UTILITIES — 0.05%
PG&E Corp. 9.50% convertible notes 2010	$	14,000,000			38,045


CONSUMER DISCRETIONARY — 0.03%
Ford Motor Co. Capital Trust II 6.50% convertible preferred 2032		473,600			13,687
Johnson Controls, Inc. 11.50% convertible preferred 2012, units		88,000			11,008
					24,695


FINANCIALS — 0.02%
Digital Realty Trust, Inc. 5.50% convertible debentures 20294	$	4,050,000			4,997
Fannie Mae, Series 2004-1, 5.375% convertible preferred3		240			1,200
Fannie Mae, Series 2008-1, 8.75% noncumulative convertible preferred3		1,352,000			2,163
Washington Mutual, Inc., Series R, 7.75% noncumulative convertible preferred3		76,628			1,839
					10,199


MISCELLANEOUS — 0.17%
Other convertible securities in initial period of acquisition					131,521


Total convertible securities (cost: $315,872,000)					204,460


	Principal amount
Bonds & notes — 30.07%		(000	)

MORTGAGE-BACKED OBLIGATIONS6 — 9.90%
Fannie Mae 4.89% 2012	$	25,000			26,388
Fannie Mae, Series 2002-T11, Class B, 5.341% 2012		30,000			32,225
Fannie Mae 4.00% 2015		11,208			11,569
Fannie Mae 11.00% 2015		384			437
Fannie Mae 7.00% 2016		47			50
Fannie Mae 11.00% 2016		165			191
Fannie Mae 5.00% 2017		114			122
Fannie Mae, Series 2002-15, Class PG, 6.00% 2017		7,610			8,180
Fannie Mae 5.00% 2018		19,588			20,909
Fannie Mae 5.00% 2018		1,271			1,356
Fannie Mae 11.00% 2018		352			406
Fannie Mae 4.00% 2019		28,638			29,823
Fannie Mae 4.50% 2019		22,556			23,793
Fannie Mae 4.50% 2019		17,729			18,707
Fannie Mae 4.50% 2019		13,489			14,231
Fannie Mae 5.50% 2019		2,346			2,525
Fannie Mae 4.50% 2020		25,095			26,472
Fannie Mae 4.50% 2020		2,048			2,160
Fannie Mae 5.50% 2020		5,620			6,048
Fannie Mae 11.00% 2020		84			96
Fannie Mae 4.50% 2021		70,941			74,699
Fannie Mae, Series 2006-78, Class CG, 4.50% 2021		15,000			15,581
Fannie Mae 6.00% 2021		5,388			5,803
Fannie Mae 6.00% 2021		728			784
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022		32,654			33,696
Fannie Mae 5.50% 2022		14,603			15,548
Fannie Mae 5.50% 2022		11,369			12,104
Fannie Mae 5.50% 2022		4,318			4,597
Fannie Mae 10.50% 2022		179			207
Fannie Mae 5.00% 2023		31,505			33,246
Fannie Mae 5.00% 2023		16,182			17,076
Fannie Mae 5.00% 2023		15,377			16,226
Fannie Mae 5.00% 2023		13,352			14,090
Fannie Mae 5.00% 2023		11,502			12,138
Fannie Mae 5.00% 2023		10,739			11,332
Fannie Mae 5.00% 2023		9,921			10,469
Fannie Mae 5.00% 2023		8,919			9,427
Fannie Mae 5.00% 2023		6,533			6,894
Fannie Mae 5.50% 2023		34,238			36,463
Fannie Mae 4.00% 2024		233,672			238,383
Fannie Mae 4.00% 2024		77,612			79,134
Fannie Mae 4.00% 2024		59,179			60,340
Fannie Mae 4.00% 2024		48,242			49,214
Fannie Mae 4.00% 2024		48,157			49,128
Fannie Mae 4.00% 2024		47,755			48,692
Fannie Mae 4.00% 2024		47,473			48,430
Fannie Mae 4.00% 2024		43,679			44,560
Fannie Mae 4.00% 2024		38,290			39,062
Fannie Mae 4.00% 2024		29,327			29,918
Fannie Mae 4.50% 2024		70,553			73,431
Fannie Mae 4.50% 2024		49,227			51,235
Fannie Mae 4.50% 2024		48,517			50,480
Fannie Mae 4.50% 2024		45,021			46,843
Fannie Mae 4.50% 2024		44,086			45,870
Fannie Mae 4.50% 2024		27,138			28,245
Fannie Mae 4.50% 2024		19,567			20,365
Fannie Mae 4.50% 2024		19,448			20,241
Fannie Mae 4.50% 2024		17,796			18,522
Fannie Mae 4.50% 2024		16,627			17,305
Fannie Mae 5.00% 2024		41,795			44,144
Fannie Mae 5.50% 2024		85,275			90,871
Fannie Mae 6.00% 2024		25,654			27,382
Fannie Mae 6.00% 2024		544			583
Fannie Mae 6.00% 2026		63,299			67,564
Fannie Mae 6.00% 2026		8,066			8,609
Fannie Mae 6.00% 2027		143,261			152,914
Fannie Mae 6.50% 2027		3,902			4,199
Fannie Mae 6.00% 2028		5,070			5,412
Fannie Mae 6.00% 2028		4,306			4,589
Fannie Mae 6.00% 2028		2,811			3,000
Fannie Mae 6.00% 2028		2,572			2,741
Fannie Mae 5.50% 2029		80,703			85,368
Fannie Mae 7.50% 2029		54			60
Fannie Mae, Series 2001-25, Class ZA, 6.50% 2031		2,429			2,604
Fannie Mae 7.50% 2031		174			192
Fannie Mae 7.50% 2031		31			34
Fannie Mae 5.50% 2033		7,547			7,986
Fannie Mae 5.50% 2033		2,802			2,965
Fannie Mae 5.50% 2034		13,130			13,883
Fannie Mae, Series 2005-68, Class PG, 5.50% 2035		12,511			13,379
Fannie Mae 5.50% 2035		9,162			9,686
Fannie Mae 6.50% 2035		15,667			16,968
Fannie Mae, Series 2006-32, Class OA, principal only, 0% 2036		11,508			9,722
Fannie Mae, Series 2006-51, Class PO, principal only, 0% 2036		8,136			6,854
Fannie Mae, Series 2006-56, Class OG, principal only, 0% 2036		1,917			1,613
Fannie Mae, Series 2006-96, Class OP, principal only, 0% 2036		1,715			1,416
Fannie Mae, Series 2006-65, Class PF, 0.524% 20365		11,702			11,531
Fannie Mae, Series 2006-101, Class PC, 5.50% 2036		21,534			22,771
Fannie Mae, Series 2006-106, Class HG, 6.00% 2036		58,410			62,580
Fannie Mae 6.00% 2036		54,748			58,583
Fannie Mae, Series 2006-43, Class PX, 6.00% 2036		51,044			54,511
Fannie Mae 6.00% 2036		41,963			44,876
Fannie Mae, Series 2006-49, Class PA, 6.00% 2036		38,630			41,749
Fannie Mae 6.00% 2036		37,728			40,294
Fannie Mae, Series 2006-114, Class PD, 6.00% 2036		34,610			37,103
Fannie Mae 6.00% 2036		25,044			26,798
Fannie Mae 6.00% 2036		15,589			16,681
Fannie Mae 6.00% 2036		12,392			13,260
Fannie Mae 6.00% 2036		3,659			3,921
Fannie Mae 7.00% 2036		2,936			3,207
Fannie Mae 7.50% 2036		2,031			2,207
Fannie Mae, Series 2007-114, Class A7, 0.444% 20372,5		20,000			17,975
Fannie Mae, Series 2007-37, Class AP, 5.25% 2037		69,451			74,259
Fannie Mae 5.284% 20375		6,859			7,232
Fannie Mae, Series 2007-40, Class PT, 5.50% 2037		52,457			56,250
Fannie Mae, Series 2007-33, Class HE, 5.50% 2037		15,623			16,538
Fannie Mae 5.97% 20375		2,665			2,829
Fannie Mae 6.00% 2037		25,856			27,526
Fannie Mae 6.00% 2037		17,854			19,093
Fannie Mae 6.00% 2037		17,843			19,082
Fannie Mae 6.00% 2037		11,964			12,795
Fannie Mae, Series 2007-24, Class P, 6.00% 2037		7,770			8,331
Fannie Mae 6.428% 20375		2,867			3,050
Fannie Mae 6.50% 2037		30,234			32,508
Fannie Mae 6.50% 2037		18,671			20,075
Fannie Mae 6.50% 2037		13,523			14,540
Fannie Mae 6.50% 2037		12,699			13,622
Fannie Mae 6.50% 2037		3,262			3,508
Fannie Mae 6.50% 2037		2,409			2,591
Fannie Mae 6.50% 2037		1,995			2,145
Fannie Mae 6.656% 20375		2,617			2,785
Fannie Mae 7.00% 2037		49,439			54,004
Fannie Mae 7.00% 2037		979			1,069
Fannie Mae 7.00% 2037		411			449
Fannie Mae 7.50% 2037		10,359			11,255
Fannie Mae 7.50% 2037		5,122			5,622
Fannie Mae 7.50% 2037		2,967			3,224
Fannie Mae 7.50% 2037		1,931			2,098
Fannie Mae 7.50% 2037		1,667			1,801
Fannie Mae 7.50% 2037		620			670
Fannie Mae 7.50% 2037		347			377
Fannie Mae 4.50% 2038		94,211			95,450
Fannie Mae 5.00% 2038		43,098			44,735
Fannie Mae 5.131% 20385		17,313			18,169
Fannie Mae 5.373% 20385		23,433			24,895
Fannie Mae 5.454% 20385		14,247			15,152
Fannie Mae 5.50% 2038		143,012			150,791
Fannie Mae 5.50% 2038		59,255			62,469
Fannie Mae 5.50% 2038		46,461			48,988
Fannie Mae 5.50% 2038		40,423			42,634
Fannie Mae 5.50% 2038		28,244			29,859
Fannie Mae 5.50% 2038		28,242			29,774
Fannie Mae 5.50% 2038		22,853			24,160
Fannie Mae 5.50% 2038		18,201			19,242
Fannie Mae 5.50% 2038		16,320			17,222
Fannie Mae 5.50% 2038		12,255			12,956
Fannie Mae 5.50% 2038		11,403			12,022
Fannie Mae 5.50% 2038		5,328			5,632
Fannie Mae 5.549% 20385		2,466			2,615
Fannie Mae 6.00% 2038		95,089			101,230
Fannie Mae 6.00% 2038		77,934			82,918
Fannie Mae 6.00% 2038		47,579			50,651
Fannie Mae 6.00% 2038		15,299			16,287
Fannie Mae 6.00% 2038		11,156			11,877
Fannie Mae 6.50% 2038		41,361			44,468
Fannie Mae 6.50% 2038		26,395			28,380
Fannie Mae 6.50% 2038		16,591			17,837
Fannie Mae 7.00% 2038		1,556			1,699
Fannie Mae 3.58% 20395		13,749			13,989
Fannie Mae 3.618% 20395		25,215			25,968
Fannie Mae 3.62% 20392,5		21,285			21,882
Fannie Mae 3.625% 20395		9,868			10,164
Fannie Mae 3.625% 20395		7,684			7,898
Fannie Mae 3.645% 20395		19,778			20,369
Fannie Mae 3.70% 20392,5		13,760			14,137
Fannie Mae 3.76% 20395		9,897			10,228
Fannie Mae 3.761% 20395		21,936			22,660
Fannie Mae 3.84% 20392,5		10,000			10,325
Fannie Mae 3.85% 20395		9,663			10,010
Fannie Mae 3.861% 20395		16,107			16,696
Fannie Mae 3.90% 20392,5		22,585			23,371
Fannie Mae 3.913% 20395		5,980			6,198
Fannie Mae 3.914% 20395		9,843			10,142
Fannie Mae 3.95% 20395		3,000			3,111
Fannie Mae 3.951% 20395		12,872			13,359
Fannie Mae 4.00% 20392,5		9,600			9,972
Fannie Mae 5.126% 20395		8,403			8,911
Fannie Mae 5.50% 2039		18,279			19,268
Fannie Mae 6.00% 2039		29,776			31,680
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041		340			367
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2041		256			286
Fannie Mae 7.00% 2047		4,565			4,950
Freddie Mac 6.00% 2017		249			269
Freddie Mac 4.50% 2018		3,658			3,861
Freddie Mac, Series 2890, Class KT, 4.50% 2019		2,500			2,610
Freddie Mac 5.50% 2019		7,364			7,937
Freddie Mac, Series 2642, Class BL, 3.50% 2023		7,731			7,829
Freddie Mac, Series 2626, Class NG, 3.50% 2023		4,152			4,210
Freddie Mac 4.50% 2023		42,650			44,439
Freddie Mac 5.50% 2023		16,766			17,872
Freddie Mac 6.00% 2023		9,062			9,752
Freddie Mac, Series 1617, Class PM, 6.50% 2023		3,040			3,372
Freddie Mac 4.50% 2024		28,759			29,923
Freddie Mac 5.00% 2024		35,825			37,907
Freddie Mac, Series 3135, Class OP, principal only, 0% 2026		4,444			3,928
Freddie Mac 6.00% 2026		20,531			21,950
Freddie Mac 6.00% 2026		19,567			20,919
Freddie Mac 5.50% 2027		36,296			38,477
Freddie Mac 6.00% 2027		15,980			17,084
Freddie Mac 6.50% 2027		20,212			21,757
Freddie Mac 6.50% 2027		17,939			19,310
Freddie Mac 5.50% 2028		52,089			55,303
Freddie Mac, Series 2153, Class GG, 6.00% 2029		5,755			6,189
Freddie Mac, Series 2122, Class QM, 6.25% 2029		11,064			11,864
Freddie Mac 6.50% 2032		3,217			3,484
Freddie Mac 7.50% 2032		1,447			1,590
Freddie Mac, Series 3061, Class PN, 5.50% 2035		19,304			20,733
Freddie Mac, Series 3136, Class OP, principal only, 0% 2036		19,670			17,286
Freddie Mac, Series 3155, Class FO, principal only, 0% 2036		12,065			9,642
Freddie Mac, Series 3149, Class MO, principal only, 0% 2036		5,077			4,314
Freddie Mac, Series 3147, Class OD, principal only, 0% 2036		5,007			4,240
Freddie Mac, Series 3149, Class AO, principal only, 0% 2036		4,448			3,780
Freddie Mac, Series 3117, Class OG, principal only, 0% 2036		2,814			2,410
Freddie Mac, Series 3156, Class NG, 6.00% 2036		46,460			50,295
Freddie Mac, Series 3286, Class JN, 5.50% 2037		32,705			34,519
Freddie Mac 5.50% 2037		20,795			22,015
Freddie Mac 5.715% 20375		18,768			19,970
Freddie Mac 5.885% 20375		9,107			9,651
Freddie Mac, Series 3271, Class OA, 6.00% 2037		31,132			33,713
Freddie Mac 6.00% 2037		529			566
Freddie Mac 6.242% 20375		7,930			8,438
Freddie Mac 5.00% 2038		23,842			24,756
Freddie Mac 5.00% 2038		16,518			17,142
Freddie Mac 5.00% 2038		15,588			16,186
Freddie Mac 5.00% 2038		14,814			15,383
Freddie Mac 5.00% 2038		14,277			14,825
Freddie Mac 5.00% 2038		7,023			7,293
Freddie Mac 5.00% 2038		5,026			5,218
Freddie Mac 5.00% 2038		3,301			3,428
Freddie Mac 5.00% 2038		2,902			3,014
Freddie Mac 5.00% 2038		2,524			2,624
Freddie Mac 5.00% 2038		1,398			1,452
Freddie Mac 5.00% 2038		70			72
Freddie Mac 5.054% 20385		9,051			9,546
Freddie Mac 5.50% 2038		72,045			75,953
Freddie Mac 5.558% 20385		11,642			12,342
Freddie Mac 5.928% 20385		17,597			18,725
Freddie Mac 3.604% 20395		6,000			6,134
Freddie Mac 3.756% 20395		6,900			7,112
Freddie Mac 3.85% 20395		11,925			12,324
Freddie Mac 5.00% 2039		85,960			89,222
Freddie Mac 6.50% 2047		10,641			11,384
Government National Mortgage Assn., Series 2005-7, Class AO, principal only, 0% 2035		8,719			7,405
Government National Mortgage Assn. 6.00% 2035		3,320			3,563
Government National Mortgage Assn., Series 2007-8, Class LO, principal only, 0% 2037		10,623			9,253
Government National Mortgage Assn. 6.00% 2038		66,097			70,610
Government National Mortgage Assn. 6.00% 2038		49,126			52,480
Government National Mortgage Assn. 6.50% 2038		23,946			25,578
Government National Mortgage Assn., Series 2003, Class A, 5.612% 2058		20,042			20,812
Government National Mortgage Assn. 5.816% 2058		12,427			12,928
Government National Mortgage Assn., Series 2003, 6.116% 2058		1,452			1,510
Government National Mortgage Assn. 6.172% 2058		1,869			1,944
Government National Mortgage Assn. 6.205% 2058		5,510			5,732
Government National Mortgage Assn. 6.22% 2058		3,252			3,426
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2001-CIBC1, Class A-3, 6.26% 2033		4,935			5,058
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2001-C1, Class F, 6.856% 20354,5		5,050			4,695
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-CIBC10, Class A-3, 4.184% 2037		8,055			8,049
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-CBX, Class A-5, 4.654% 2037		3,330			3,206
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-M, 4.948% 20375		5,000			4,264
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039		6,109			6,208
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-PNC1, Class A-2, 4.555% 2041		16,102			16,192
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP3, Class A-2, 4.851% 2042		26,685			26,780
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP3, Class A-4B, 4.996% 20425		14,840			13,319
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC13, Class A-4, 5.28% 20435		7,200			7,257
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC13, Class A-M, 5.321% 20435		16,830			14,036
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-CIBC14, Class A-4, 5.481% 20445		15,000			14,698
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A-4, 5.875% 20455		18,000			17,385
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046		33,353			33,369
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2007-LDPX, Class A-2, 5.434% (undated)		21,630			20,106
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032		660			661
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032		372			317
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033		534			505
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033		1,857			1,826
CS First Boston Mortgage Securities Corp., Series 2004-AR1, Class II-A-1, 4.319% 20345		3,595			3,440
CS First Boston Mortgage Securities Corp., Series 2001-CKN5, Class A-4, 5.435% 2034		2,416			2,486
CS First Boston Mortgage Securities Corp., Series 2001-CK3, Class A-4, 6.53% 2034		7,810			8,153
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035		41,385			42,730
CS First Boston Mortgage Securities Corp., Series 2002-CKP1, Class G, 7.165% 20354,5		1,435			1,217
CS First Boston Mortgage Securities Corp., Series 2002-CKS4, 4.485% 2036		3,252			3,317
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-3, 6.387% 2036		4,871			5,098
CS First Boston Mortgage Securities Corp., Series 2004-C5, Class A-2, 4.183% 2037		22,150			22,157
CS First Boston Mortgage Securities Corp., Series 2004-C5, Class A-3, 4.499% 2037		11,000			10,724
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037		5,000			5,261
CS First Boston Mortgage Securities Corp., Series 2005-C5, Class A-3, 5.10% 20385		14,535			14,474
CS First Boston Mortgage Securities Corp., Series 2006-C1, Class A-AB, 5.548% 20395		18,000			18,658
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20405		37,500			37,424
Structured Adjustable Rate Mortgage Loan Trust, Series 2005-22, Class 5-A-1, 5.997% 20355		9,404			6,967
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-8, Class 3-AF, 0.624% 20365		13,212			8,356
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.857% 20365		16,796			13,174
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 4-A-1, 5.859% 20365		10,752			8,333
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 6-A, 5.905% 20365		8,967			6,364
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-2, Class 5-A-1, 6.00% 20365		44,047			29,625
Structured Adjustable Rate Mortgage Loan Trust, Series 2007-6, Class 3-A-1, 5.809% 20375		39,990			25,067
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-12, Class 2-A1, 5.853% 20375		19,962			14,090
Structured Adjustable Rate Mortgage Loan Trust, Series 2007-9, Class 2-A1, 5.905% 20475		26,890			16,409
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A, 2.90% 20345		2,867			2,727
WaMu Mortgage Pass-Through Certificates Trust, Series 2006-AR12, Class 1-A4, 6.037% 20365		4,050			2,928
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY7, Class 2-A1, 5.791% 20375		56,826			37,983
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY5, Class 3-A1, 5.805% 20375		52,848			41,216
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY7, Class 4-A2, 5.836% 20375		35,426			25,991
Banc of America Commercial Mortgage Inc., Series 2001-PB1, Class A-2, 5.787% 2035		19,910			20,595
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036		9,482			9,798
Banc of America Commercial Mortgage Inc., Series 2005-1, Class A-3, 4.877% 2042		23,669			23,713
Banc of America Commercial Mortgage Inc., Series 2005-5, Class A-4, 5.115% 20455		3,500			3,484
Banc of America Commercial Mortgage Inc., Series 2005-5, Class A-3A, 5.12% 20455		21,700			21,054
Banc of America Commercial Mortgage Inc., Series 2006-2, Class A-3, 5.711% 20455		4,955			4,823
CHL Mortgage Pass-Through Trust, Series 2004-HYB6, Class A-3, 3.664% 20345		2,551			1,987
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.499% 20355		28,321			19,738
CHL Mortgage Pass-Through Trust, Series 2007-HY5, Class 3-A-1, 6.152% 20375		20,841			14,437
CHL Mortgage Pass-Through Trust, Series 2007-HY5, Class 1-A-1, 5.921% 20475		34,012			23,040
CHL Mortgage Pass-Through Trust, Series 2007-HY4, Class 1-A-1, 6.07% 20475		19,177			13,170
Wachovia Bank Commercial Mortgage Trust, Series 2002-C2, Class A-3, 4.44% 2034		3,931			3,983
Wachovia Bank Commercial Mortgage Trust, Series 2005-C22, Class A-2, 5.242% 2044		20,000			20,048
Wachovia Bank Commercial Mortgage Trust, Series 2005-C22, Class A-4, 5.265% 20445		30,000			30,199
Wachovia Bank Commercial Mortgage Trust, Series 2006-C23, Class A-PB, 5.446% 2045		16,750			16,490
Bear Stearns ARM Trust, Series 2004-1, Class I-2-A-5, 4.431% 20345		3,450			2,658
Bear Stearns ARM Trust, Series 2003-8, Class III-A, 5.10% 20345		3,646			3,290
Bear Stearns ARM Trust, Series 2005-6, Class I-A-1, 3.869% 20355		25,010			17,487
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.547% 20355		50,000			39,494
Bear Stearns ARM Trust, Series 2006-4, Class II-A-1, 5.713% 20365		4,137			2,861
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.669% 20345		15,166			14,928
Morgan Stanley Mortgage Loan Trust, Series 2005-6AR, Class 3-A-1, 5.25% 20355		15,105			10,087
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 5-A-1, 6.00% 2035		18,587			12,804
Morgan Stanley Mortgage Loan Trust, Series 2006-3AR, Class 3-A-1, 5.93% 20365		24,348			13,561
Morgan Stanley Mortgage Loan Trust, Series 2007-11AR, Class 2-A-1, 6.33% 20375		23,104			11,525
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033		883			889
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-2, 6.531% 2033		22,230			23,232
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037		6,864			6,929
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-2, 4.996% 2037		9,830			10,032
GE Capital Commercial Mortgage Corp., Series 2001-3, Class A-2, 6.07% 2038		13,250			13,949
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20374		27,000			26,934
American Tower Trust I, Series 2007-1A, Class C, 5.615% 20374		10,000			9,775
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20374		15,000			14,589
Countrywide Alternative Loan Trust, Series 2004-14T2, Class A-2, 5.50% 2034		5,803			4,995
Countrywide Alternative Loan Trust, Series 2005-49CB, Class A-1, 5.50% 2035		15,579			13,964
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 5-A-1, 5.75% 2035		3,964			3,341
Countrywide Alternative Loan Trust, Series 2005-9CB, Class 2-A-1, 6.00% 2035		5,285			3,931
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 6-A-1, 6.00% 2035		1,820			1,445
Countrywide Alternative Loan Trust, Series 2006-6CB, Class 1-A-4, 5.50% 2036		5,000			3,485
Countrywide Alternative Loan Trust, Series 2007-HY4, Class 4-A-1, 5.886% 20475		27,570			16,780
Morgan Stanley Capital I Trust, Series 2003-TOP11, Class A-2, 4.34% 2041		67			67
Morgan Stanley Capital I Trust, Series 2005-HQ7, Class A-2, 5.207% 20425		24,000			24,835
Morgan Stanley Capital I Trust, Series 2005-IQ11, Class A-2, 5.693% 20425		5,000			5,104
Morgan Stanley Capital I Trust, Series 2006-IQ11, Class A-M, 5.774% 20425		20,105			16,682
Greenwich Capital Commercial Funding Corp., Series 2003-C1, Class A-2, 3.285% 2035		3,655			3,664
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A-2, 5.117% 2037		5,000			5,015
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A-4-1, 5.243% 20375		38,142			37,756
Thornburg Mortgage Securities Trust, Series 2006-5, Class A-1, 0.364% 20465		41,670			39,834
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.589% 20365		33,121			25,135
IndyMac INDX Mortgage Loan Trust, Series 2006-AR25, Class 3-A-1, 5.922% 20365		23,876			14,542
Crown Castle Towers LLC, Series 2005-1, Class C, 5.074% 20354		13,620			13,510
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 20354		20,000			19,838
Crown Castle Towers LLC, Series 2006-1, Class D, 5.772% 20364		3,380			3,461
Merrill Lynch Mortgage Investors, Inc., Series 2006-A1, Class II-A-1, 6.005% 20365		61,123			34,506
GE Commercial Mortgage Corp., Series 2005-C2, Class A-2, 4.706% 2043		16,685			16,851
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.334% 20455		17,000			17,400
Bank of America 5.50% 20124		30,000			31,951
Cendant Mortgage Capital LLC, Series 2003-7P, Class A-1, 4.872% 20174,5		8,346			8,235
Cendant Mortgage Capital LLC, Series 2003-9, Class II-A-1, 4.813% 20185		5,720			5,634
Cendant Mortgage Capital LLC, Series 2003-5P, Class A-3, 4.913% 20194,5		8,932			8,901
Cendant Mortgage Capital LLC, Series 2003-8, Class II-A-1, 4.905% 20335		8,599			8,570
Bear Stearns ALT-A Trust, Series 2005-9, Class II-6A-1, 5.73% 20355		15,617			10,037
Bear Stearns ALT-A Trust, Series 2006-6, Class II-A-1, 5.816% 20365		32,675			20,306
PNC Mortgage Acceptance Corp., Series 2001-C1, Class A-2, 6.36% 2034		28,285			29,438
American General Mortgage Loan Trust, Series 2006-1, Class A-5, 5.75% 20354,5		32,785			28,907
Residential Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50% 2034		27,768			23,584
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034		97			72
Residential Accredit Loans, Inc., Series 2006-QA1, Class A-II-1, 5.929% 20365		4,033			2,279
Residential Accredit Loans, Inc., Series 2006-QA1, Class A-III-1, 6.22% 20365		3,359			2,028
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035		2,156			2,182
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PWR9, Class A-AB, 4.804% 2042		23,500			24,050
MASTR Alternative Loan Trust, Series 2003-2, Class 6-A-1, 6.00% 2033		660			646
MASTR Alternative Loan Trust, Series 2004-2, Class 2-A-1, 6.00% 2034		1,409			1,289
MASTR Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50% 2035		7,068			6,063
MASTR Alternative Loan Trust, Series 2005-3, Class 2-A-1, 6.00% 2035		6,671			5,559
MASTR Alternative Loan Trust, Series 2005-3, Class 3-A-1, 6.50% 2035		6,340			4,596
MASTR Alternative Loan Trust, Series 2006-2, Class 2-A-3, 0.594% 20365		14,776			7,126
Northern Rock PLC 5.625% 20174		20,000			18,797
Northern Rock PLC 5.625% 2017		6,000			5,639
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034		23,427			24,186
Merrill Lynch Mortgage Trust, Series 2005-MKB2, Class A-2, 4.806% 2042		15,040			15,078
Merrill Lynch Mortgage Trust, Series 2005-MCP1, Class A-2, 4.556% 2043		3,795			3,826
Merrill Lynch Mortgage Trust, Series 2005-MCP1, Class A-4, 4.747% 20435		5,065			4,979
ML-CFC Commercial Mortgage Trust, Series 2006-4, Class A-3, 5.172% (undated)5		25,000			22,296
Residential Asset Securitization Trust, Series 2005-A8CB, Class A-11, 6.00% 2035		24,219			16,170
Residential Asset Securitization Trust, Series 2006-A6, Class 1-A-11, 0.644% 20365		8,070			3,313
GS Mortgage Securities Corp. II, Series 2001-ROCK, Class A-2FL, 0.606% 20184,5		8,000			7,977
GS Mortgage Securities Corp. II, Series 2001-ROCK, Class A-2, 6.624% 20184		10,000			10,682
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20364		16,500			16,426
SBA CMBS Trust, Series 2006-1A, Class C, 5.559% 20364		2,000			1,983
Wells Fargo Alternative Loan Trust, Series 2007-PA4, Class III-A-1, 6.059% 20375		32,364			17,547
Wells Fargo Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6, 3.459% 20355		9,919			8,435
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR19, Class A-6, 5.648% 20365		11,979			8,567
Banco Bilbao Vizcaya Argentaria, SA 5.75% 20174		15,000			16,406
Citigroup Mortgage Loan Trust, Inc., Series 2004-HYB1, Class A-3-1, 5.22% 20345		11,334			9,943
Citigroup Mortgage Loan Trust, Inc., Series 2007-AR5, Class 1-A2A, 5.606% 20375		10,112			5,835
Commercial Mortgage Trust, Series 2000-C1, Class A-2, 7.416% 2033		1,530			1,546
Commercial Mortgage Trust, Series 2004-LNB2, Class A-3, 4.221% 2039		13,636			13,747
J.P. Morgan Mortgage Trust, Series 2005-A4, Class 3-A-1, 5.166% 20355		13,432			12,150
J.P. Morgan Mortgage Trust, Series 2006-A3, Class 3-A-3, 5.73% 20365		4,000			2,975
COBALT CMBS Commerical Mortgage Trust, Series 2006-C1, Class A-2, 5.174% 2048		14,976			15,100
Morgan Stanley Dean Witter Capital I Trust, Series 2001-PGMA, Class A-2, 0.794% 20164,5		8,000			7,963
Morgan Stanley Dean Witter Capital I Trust, Series 2000-LIFE2, Class A-2, 7.20% 2033		2,169			2,220
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036		3,362			3,380
J.P. Morgan Alternative Loan Trust, Series 2006-A2, Class 5-A-1, 6.205% 20365		20,311			13,458
GSR Mortgage Loan Trust, Series 2005-9F, Class 1A-2, 0.744% 20355		8,029			5,542
GSR Mortgage Loan Trust, Series 2005-AR1, Class 2-A-1, 4.502% 20355		6,110			5,214
Hilton Hotel Pool Trust, Series 2000-HLTA, Class C, 7.458% 20154		10,000			10,586
J.P. Morgan Chase Commercial Mortgage Securities Trust, Series 2006-LDP7, Class A-M, 5.875% 20455		12,192			9,632
Washington Mutual Mortgage, WMALT Series 2005-1, Class 5-A-1, 6.00% 2035		10,587			8,622
Washington Mutual Mortgage, WMALT Series 2005-1, Class 6-A-1, 6.50% 2035		1,108			886
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2006-CD3, Class A-5, 5.617% 2048		10,000			9,419
ChaseFlex Trust, Series 2007-2, Class A-1, 0.524% 20375		3,248			1,980
ChaseFlex Trust, Series 2007-3, Class 2-A1, 0.544% 20375		10,711			6,336
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-2, 6.592% 2033		2,740			2,802
Salomon Brothers Commercial Mortgage Trust, Series 2001-C2, Class A-3, 6.499% 2036		4,530			4,739
Banc of America Funding Trust, Series 2007-3, Class X-A-1, 5.50% 2034		10,042			7,061
BCAP LLC Trust, Series 2006-AA2, Class A-1, 0.414% 20375		12,826			6,843
Banc of America Alternative Loan Trust, Series 2005-6, Class 2-CB-2, 6.00% 2035		7,924			6,329
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A-3, 6.226% 2026		758			762
LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A-3, 4.647% 2030		3,000			3,009
LB-UBS Commercial Mortgage Trust, Series 2005-C7, Class A-4, 5.197% 20305		2,500			2,506
Bear Stearns Commercial Mortgage Securities Trust, Series 2006-PWR13, Class A-2, 5.426% 2041		5,290			5,306
Sequoia Mortgage Trust, Series 2007-1, Class 4-A1, 5.762% 20465		5,354			4,531
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032		2,409			2,429
Harborview Mortgage Loan Trust, Series 2006-6, Class 1A, 4.239% 20365		2,882			1,814
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class G, 7.199% 20344,5		2,000			1,494
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.267% 20274,5		1,147			1,075
Banc of America Mortgage Securities Trust, Series 2004-B, Class 1-A-1, 4.687% 20345		306			269
Bank of America, NA and First Union National Bank Commercial Mortgage Trust, Series 2001-3, Class A-1, 4.89% 2037		140			140
					7,639,843


BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 7.36%
U.S. Treasury 1.25% 2010		20,000			20,176
U.S. Treasury 2.00% 2010		25,000			25,371
U.S. Treasury 4.50% 2010		75,000			78,184
U.S. Treasury 5.75% 2010		152,000			158,469
U.S. Treasury 6.50% 2010		275,000			280,010
U.S. Treasury 1.00% 2011		25,000			25,048
U.S. Treasury 1.125% 2011		30,000			30,093
U.S. Treasury 4.625% 2011		25,000			26,741
U.S. Treasury 4.875% 2011		25,000			26,593
U.S. Treasury 5.00% 2011		75,000			79,321
U.S. Treasury 5.125% 2011		80,000			85,867
U.S. Treasury 1.50% 2012		25,000			25,163
U.S. Treasury 4.00% 2012		50,000			53,883
U.S. Treasury 4.25% 2012		70,000			75,827
U.S. Treasury 4.875% 2012		83,000			90,924
U.S. Treasury 3.125% 2013		35,000			36,675
U.S. Treasury 3.375% 2013		60,000			63,490
U.S. Treasury 3.375% 2013		40,000			42,316
U.S. Treasury 3.625% 2013		5,000			5,333
U.S. Treasury 3.875% 2013		20,000			21,467
U.S. Treasury 4.25% 2013		148,000			161,314
U.S. Treasury 1.75% 2014		2,000			1,972
U.S. Treasury 1.875% 2014		25,000			24,828
U.S. Treasury 2.25% 2014		396,000			397,762
U.S. Treasury 2.375% 2014		5,000			5,020
U.S. Treasury 2.625% 2014		70,000			71,263
U.S. Treasury 4.25% 2014		100,000			109,215
U.S. Treasury 4.25% 2014		25,000			27,329
U.S. Treasury 11.75% 2014		50,000			50,207
U.S. Treasury 1.625% 20152,7		56,513			58,484
U.S. Treasury 4.25% 2015		80,000			87,175
U.S. Treasury 9.875% 2015		10,000			14,036
U.S. Treasury 11.25% 2015		60,000			86,320
U.S. Treasury 2.375% 2016		240,500			234,158
U.S. Treasury 2.625% 2016		60,000			59,419
U.S. Treasury 3.00% 2016		25,000			25,113
U.S. Treasury 3.25% 2016		236,600			242,016
U.S. Treasury 3.25% 2016		20,000			20,442
U.S. Treasury 7.50% 2016		250,000			321,543
U.S. Treasury 9.25% 2016		200,000			275,422
U.S. Treasury 4.625% 2017		40,000			44,220
U.S. Treasury 8.875% 2017		10,000			13,950
U.S. Treasury 3.75% 2018		349,950			360,830
U.S. Treasury 4.00% 2018		45,000			47,327
U.S. Treasury 2.75% 2019		72,500			68,903
U.S. Treasury 3.125% 2019		177,300			173,511
U.S. Treasury 3.625% 2019		10,000			10,193
U.S. Treasury 8.125% 2019		10,000			13,897
U.S. Treasury Principal Strip 0% 2039		27,000			7,520
Fannie Mae 6.625% 2010		11,000			11,685
Fannie Mae 5.00% 2011		19,815			21,353
Fannie Mae 5.125% 2011		20,000			21,288
Fannie Mae 6.00% 2011		140,000			151,260
Fannie Mae 2.00% 2012		20,000			20,376
Fannie Mae 4.75% 2012		75,000			81,893
Fannie Mae 6.125% 2012		174,000			193,886
Fannie Mae 4.375% 2013		10,000			10,846
Fannie Mae 2.50% 2014		25,000			25,092
Fannie Mae 2.625% 2014		5,000			4,998
Fannie Mae 2.75% 2014		20,000			20,327
Fannie Mae 5.00% 2015		25,000			27,792
Federal Home Loan Bank 2.25% 2012		25,000			25,583
Federal Home Loan Bank 4.50% 2012		50,000			54,269
Federal Home Loan Banks, Series 312, 5.75% 2012		25,000			27,707
Federal Home Loan Bank 3.625% 2013		90,000			95,388
Federal Home Loan Bank 5.25% 2014		25,000			27,991
Federal Home Loan Bank 5.375% 2016		25,000			28,119
Freddie Mac 2.875% 2010		50,000			51,214
Freddie Mac 5.125% 2010		4,000			4,152
Freddie Mac 6.875% 2010		5,000			5,280
Freddie Mac 1.75% 2012		12,500			12,606
Freddie Mac 5.75% 2012		75,000			82,514
Federal Agricultural Mortgage Corp. 4.875% 20114		30,000			31,594
Federal Agricultural Mortgage Corp. 5.50% 20114		37,300			39,888
United States Government Agency-Guaranteed (FDIC insured), Citigroup Inc. 1.875% 2012		20,000			20,182
United States Government Agency-Guaranteed (FDIC insured), Citigroup Inc. 1.875% 2012		15,000			15,085
United States Government Agency-Guaranteed (FDIC insured), Citigroup Inc. 1.875% 2012		10,000			10,099
United States Government Agency-Guaranteed (FDIC insured), Citigroup Inc. 2.25% 2012		21,850			22,199
United States Government Agency-Guaranteed (FDIC insured), GMAC LLC 1.75% 2012		15,000			15,019
United States Government Agency-Guaranteed (FDIC insured), GMAC LLC 2.20% 2012		45,000			45,601
United States Government Agency-Guaranteed (FDIC insured), Goldman Sachs Group, Inc. 0.499% 20125		25,000			25,133
United States Government Agency-Guaranteed (FDIC insured), Goldman Sachs Group, Inc. 3.25% 2012		15,000			15,665
CoBank ACB 7.875% 20184		18,660			18,971
CoBank ACB 0.899% 20224,5		28,690			19,627
United States Government Agency-Guaranteed (FDIC insured), General Electric Capital Corp., Series G, 2.125% 2012		10,000			10,099
United States Government Agency-Guaranteed (FDIC insured), General Electric Capital Corp., Series G, 2.625% 2012		20,000			20,566
United States Government Agency-Guaranteed (FDIC insured), Bank of America Corp. 2.10% 2012		18,335			18,638
United States Government Agency-Guaranteed (FDIC insured), Morgan Stanley 2.25% 2012		15,000			15,318
United States Government Agency-Guaranteed (FDIC insured), JPMorgan Chase & Co. 0.533% 20125		15,000			15,175
United States Government Agency-Guaranteed (FDIC insured), John Deere Capital Corp. 2.875% 2012		14,000			14,457
United States Government Agency-Guaranteed (FDIC insured), Sovereign Bancorp, Inc. 2.75% 2012		10,000			10,322
United States Government Agency-Guaranteed (FDIC insured), State Street Corp. 1.85% 2011		10,000			10,159
Federal Farm Credit Banks, Consolidated Systemwide Designated Bonds, 3.00% 2014		10,000			10,154
					5,673,910


FINANCIALS — 3.29%
Simon Property Group, LP 4.60% 2010		7,300			7,375
Simon Property Group, LP 4.875% 2010		5,000			5,040
Simon Property Group, LP 4.875% 2010		2,500			2,559
Simon Property Group, LP 5.375% 2011		2,000			2,092
Simon Property Group, LP 5.60% 2011		24,750			25,933
Simon Property Group, LP 5.00% 2012		14,000			14,474
Simon Property Group, LP 5.75% 2012		18,083			19,145
Simon Property Group, LP 6.35% 2012		10,067			10,857
Simon Property Group, LP 6.75% 2014		34,230			36,868
Simon Property Group, LP 5.25% 2016		19,875			19,917
Simon Property Group, LP 6.10% 2016		4,860			5,059
Simon Property Group, LP 5.875% 2017		5,910			6,031
Simon Property Group, LP 6.125% 2018		10,685			11,088
Simon Property Group, LP 10.35% 2019		33,940			42,765
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 4.375% 20104		44,725			45,359
Westfield Group 5.40% 20124		16,040			16,590
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 5.125% 20144		26,785			26,692
Westfield Group 7.50% 20144		17,790			19,396
Westfield Group 5.75% 20154		28,000			28,185
Westfield Group 5.70% 20164		26,025			25,491
Westfield Group 7.125% 20184		35,245			36,457
SLM Corp., Series A, 4.50% 2010		21,000			20,711
SLM Corp., Series A, 0.512% 20115		1,100			954
SLM Corp., Series A, 5.40% 2011		20,000			18,889
SLM Corp., Series A, 5.125% 2012		7,333			6,533
SLM Corp., Series A, 5.00% 2013		11,397			9,478
SLM Corp., Series A, 5.375% 2013		43,712			38,828
SLM Corp., Series A, 5.05% 2014		337			269
SLM Corp., Series A, 5.375% 2014		200			165
SLM Corp., Series A, 5.00% 2015		20,344			16,059
SLM Corp., Series A, 5.00% 2018		3,302			2,308
SLM Corp., Series A, 8.45% 2018		35,475			31,288
SLM Corp., Series A, 5.625% 2033		383			263
ProLogis 5.50% 2012		2,250			2,281
ProLogis 5.50% 2013		3,700			3,673
ProLogis 7.625% 2014		18,110			19,229
ProLogis 5.625% 2015		1,565			1,496
ProLogis 5.625% 2016		37,316			34,386
ProLogis 5.75% 2016		11,245			10,557
ProLogis 6.625% 2018		59,860			57,841
ProLogis 7.375% 2019		5,300			5,326
Countrywide Financial Corp., Series A, 4.50% 2010		7,945			8,044
Countrywide Financial Corp., Series B, 5.80% 2012		59,065			62,876
Bank of America Corp. 5.75% 2017		20,950			21,336
Merrill Lynch & Co., Inc. 6.875% 2018		6,500			7,010
Goldman Sachs Group, Inc. 3.625% 2012		8,325			8,583
Goldman Sachs Group, Inc. 6.25% 2017		5,000			5,358
Goldman Sachs Group, Inc. 5.95% 2018		13,337			14,076
Goldman Sachs Group, Inc. 6.15% 2018		46,893			50,052
Goldman Sachs Group, Inc. 7.50% 2019		11,060			12,977
Capital One Financial Corp. 6.25% 2013		7,500			8,070
Capital One Bank 6.50% 2013		13,477			14,383
Capital One Capital III 7.686% 20365		57,199			49,477
Capital One Capital IV 6.745% 20375		14,818			12,114
Liberty Mutual Group Inc. 5.75% 20144		19,000			18,685
Liberty Mutual Group Inc. 6.70% 20164		15,000			14,439
Liberty Mutual Group Inc. 6.50% 20354		11,200			9,113
Liberty Mutual Group Inc. 7.50% 20364		38,050			33,278
Liberty Mutual Group Inc., Series C, 10.75% 20884,5		5,000			5,300
JPMorgan Chase & Co. 4.891% 20155		45,190			43,933
JPMorgan Chase & Co. 6.30% 2019		28,500			31,335
Monumental Global Funding 5.50% 20134		23,915			24,548
Monumental Global Funding III 0.484% 20144,5		24,860			20,819
Monumental Global Funding III 5.25% 20144		22,000			22,370
American Express Credit Corp., Series B, 5.00% 2010		9,000			9,302
American Express Centurion Bank 5.55% 2012		20,000			21,364
American Express Co. 6.15% 2017		27,330			28,865
American Express Co. 6.80% 20665		8,368			7,406
Morgan Stanley 6.00% 2014		5,910			6,350
Morgan Stanley, Series F, 6.00% 2015		29,090			31,164
Morgan Stanley, Series F, 5.95% 2017		5,375			5,536
Morgan Stanley, Series F, 5.625% 2019		23,000			23,188
Citigroup Inc. 6.50% 2013		39,250			42,109
Citigroup Inc. 6.125% 2017		22,275			22,768
UniCredito Italiano SpA 5.584% 20174,5		32,900			30,426
UniCredito Italiano SpA 6.00% 20174		20,323			20,111
HVB Funding Trust I 8.741% 20314		1,555			1,386
HVB Funding Trust III 9.00% 20314		852			748
UniCredito Italiano Capital Trust II 9.20% (undated)4,5		10,000			9,600
CNA Financial Corp. 6.00% 2011		20,000			20,453
CNA Financial Corp. 5.85% 2014		42,000			39,842
Santander Issuances, SA Unipersonal 5.805% 20164,5		19,100			16,958
Sovereign Bancorp, Inc. 8.75% 2018		27,160			31,146
Santander Issuances, SA Unipersonal 6.50% 20194,5		10,500			10,841
Barclays Bank PLC 5.20% 2014		10,000			10,674
Barclays Bank PLC 5.00% 2016		24,500			25,075
Barclays Bank PLC 6.05% 20174		21,620			22,062
ERP Operating LP 5.50% 2012		2,500			2,618
ERP Operating LP 6.625% 2012		8,000			8,599
ERP Operating LP 6.584% 2015		11,080			11,834
ERP Operating LP 5.125% 2016		10,565			10,431
ERP Operating LP 5.75% 2017		21,315			21,490
Wells Fargo Bank, National Assn. 4.75% 2015		47,800			48,867
Prudential Financial, Inc., Series D, 5.10% 2011		6,410			6,748
Prudential Financial, Inc., Series D, 5.15% 2013		9,000			9,453
Prudential Holdings, LLC, Series C, 8.695% 20234,6		15,000			15,402
Prudential Financial, Inc. 8.875% 20685		12,500			13,317
Société Générale 5.75% 20164		43,235			44,413
Kimco Realty Corp., Series C, 4.82% 2011		12,100			12,273
Kimco Realty Corp. 6.00% 2012		4,062			4,252
Pan Pacific Retail Properties, Inc. 6.125% 2013		3,215			3,379
Kimco Realty Corp., Series C, 4.82% 2014		3,068			3,046
Kimco Realty Corp., Series C, 5.783% 2016		9,597			9,477
Kimco Realty Corp. 5.70% 2017		10,500			10,107
ACE INA Holdings Inc. 5.875% 2014		7,500			8,252
ACE INA Holdings Inc. 5.70% 2017		3,825			4,112
ACE INA Holdings Inc. 5.80% 2018		11,000			11,933
ACE Capital Trust II 9.70% 2030		12,210			13,526
Standard Chartered PLC 5.50% 20144		4,300			4,631
Standard Chartered Bank 6.40% 20174		30,760			32,578
New York Life Global Funding 4.625% 20104		5,000			5,091
New York Life Global Funding 5.25% 20124		25,000			27,079
New York Life Global Funding 4.65% 20134		4,000			4,232
Metropolitan Life Global Funding I, 5.125% 20134		4,305			4,562
MetLife Global Funding 5.125% 20144		15,000			15,952
MetLife Capital Trust X 9.25% 20684,5		14,000			15,301
Allstate Life Global Funding Trust, Series 2008-4, 5.375% 2013		15,500			16,655
Allstate Corp., Series B, 6.125% 20675		18,350			15,781
PNC Funding Corp. 5.40% 2014		10,000			10,835
PNC Funding Corp. 4.25% 2015		15,000			15,066
PNC Bank NA 6.875% 2018		5,200			5,562
CIT Group Inc. 5.20% 2010		20,000			12,822
CIT Group Inc. 5.60% 2011		15,000			9,768
CIT Group Inc. 0.704% 20125		8,920			5,767
CIT Group Inc. 7.75% 2012		3,717			2,407
HBOS PLC 6.75% 20184		25,305			23,406
HBOS PLC 6.00% 20334		8,650			6,141
Lehman Brothers Holdings Inc., Series I, 2.951% 20105,8		10,000			1,625
Lehman Brothers Holdings Inc., Series I, 3.018% 20125,8		13,805			2,243
Lehman Brothers Holdings Inc., Series G, 4.80% 20148		60,920			9,899
Lehman Brothers Holdings Inc., Series I, 6.20% 20148		73,610			11,962
Lehman Brothers Holdings Inc., Series H, 5.50% 20168		3,660			595
Lehman Brothers Holdings Inc., Series I, 6.875% 20188		14,465			2,405
Hospitality Properties Trust 6.85% 2012		2,000			2,037
Hospitality Properties Trust 6.75% 2013		14,925			14,804
Hospitality Properties Trust 5.125% 2015		3,675			3,301
Hospitality Properties Trust 6.30% 2016		550			510
Hospitality Properties Trust 6.70% 2018		7,800			7,216
Developers Diversified Realty Corp. 4.625% 2010		1,485			1,466
Developers Diversified Realty Corp. 5.00% 2010		20,000			19,875
Developers Diversified Realty Corp. 5.375% 2012		6,565			6,162
Northern Trust Corp. 5.50% 2013		5,450			5,997
Northern Trust Corp. 4.625% 2014		8,475			9,105
Northern Trust Corp. 5.85% 20179		10,150			11,131
Royal Bank of Scotland Group PLC 4.875% 20144		25,000			25,471
International Lease Finance Corp. 5.00% 2010		4,560			4,499
International Lease Finance Corp. 5.00% 2012		10,000			8,087
American General Finance Corp., Series J, 6.50% 2017		15,000			10,298
SunTrust Banks, Inc. 6.00% 2017		10,000			10,032
SunTrust Banks, Inc. 5.40% 2020		12,500			11,109
Resona Bank, Ltd. 5.85% (undated)4,5		24,000			21,027
Genworth Global Funding Trust, Series 2007-C, 5.25% 2012		19,000			19,044
Discover Financial Services 6.45% 2017		6,116			5,774
Discover Financial Services 10.25% 2019		8,666			10,180
Principal Life Global Funding I 4.40% 20104		10,000			10,114
Principal Life Insurance Co. 6.25% 20124		5,000			5,238
Ford Motor Credit Co. 7.375% 2011		15,000			15,064
Charles Schwab Corp., Series A, 6.375% 2017		11,260			12,569
Schwab Capital Trust I 7.50% 20375		1,795			1,659
Jackson National Life Global 5.375% 20134		12,925			13,158
Fifth Third Capital Trust IV 6.50% 20675		18,000			13,005
Boston Properties, Inc. 5.875% 2019		12,750			12,887
Berkshire Hathaway Finance Corp. 4.60% 2013		12,000			12,877
Brandywine Operating Partnership, LP 5.75% 2012		7,505			7,591
Brandywine Operating Partnership, LP 5.40% 2014		3,955			3,682
Lincoln National Corp. 7.00% 20665		11,295			9,375
Catlin Insurance Ltd. 7.249% (undated)4,5		11,500			8,912
Nationwide Financial Services, Inc. 6.75% 20675		10,000			7,599
Chubb Corp. 6.375% 20675		7,500			6,919
Credit Suisse Group AG 5.50% 2014		5,000			5,427
Paribas, New York Branch 6.95% 2013		2,700			2,992
BNP Paribas 4.80% 20154		2,105			2,174
ZFS Finance (USA) Trust V 6.50% 20674,5		5,040			4,183
ING Security Life Institutional Funding 0.474% 20104,5		4,000			4,003
Compass Bank 5.90% 2026		4,725			3,807
TIAA Global Markets 4.95% 20134		3,225			3,420
UnumProvident Finance Co. PLC 6.85% 20154		1,885			1,878
Unum Group 7.125% 2016		1,105			1,137
Northern Rock PLC 5.60% (undated)4,5		5,095			694
Northern Rock PLC 6.594% (undated)4,5		5,635			768
Federal Realty Investment Trust 8.75% 2009		1,000			1,004
					2,538,612


ASSET-BACKED OBLIGATIONS6 — 1.70%
AmeriCredit Automobile Receivables Trust, Series 2006-R-M, Class A-2, MBIA insured, 5.42% 2011		5,264			5,342
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-3-A, FSA insured, 5.49% 2012		11,431			11,568
AmeriCredit Automobile Receivables Trust, Series 2006-A-F, Class A-4, FSA insured, 5.64% 2013		18,436			19,037
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-B, MBIA insured, 0.324% 20145		30,000			28,423
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-A, MBIA insured, 5.55% 2014		58,000			59,997
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-4-A, FSA insured, 5.56% 2014		27,000			27,745
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011		2,653			2,665
Triad Automobile Receivables Trust, Series 2006-B, Class A-4, FSA insured, 5.52% 2012		49,000			50,688
Triad Automobile Receivables Trust, Series 2006-A, Class A-4, AMBAC insured, 4.88% 2013		14,359			14,700
Triad Automobile Receivables Trust, Series 2006-C, Class A-4, AMBAC insured, 5.31% 2013		25,000			25,790
CPS Auto Receivables Trust, Series 2004-B, Class A-2, XLCA insured, 3.56% 20114		702			705
CPS Auto Receivables Trust, Series 2005-B, Class A-2, FSA insured, 4.36% 20124		3,368			3,409
CPS Auto Receivables Trust, Series 2005-C, Class A-2, FSA insured, 4.79% 20124		4,731			4,805
CPS Auto Receivables Trust, Series 2005-D, Class A-2, FSA insured, 5.06% 20124		7,823			7,980
CPS Auto Receivables Trust, Series 2006-B, Class A-4, MBIA insured, 5.81% 20124		17,247			17,481
CPS Auto Receivables Trust, Series 2007-A, Class A-4, MBIA insured, 5.05% 20134		15,000			15,433
CPS Auto Receivables Trust, Series 2006-D, Class A-4, FSA insured, 5.115% 20134		17,459			17,931
CPS Auto Receivables Trust, Series 2007-TFC, Class A-2, XLCA insured, 5.25% 20134		12,871			13,223
Prestige Auto Receivables Trust, Series 2006-1A, Class A-2, FSA insured, 5.25% 20134		9,412			9,677
Prestige Auto Receivables Trust, Series 2007-1, Class A-3, FSA insured, 5.58% 20144		43,295			44,726
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-2, 5.03% 2014		27,413			28,816
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014		20,095			21,852
Washington Mutual Master Note Trust, Series 2007-A4A, Class A-4, 5.20% 20144		31,500			32,453
Washington Mutual Master Note Trust, Series 2006-A2A, Class A, 0.295% 20154,5		15,000			14,815
UPFC Auto Receivables Trust, Series 2006-B, Class A-3, AMBAC insured, 5.01% 2012		13,238			13,533
UPFC Auto Receivables Trust, Series 2007-B, Class A-3, AMBAC insured, 6.15% 2014		31,279			32,426
Capital One Auto Finance Trust, Series 2006-A, Class A-4, AMBAC insured, 0.255% 20125		33,527			33,237
Capital One Auto Finance Trust, Series 2007-B, Class A-4, MBIA insured, 0.275% 20145		5,750			5,528
Rental Car Finance Corp., Series 2005-1, Class A-2, XLCA insured, 4.59% 20114		37,360			37,405
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-1, Class A-5, MBIA insured, 5.08% 20114		15,150			15,486
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2009-2A, Class A-2, 5.29% 20164		17,500			17,648
Residential Funding Mortgage Securities II, Inc., Series 2005-HI1, Class A-5, FGIC insured, 5.45% 20345		16,000			8,920
Residential Funding Mortgage Securities II, Inc., Series 2005-HS1, Class A-1-5, FGIC insured, 4.91% 20355		25,030			14,841
Residential Funding Mortgage Securities II, Inc., Series 2005-HSA1, Class A-I-5, FGIC insured, 5.48% 20355		5,188			1,895
Residential Funding Mortgage Securities II, Inc., Series 2006-HSA2, Class A-I-5, FGIC insured, 5.63% 20365		4,506			1,472
Residential Funding Mortgage Securities II, Inc., Series 2007-HSA3, Class A-I-2, MBIA insured, 5.89% 20375		5,892			5,475
Long Beach Acceptance Auto Receivables Trust, Series 2004-C, Class A-4, FSA insured, 3.777% 2011		1,260			1,270
Long Beach Acceptance Auto Receivables Trust, Series 2006-B, Class A-3, FSA insured, 5.17% 2011		621			622
Long Beach Acceptance Auto Receivables Trust, Series 2005-B, Class A-4, FSA insured, 4.522% 2012		8,525			8,669
Long Beach Acceptance Auto Receivables Trust, Series 2007-A, Class A-4, FSA insured, 5.025% 2014		20,000			20,359
Nissan Auto Lease Trust, Series 2008-A, Class A-3a, 5.14% 2011		26,000			26,784
Hyundai Auto Receivables Trust, Series 2006-B, Class A-4, 5.15% 2013		25,000			25,894
Discover Card Execution Note Trust, Series 2008-3, Class A, 5.10% 2013		23,000			24,205
Nissan Auto Receivables Owner Trust, Series 2008-A, Class A-4, 4.28% 2014		22,000			22,991
PECO Energy Transition Trust, Series 2001-A, Class A-1, 6.52% 2010		22,000			22,768
Ford Credit Auto Owner Trust, Series 2008-A, Class A-4, 4.37% 2012		21,275			22,274
Honda Auto Receivables Owner Trust, Series 2007-2, Class A-3, 5.46% 2011		12,277			12,432
Honda Auto Receivables Owner Trust, Series 2007-1, Class A-4, 5.09% 2013		9,500			9,794
Drivetime Auto Owner Trust, Series 2006-B, Class A-3, MBIA insured, 5.227% 20124,5		21,766			22,191
Vega ContainerVessel PLC, Series 2006-1, Class A, XLCA insured, 5.562% 20214		42,626			21,349
Drive Auto Receivables Trust, Series 2006-1, Class A-4, FSA insured, 5.54% 20134		3,442			3,507
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 20144		16,705			17,116
Chase Issuance Trust, Series 2007-A9, Class A, 0.275% 20145		20,000			19,737
Argent Mortgage Loan Trust, Series 2005-W1, Class A2, FGIC insured, 0.484% 20355		39,999			18,899
BMW Vehicle Owner Trust, Series 2006-A, Class A-4, 5.07% 2011		18,092			18,505
AEP Texas Central Transitioning Funding II LLC, Secured Transition Bonds, Series A, Class A-3, 5.09% 2017		16,970			18,481
MBNA Credit Card Master Note Trust, Series 2005-2, Class B, 0.425% 20125		15,000			14,800
MBNA Credit Card Master Note Trust, Series 2004-8, Class A, 0.395% 20145		3,249			3,210
CenterPoint Energy Transition Bond Company III, LLC, Series 2008, Class A-1, 4.192% 2020		16,019			16,897
CarMax Auto Owner Trust, Series 2008-2, Class A-3a, 4.99% 2012		8,200			8,583
CarMax Auto Owner Trust, Series 2007-3, Class B, 6.12% 2013		7,000			7,119
PE Environmental Funding LLC, Series 2007-A, Class A-1, 4.982% 2016		14,251			14,832
Home Equity Asset Trust, Series 2004-7, Class M-2, 0.904% 20355		20,000			13,755
FPL Recovery Funding LLC, Series 2007-A, Class A-1, 5.053% 2013		3,608			3,696
FPL Recovery Funding LLC, Series 2007-A, Class A-2, 5.044% 2015		9,000			9,734
First Investors Auto Owner Trust, Series 2006-A, Class A-4, MBIA insured, 5.00% 20134		11,811			12,107
Advanta Business Card Master Trust, Series 2005-A2, Class A-2, 0.375% 20135		12,392			11,896
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-2, FGIC insured, 6.054% 20375		20,000			11,540
CWHEQ Home Equity Loan Trust, Series 2006-S2, Class A-5, FGIC insured, 5.753% 2027		14,266			5,480
CWHEQ Home Equity Loan Trust, Series 2006-S6, Class A-6, AMBAC insured, 5.657% 20345		9,032			4,337
CWHEQ Home Equity Loan Trust, Series 2006-S9, Class A-1, MBIA insured, 0.344% 20365		1,647			1,389
Chase Auto Owner Trust, Series 2006-B, Class A-4, 5.11% 2014		10,828			11,112
Structured Asset Securities Corp., Series 2002-23XS, Class A7, 6.58% 20325		4,196			3,471
Structured Asset Securities Corp., Series 2005-S6, Class A2, 0.534% 20355		7,006			2,780
Structured Asset Securities Corp., Series 2005-S7, Class A2, 0.544% 20354,5		12,999			4,436
Wachovia Auto Loan Owner Trust, Series 2007-1, Class A-3A, 5.29% 2012		10,419			10,637
John Deere Owner Trust, Series 2008, Class A-3, 4.18% 2012		10,000			10,217
CWABS, Inc., Series 2004-15, Class AF-6, 4.613% 2035		14,021			10,065
MBNA Master Credit Card Trust II, Series 2001-B, Class A, 0.505% 20135		5,150			5,115
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 0.845% 20135		5,000			4,940
Citibank Credit Card Issuance Trust, Series 2008, Class C6, 6.30% 2014		9,600			9,927
Santander Drive Auto Receivables Trust, Series 2007-3, Class A-4-A, FGIC insured, 5.52% 2014		10,000			9,921
IndyMac Home Equity Mortgage Loan Asset-backed Trust, Series 2007-H1, Class A-1, FSA insured, 0.404% 20375		16,013			9,804
RAMP Trust, Series 2004-RS12, Class A-I-6, 4.547% 2034		7,571			6,739
RAMP Trust, Series 2004-RS12, Class M-I-1, 5.186% 2034		6,000			2,062
DaimlerChrysler Auto Trust, Series 2006-B, Class A-4, 5.38% 2011		8,579			8,671
Irwin Home Equity, Series 2006-1, Class 2-A2, AMBAC insured, 5.39% 20354,5		10,562			7,280
Capital One Multi-asset Execution Trust, Series 2003-3, Class C, 2.495% 20165		7,000			6,619
CWABS Revolving Home Equity Loan Trust, Series 2004-P, Class 2-A, MBIA insured, 0.565% 20345		17,780			5,968
Vanderbilt Mortgage and Finance, Inc., Series 2000-D, Class A-4, 7.715% 2027		3,209			3,326
Vanderbilt Mortgage and Finance, Inc., Series 2001-A, Class B-2, 9.14% 2031		3,000			2,458
Popular ABS Mortgage Pass-Through Trust, Series 2004-5, Class AF-6, 4.747% 20345		5,523			5,207
GMACM Home Loan Trust, Series 2006-HLTV1, Class A-5, FGIC insured, 6.01% 20295		16,901			4,433
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 20174		4,155			3,574
GE SeaCo Finance SRL, Series 2004-1, Class A, AMBAC insured, 0.545% 20194,5		3,757			3,085
CWHEQ Revolving Home Equity Loan Trust, Series 2007-C, Class A, FGIC insured, 0.395% 20375		10,266			2,481
RSB BondCo LLC, Series A, Class A-1, 5.47% 2014		1,813			1,925
Conseco Finance Securitizations Corp., Series 2002-2, Class A-2, 6.03% 2033		1,676			1,683
Home Equity Mortgage Trust, Series 2006-4, Class A-1, 5.671% 20365		21,465			1,651
Impac CMB Grantor Trust, Series 2004-6, Class 1-A-1, 1.044% 20345		1,467			888
Impac CMB Grantor Trust, Series 2004-6, Class M-2, 1.144% 20345		1,176			392
SACO I Trust, Series 2006-12, Class I-A, 0.384% 20365		9,453			1,119
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70% 2023		223			223
ACE Securities Corp. Home Equity Loan Trust, Series 2003-NC1, Class A-2A, 1.084% 20335		130			99
					1,306,657


ENERGY — 1.21%
Kinder Morgan Energy Partners LP 6.75% 2011		9,642			10,271
Kinder Morgan Energy Partners LP 5.85% 2012		20,907			22,547
Kinder Morgan Energy Partners LP 5.00% 2013		19,675			20,608
Kinder Morgan Energy Partners LP 5.125% 2014		40,185			41,910
Kinder Morgan Energy Partners LP 6.00% 2017		6,375			6,733
Kinder Morgan Energy Partners LP 9.00% 2019		4,150			5,068
Kinder Morgan Energy Partners LP 6.85% 2020		4,500			4,992
Kinder Morgan Energy Partners LP 6.95% 2038		15,000			16,120
Williams Companies, Inc. 2.29% 20104,5		5,000			4,998
Williams Companies, Inc. 6.375% 20104		12,000			12,352
Williams Companies, Inc. 7.125% 2011		10,000			10,648
Williams Companies, Inc. 8.125% 2012		16,300			17,764
Transcontinental Gas Pipe Line Corp., Series B, 8.875% 2012		8,000			9,189
Williams Companies, Inc. 8.75% 2020		25,875			29,709
Williams Companies, Inc. 7.875% 2021		25,000			27,333
Devon Financing Corp., ULC 6.875% 2011		37,500			40,918
Devon Energy Corp. 5.625% 2014		4,500			4,891
Devon Energy Corp. 6.30% 2019		24,435			27,104
Enbridge Inc. 5.80% 2014		45,500			50,035
Enbridge Inc. 4.90% 2015		11,310			11,758
Enbridge Inc. 5.60% 2017		10,190			10,878
Rockies Express Pipeline LLC 6.25% 20134		55,485			60,295
Rockies Express Pipeline LLC 6.85% 20184		10,000			11,235
Enbridge Energy Partners, LP 5.35% 2014		3,700			3,891
Enbridge Energy Partners, LP, Series B, 6.50% 2018		42,000			45,196
Enbridge Energy Partners, LP 9.875% 2019		5,000			6,320
Enbridge Energy Partners, LP 8.05% 20775		14,855			13,946
TransCanada PipeLines Ltd. 6.50% 2018		16,585			18,817
TransCanada PipeLines Ltd. 7.125% 2019		9,065			10,797
TransCanada PipeLines Ltd. 6.35% 20675		36,750			34,256
Gaz Capital SA 7.51% 2013		200			211
Gaz Capital SA 8.146% 2018		3,407			3,611
Gaz Capital SA 6.51% 20224		41,182			37,476
Gaz Capital SA, Series 9, 6.51% 2022		737			671
Open Joint Stock Co. Gazprom, Series 2, 8.625% 2034		620			683
Gaz Capital SA 7.288% 2037		11,813			11,075
Enterprise Products Operating LP 4.95% 2010		25,650			26,030
Enterprise Products Operating LP 7.50% 2011		20,000			21,261
Ras Laffan Liquefied Natural Gas III 5.50% 20144		4,800			5,146
Ras Laffan Liquefied Natural Gas III 6.75% 20194		500			554
Ras Laffan Liquefied Natural Gas II 5.298% 20204,6		37,167			37,791
Husky Energy Inc. 6.25% 2012		4,345			4,725
Husky Energy Inc. 5.90% 2014		12,410			13,495
Husky Energy Inc. 6.20% 2017		585			633
Husky Energy Inc. 7.25% 2019		12,780			14,801
StatoilHydro ASA 2.90% 2014		6,205			6,264
StatoilHydro ASA 5.25% 2019		23,000			25,022
Chevron Corp. 3.95% 2014		12,000			12,652
Chevron Corp. 4.95% 2019		14,000			15,032
Pemex Finance Ltd. 8.875% 20106		4,142			4,299
Pemex Project Funding Master Trust 5.75% 2018		12,750			12,686
Sunoco, Inc. 6.75% 2011		7,500			7,923
Sunoco, Inc. 4.875% 2014		8,250			8,406
Canadian Natural Resources Ltd. 5.70% 2017		10,000			10,649
Apache Corp. 6.00% 2013		995			1,109
Apache Corp. 6.90% 2018		7,815			9,258
Gulfstream Natural Gas 5.56% 20154		10,000			10,098
Petrobras International 5.75% 2020		9,540			9,559
Shell International Finance B.V. 4.00% 2014		8,580			9,025
Total Capital 3.125% 2015		7,775			7,868
Phillips Petroleum Co. 8.75% 2010		6,000			6,279
BP Capital Markets PLC 3.125% 2012		5,000			5,173
Energy Transfer Partners, LP 5.95% 2015		2,570			2,729
					932,773


CONSUMER DISCRETIONARY — 1.06%
Time Warner Inc. 5.50% 2011		11,075			11,846
AOL Time Warner Inc. 6.75% 2011		6,310			6,743
AOL Time Warner Inc. 6.875% 2012		15,000			16,509
Time Warner Companies, Inc. 9.125% 2013		10,000			11,649
Time Warner Inc. 5.875% 2016		50,600			54,321
Time Warner Companies, Inc. 7.25% 2017		2,500			2,822
AOL Time Warner Inc. 7.625% 2031		5,000			5,607
Time Warner Inc. 6.50% 2036		19,300			19,669
Comcast Corp. 5.45% 2010		9,500			9,915
Comcast Corp. 5.50% 2011		7,325			7,706
Comcast Cable Communications, Inc. 6.75% 2011		22,005			23,382
Comcast Corp. 5.85% 2015		31,000			33,762
Comcast Corp. 6.30% 2017		21,375			23,169
Comcast Corp. 5.875% 2018		9,250			9,782
Comcast Corp. 6.45% 2037		3,000			3,085
Comcast Corp. 6.40% 2038		11,810			12,090
Time Warner Cable Inc. 5.40% 2012		8,000			8,550
Time Warner Cable Inc. 6.20% 2013		15,418			16,905
Time Warner Cable Inc. 7.50% 2014		23,775			27,393
Time Warner Cable Inc. 8.25% 2014		2,000			2,348
Time Warner Cable Inc. 8.25% 2019		19,000			22,894
Time Warner Cable Inc. 8.75% 2019		14,985			18,513
Staples, Inc. 7.75% 2011		1,405			1,510
Staples, Inc. 9.75% 2014		72,826			88,333
News America Holdings Inc. 9.25% 2013		5,200			6,104
News America Inc. 5.30% 2014		5,000			5,433
News America Holdings Inc. 8.00% 2016		2,000			2,342
News America Holdings Inc. 8.25% 2018		3,000			3,532
News America Inc. 6.90% 2019		22,655			25,443
News America Inc. 6.65% 2037		14,600			15,298
Thomson Corp. 6.20% 2012		14,000			15,240
Thomson Reuters Corp. 5.95% 2013		17,620			19,501
Thomson Reuters Corp. 6.50% 2018		8,000			9,105
Cox Communications, Inc. 4.625% 2010		7,666			7,717
Cox Communications, Inc. 7.125% 2012		7,335			8,237
Cox Communications, Inc. 4.625% 2013		5,495			5,723
Cox Communications, Inc. 5.45% 2014		15,880			17,065
Cox Communications, Inc. 9.375% 20194		3,000			3,764
DaimlerChrysler North America Holding Corp. 8.00% 2010		10,000			10,363
DaimlerChrysler North America Holding Corp., Series E, 5.75% 2011		6,455			6,827
DaimlerChrysler North America Holding Corp. 5.875% 2011		16,450			17,165
DaimlerChrysler North America Holding Corp. 7.75% 2011		2,950			3,135
DaimlerChrysler North America Holding Corp. 7.30% 2012		4,145			4,517
J.C. Penney Co., Inc. 8.00% 2010		32,939			33,392
Target Corp. 6.00% 2018		29,500			33,168
Walt Disney Co. 4.70% 2012		25,000			27,018
Nordstrom, Inc. 6.75% 2014		14,185			15,822
MDC Holdings, Inc. 5.375% 2014		15,000			15,298
Home Depot, Inc. 5.25% 2013		12,875			13,800
Marriott International, Inc., Series I, 6.375% 2017		12,750			13,002
Lowe’s Companies, Inc. 8.25% 2010		5,455			5,698
Lowe’s Companies, Inc., Series B, 7.11% 2037		5,000			5,998
Kohl’s Corp. 6.30% 2011		4,400			4,616
Kohl’s Corp. 6.00% 2033		6,902			6,871
Discovery Communications Inc. 5.625% 2019		10,000			10,302
TJX Companies, Inc. 4.20% 2015		9,350			9,721
					819,720


HEALTH CARE — 1.05%
Roche Holdings Inc. 5.00% 20144		73,400			79,334
Roche Holdings Inc. 6.00% 20194		58,500			64,897
Cardinal Health, Inc. 6.75% 2011		80,250			84,543
Cardinal Health, Inc. 5.50% 2013		9,230			9,782
Cardinal Health, Inc. 5.80% 2016		5,000			5,023
Cardinal Health, Inc. 5.85% 2017		13,540			13,965
Schering-Plough Corp. 6.00% 2017		82,500			92,841
Pfizer Inc. 5.35% 2015		17,500			19,345
Pfizer Inc. 6.20% 2019		47,350			54,006
WellPoint, Inc. 4.25% 2009		4,565			4,583
WellPoint, Inc. 5.00% 2011		24,000			24,874
WellPoint, Inc. 5.00% 2014		2,845			3,002
WellPoint, Inc. 5.875% 2017		25,000			26,430
Hospira, Inc. 0.763% 20105		16,901			16,899
Hospira, Inc. 5.55% 2012		20,000			21,475
Hospira, Inc. 5.90% 2014		5,860			6,334
Hospira, Inc. 6.05% 2017		4,315			4,553
Merck & Co., Inc. 1.875% 2011		18,885			19,132
Merck & Co., Inc. 4.00% 2015		25,000			26,232
Biogen Idec Inc. 6.00% 2013		40,000			42,530
GlaxoSmithKline Capital Inc. 4.85% 2013		30,775			33,216
GlaxoSmithKline Capital Inc. 5.65% 2018		5,000			5,513
Novartis Capital Corp. 4.125% 2014		15,500			16,388
Novartis Securities Investment Ltd. 5.125% 2019		20,500			21,866
Express Scripts Inc. 5.25% 2012		12,485			13,308
Express Scripts Inc. 6.25% 2014		13,837			15,219
Abbott Laboratories 5.875% 2016		12,907			14,476
Abbott Laboratories 5.125% 2019		8,050			8,550
AstraZeneca PLC 5.40% 2012		18,000			19,851
Aetna Inc. 5.75% 2011		12,500			13,168
Aetna Inc. 6.50% 2018		5,000			5,464
UnitedHealth Group Inc. 5.25% 2011		1,585			1,655
UnitedHealth Group Inc. 5.50% 2012		5,450			5,792
UnitedHealth Group Inc. 4.875% 2013		10,000			10,462
Coventry Health Care, Inc. 5.95% 2017		8,500			7,610
					812,318


TELECOMMUNICATION SERVICES — 1.00%
SBC Communications Inc. 6.25% 2011		20,000			21,284
AT&T Wireless Services, Inc. 7.875% 2011		76,700			83,114
SBC Communications Inc. 5.875% 2012		10,000			10,990
AT&T Inc. 4.95% 2013		13,125			14,017
AT&T Inc. 4.85% 2014		12,420			13,277
AT&T Inc. 5.50% 2018		16,000			16,824
AT&T Inc. 5.80% 2019		2,000			2,146
AT&T Corp. 8.00% 20315		17,000			20,979
AT&T Inc. 6.55% 2039		1,000			1,085
Telecom Italia Capital SA 4.00% 2010		10,880			10,943
Telecom Italia Capital SA, Series B, 5.25% 2013		97,843			103,045
Telecom Italia Capital SA 4.95% 2014		15,150			15,741
Telecom Italia Capital SA 6.175% 2014		6,500			7,058
Telecom Italia Capital SA 6.999% 2018		21,500			23,654
Telecom Italia Capital SA 7.20% 2036		11,370			12,431
Telecom Italia Capital SA 7.721% 2038		9,000			10,469
Verizon Communications Inc. 3.75% 20114		53,500			55,326
Verizon Global Funding Corp. 7.375% 2012		7,000			7,969
Verizon Communications Inc. 5.25% 2013		14,500			15,752
Verizon Communications Inc. 7.375% 20134		20,000			23,139
Verizon Communications Inc. 5.55% 20144		5,250			5,726
Verizon Communications Inc. 5.50% 2017		20,000			21,225
Verizon Communications Inc. 5.50% 2018		2,845			2,988
Verizon Communications Inc. 8.75% 2018		14,000			17,514
Verizon Communications Inc. 6.35% 2019		12,500			13,895
Vodafone Group PLC 5.375% 2015		10,716			11,513
Vodafone Group PLC 5.75% 2016		6,475			6,986
Vodafone Group PLC 5.625% 2017		28,950			30,927
Vodafone Group PLC 6.15% 2037		11,000			11,758
Telefónica Emisiones, SAU 5.984% 2011		20,000			21,294
Telefónica Emisiones, SAU 6.421% 2016		15,000			16,665
Singapore Telecommunications Ltd. 6.375% 2011		9,825			10,684
Singapore Telecommunications Ltd. 6.375% 20114		3,490			3,795
Singapore Telecommunications Ltd. 7.375% 20314		12,600			15,718
PCCW-HKT Capital Ltd. 8.00% 20114,5		20,000			21,628
American Tower Corp. 4.625% 20154		4,875			4,939
American Tower Corp. 7.00% 2017		15,000			16,500
Qwest Corp. 7.875% 2011		20,000			20,750
France Télécom 7.75% 20115		15,600			16,868
Deutsche Telekom International Finance BV 6.75% 2018		15,000			16,829
Koninklijke KPN NV 8.375% 2030		11,140			14,172
					771,617


UTILITIES — 0.94%
Cleveland Electric Illuminating Co. 5.65% 2013		20,535			21,876
Jersey Central Power & Light Co. 5.625% 2016		3,550			3,715
Pennsylvania Electric Co. 6.05% 2017		3,000			3,198
Cleveland Electric Illuminating Co. 8.875% 2018		37,275			46,994
Jersey Central Power & Light Co. 7.35% 2019		14,900			17,384
Nevada Power Co., General and Refunding Mortgage Bonds, Series A, 8.25% 2011		13,000			14,163
Sierra Pacific Power Co., General and Refunding Mortgage Notes, Series H, 6.25% 2012		12,000			12,743
Nevada Power Co., General and Refunding Mortgage Notes, Series I, 6.50% 2012		12,325			13,355
Sierra Pacific Power Co., General and Refunding Mortgage Notes, Series Q, 5.45% 2013		10,025			10,695
Nevada Power Co., General and Refunding Mortgage Notes, Series M, 5.95% 2016		8,314			8,871
Nevada Power Co., General and Refunding Mortgage Notes, Series S, 6.50% 2018		16,975			18,631
Nevada Power Co., General and Refunding Mortgage Notes, Series V, 7.125% 2019		2,500			2,860
National Rural Utilities Cooperative Finance Corp. 5.50% 2013		40,000			43,563
National Rural Utilities Cooperative Finance Corp. 5.45% 2018		25,000			26,500
Consumers Energy Co., Series O, 5.00% 2012		5,200			5,506
Consumers Energy Co. First Mortgage Bonds 5.15% 2017		11,500			11,983
Consumers Energy Co. 5.65% 2018		11,400			12,120
Consumers Energy Co., First Mortgage Bonds, 6.125% 2019		24,425			26,905
Consumers Energy Co., First Mortgage Bonds, 6.70% 2019		4,000			4,603
Appalachian Power Co., Series J, 4.40% 2010		10,000			10,175
Ohio Power Co., Series J, 5.30% 2010		18,000			18,718
Appalachian Power Co., Series M, 5.55% 2011		10,000			10,444
MidAmerican Energy Co. 5.125% 2013		1,500			1,589
MidAmerican Energy Co. 5.95% 2017		14,000			15,339
PacifiCorp., First Mortgage Bonds, 5.65% 2018		6,000			6,574
MidAmerican Energy Holdings Co. 5.75% 2018		10,000			10,710
Alabama Power Co., Series R, 4.70% 2010		1,750			1,815
Alabama Power Co., Series 2007-D, 4.85% 2012		21,500			23,249
Alabama Power Co., Series 2008-B, 5.80% 2013		1,225			1,361
Georgia Power Co., Series 2008-D, 6.00% 2013		5,235			5,882
Centerpoint Energy Resources Corp., Series B, 7.875% 2013		17,000			19,186
CenterPoint Energy Houston Electric, LLC, General Mortgage Bonds, Series U, 7.00% 2014		7,600			8,573
Centerpoint Energy, Inc., Series B, 6.85% 2015		4,000			4,204
National Grid PLC 6.30% 2016		28,225			30,862
Pacific Gas and Electric Co., First Mortgage Bonds, 4.20% 2011		1,000			1,036
Pacific Gas and Electric Co. 6.25% 2013		24,100			27,118
Scottish Power PLC 5.375% 2015		25,000			26,939
Oncor Electric Delivery Co. LLC 5.95% 2013		23,500			25,487
Carolina Power & Light Co. d/b/a Progress Energy Carolinas, Inc., First Mortgage Bonds, 5.15% 2015		5,000			5,400
Progress Energy Florida, Inc., First Mortgage Bonds, 5.65% 2018		1,700			1,861
Progress Energy, Inc. 7.05% 2019		15,000			17,377
HKCG Finance Ltd. 6.25% 2018		14,000			15,262
HKCG Finance Ltd. 6.25% 20184		7,525			8,203
AmerenEnergy Generating Co., Series D, 8.35% 2010		1,500			1,562
Illinois Power Co. 6.125% 2017		15,000			16,036
Cilcorp Inc. 9.375% 2029		5,000			5,125
Abu Dhabi National Energy Co. PJSC (TAQA) 5.62% 20124		20,000			20,922
Public Service Co. of Colorado, First Collateral Trust Bonds, Series No. 12, 4.875% 2013		5,000			5,292
Public Service Co. of Colorado 5.80% 2018		9,850			10,941
Public Service Co. of Colorado 5.125% 2019		4,350			4,641
PSEG Power LLC 7.75% 2011		15,000			16,196
Dominion Resources, Inc., Series 2002-D, 5.125% 2009		10,311			10,357
Virginia Electric and Power Co., Series 2003-B, 4.50% 2010		3,000			3,098
Virginia Electric and Power Co., Series A, 6.00% 2037		2,000			2,183
Exelon Corp. 4.45% 2010		10,000			10,196
Commonwealth Edison Co., First Mortgage Bonds, Series 105, 5.40% 2011		4,000			4,295
Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% 2011		5,500			5,705
Southern California Gas Co., First Mortgage Bonds, Series LL, 5.50% 2014		5,000			5,515
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2008-B, 5.50% 2018		2,450			2,682
					727,775


CONSUMER STAPLES — 0.83%
Altria Group, Inc. 7.75% 2014		20,000			22,843
Altria Group, Inc. 9.70% 2018		41,345			50,983
Altria Group, Inc. 9.25% 2019		106,000			128,731
Altria Group, Inc. 10.20% 2039		50,000			66,839
CVS Caremark Corp. 0.661% 20105		5,000			5,000
CVS Caremark Corp. 6.60% 2019		29,492			32,949
CVS Caremark Corp. 5.789% 20264,6		12,924			12,434
CVS Caremark Corp. 6.036% 20286		17,034			16,776
CVS Caremark Corp. 6.943% 20306		33,513			34,590
CVS Caremark Corp. 8.353% 20314,6		40			45
Kroger Co. 6.75% 2012		1,000			1,097
Kroger Co. 5.00% 2013		11,250			11,889
Kroger Co. 7.50% 2014		23,315			26,929
Kroger Co. 6.40% 2017		48,135			53,359
Wal-Mart Stores, Inc. 4.25% 2013		6,000			6,404
Wal-Mart Stores, Inc., Series 1994-A2, 8.85% 20156		16,000			18,899
Wal-Mart Stores, Inc. 5.375% 2017		5,205			5,682
Wal-Mart Stores, Inc. 5.80% 2018		14,795			16,583
Delhaize Group 5.875% 2014		10,000			10,779
Delhaize Group 6.50% 2017		28,410			31,150
Safeway Inc. 6.25% 2014		5,550			6,135
Safeway Inc. 6.35% 2017		30,000			33,100
Anheuser-Busch InBev NV 4.125% 20154		20,000			20,189
Anheuser-Busch InBev NV 5.375% 20204		5,000			5,093
Walgreen Co. 4.875% 2013		10,000			10,821
Tesco PLC 5.50% 20174		9,070			9,540
SYSCO Corp. 4.20% 2013		2,920			3,074
					641,913


INDUSTRIALS — 0.71%
Koninklijke Philips Electronics NV 4.625% 2013		55,450			58,549
American Airlines, Inc., Series 2001-2, Class B, 8.608% 20126		10,000			9,325
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20136		39,450			39,460
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20196		7,830			7,468
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20196		4,567			4,399
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20226		8,785			8,274
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20226		2,000			1,740
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20226		12,851			12,265
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 20226		14,004			13,925
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20146		41,770			39,734
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20246		3,018			2,669
Burlington Northern Santa Fe Corp. 7.00% 2014		26,430			30,219
BNSF Funding Trust I 6.613% 20555		6,700			6,356
Canadian National Railway Co. 6.375% 2011		1,822			1,996
Canadian National Railway Co. 4.40% 2013		2,500			2,647
Canadian National Railway Co. 4.95% 2014		4,175			4,491
Canadian National Railway Co. 5.55% 2018		25,000			27,329
Union Pacific Corp. 6.50% 2012		4,000			4,412
Union Pacific Corp. 5.125% 2014		11,495			12,330
Union Pacific Corp. 5.75% 2017		5,405			5,793
Union Pacific Corp. 5.70% 2018		9,870			10,628
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 20114,6		25,547			26,556
BAE Systems Holdings Inc. 4.95% 20144		1,375			1,428
CSX Corp. 5.75% 2013		15,000			16,076
CSX Corp. 6.25% 2015		10,000			11,181
Raytheon Co. 4.85% 2011		16,000			16,616
Raytheon Co. 6.40% 2018		1,580			1,830
Raytheon Co. 6.75% 2018		2,420			2,835
Raytheon Co. 7.00% 2028		4,000			4,800
Norfolk Southern Corp. 5.75% 20164		20,340			21,992
Waste Management, Inc. 7.375% 2010		20,000			20,881
Waste Management, Inc. 5.00% 2014		890			928
Northrop Grumman Systems Corp. 7.125% 2011		12,700			13,581
Northrop Grumman Corp. 7.75% 2016		6,640			8,006
Atlas Copco AB 5.60% 20174		17,290			17,950
Lockheed Martin Corp. 4.121% 2013		2,000			2,106
Lockheed Martin Corp. 7.65% 2016		10,135			12,286
Lockheed Martin Corp., Series B, 6.15% 2036		3,000			3,319
Volvo Treasury AB 5.95% 20154		14,950			15,215
John Deere Capital Corp. 5.10% 2013		1,700			1,830
John Deere Capital Corp., Series D, 5.50% 2017		5,350			5,791
John Deere Capital Corp., Series D, 5.35% 2018		2,750			2,930
John Deere Capital Corp., Series D, 5.75% 2018		3,000			3,274
Hutchison Whampoa International Ltd. 6.50% 20134		11,800			12,852
Caterpillar Financial Services Corp. 4.30% 2010		4,300			4,391
Caterpillar Financial Services Corp., Series F, 5.125% 2011		3,000			3,218
Caterpillar Financial Services Corp., Series F, 4.85% 2012		1,290			1,376
Caterpillar Financial Services Corp., Series F, 5.50% 2016		2,000			2,137
Caterpillar Financial Services Corp., Series F, 7.15% 2019		1,000			1,176
United Air Lines, Inc., Series 2007-1, Class A, 6.636% 20246		3,186			2,788
Allied Waste North America, Inc. 6.875% 2017		2,100			2,229
General Electric Co. 4.50% PINES 2035		1,905			1,776
					547,363


MATERIALS — 0.45%
Dow Chemical Co. 7.60% 2014		60,200			66,950
Dow Chemical Co. 5.70% 2018		1,400			1,380
Dow Chemical Co. 8.55% 2019		62,075			70,985
International Paper Co. 7.95% 2018		2,000			2,233
International Paper Co. 9.375% 2019		54,745			66,383
ArcelorMittal 9.85% 2019		30,755			36,304
Rio Tinto Finance (USA) Ltd. 5.875% 2013		10,000			10,786
Rio Tinto Finance (USA) Ltd. 8.95% 2014		12,150			14,373
Rio Tinto Finance (USA) Ltd. 9.00% 2019		5,670			7,066
BHP Billiton Finance (USA) Ltd. 5.50% 2014		18,295			20,117
BHP Billiton Finance (USA) Ltd. 6.50% 2019		10,000			11,507
E.I. du Pont de Nemours and Co. 4.125% 2010		4,000			4,078
E.I. du Pont de Nemours and Co. 5.00% 2013		1,210			1,309
E.I. du Pont de Nemours and Co. 5.25% 2016		1,500			1,612
Arbermarle Corp. 5.10% 2015		7,000			6,841
CRH America Inc. 6.95% 2012		815			884
CRH America, Inc. 6.00% 2016		220			228
CRH America, Inc. 8.125% 2018		2,595			3,001
Stora Enso Oyj 6.404% 20164		4,000			3,651
ICI Wilmington, Inc. 5.625% 2013		3,500			3,610
Holcim Ltd. 6.00% 20194		2,980			3,079
Yara International ASA 7.875% 20194		2,225			2,540
Lubrizol Corp. 8.875% 2019		2,000			2,498
Airgas, Inc. 7.125% 20184		1,800			1,867
Praxair, Inc. 4.375% 2014		1,000			1,069
Alcan Inc. 6.45% 2011		1,000			1,054
Potash Corp. of Saskatchewan Inc. 5.875% 2036		350			358
					345,763


BONDS & NOTES OF GOVERNMENTS & GOVERNMENT AGENCIES OUTSIDE THE U.S. — 0.31%
Australia Government Agency-Guaranteed, National Australia Bank 0.784% 20144,5		25,000			25,047
Australia Government Agency-Guaranteed, National Australia Bank 3.375% 20144		26,750			27,306
Russian Federation 7.50% 20306		37,882			42,542
France Government Agency-Guaranteed, Société Finance 2.25% 20124		29,365			29,730
France Government Agency-Guaranteed, Société Finance 3.375% 20144		10,000			10,276
New Zealand Government Agency-Guaranteed, Westpac Securities Co. 2.50% 20124		10,000			10,097
New Zealand Government Agency-Guaranteed, Westpac Securities Co. 3.45% 20144		14,350			14,412
Australia Government Agency-Guaranteed, Commonwealth Bank of Australia 0.785% 20144,5		20,000			20,280
United Kingdom Government Agency-Guaranteed, Lloyds TSB Group PLC 2.80% 20124		15,000			15,371
Denmark Government Agency-Guaranteed, Danske Bank 0.757% 20124,5		15,000			15,066
Corporación Andina de Fomento 6.875% 2012		10,000			10,808
Israeli Government 5.125% 2019		10,000			10,306
Denmark Government Agency-Guaranteed, Danish Finance Co. 2.45% 20124		9,375			9,499
					240,740


INFORMATION TECHNOLOGY — 0.25%
National Semiconductor Corp. 6.15% 2012		42,620			44,641
National Semiconductor Corp. 6.60% 2017		28,000			28,360
Electronic Data Systems Corp., Series B, 6.00% 20135		51,500			57,101
KLA-Tencor Corp. 6.90% 2018		36,875			38,720
Cisco Systems, Inc. 5.25% 2011		14,000			14,766
Cisco Systems, Inc. 5.50% 2016		2,000			2,201
Cisco Systems, Inc. 4.95% 2019		3,500			3,690
					189,479


MUNICIPALS — 0.01%
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds,
Series 2002-A, Class A, 6.72% 2025		7,180			5,894
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, Class A, 6.36% 2025		668			578
					6,472


Total bonds & notes (cost: $23,018,985,000)					23,194,955



Short-term securities — 5.94%

Freddie Mac 0.12%–0.305% due 11/2/2009–5/26/2010		1,873,625			1,872,478
U.S. Treasury Bills 0.161%–0.33% due 11/19/2009–7/29/2010		860,900			860,191
Fannie Mae 0.15%–0.70% due 11/16/2009–9/1/2010		430,250			430,042
Federal Home Loan Bank 0.095%–0.31% due 11/25/2009–5/12/2010		243,200			243,146
Federal Home Loan Bank 0.925% due 12/22/20095		50,000			49,991
JPMorgan Chase Funding Inc. 0.20% due 2/18/20104		100,000			99,907
Jupiter Securitization Co., LLC 0.19% due 11/6/20094		50,000			49,998
Coca-Cola Co. 0.19%–0.21% due 12/7/2009–1/15/20104		125,000			124,953
Wal-Mart Stores Inc. 0.12%–0.22% due 11/30/2009–2/22/20104		114,500			114,432
International Bank for Reconstruction and Development 0.17%–0.20% due 3/22–3/31/2010		103,600			103,532
Straight-A Funding LLC 0.21%–0.23% due 12/15/2009–1/7/20104		100,000			99,970
Procter & Gamble International Funding S.C.A. 0.17%–0.23% due 11/18/2009–1/15/20104		96,000			95,970
Private Export Funding Corp. 0.22%–0.25% due 12/9/2009–1/19/20104		70,200			70,174
Bank of America Corp. 0.22% due 1/11/2010		58,100			58,070
Campbell Soup Co. 0.21%–0.23% due 2/1–2/9/20104		57,300			57,266
General Electric Capital Corp. 0.17% due 1/12/2010		50,000			49,970
Federal Farm Credit Banks 0.37% due 5/10/2010		50,000			49,946
NetJets Inc. 0.18%–0.19% due 12/2–12/3/20094		42,600			42,591
Honeywell International Inc. 0.13%–0.20% due 12/8–12/14/20094		37,900			37,891
Paccar Financial Corp. 0.18% due 1/11/2010		29,400			29,386
Variable Funding Capital Corp. 0.21% due 1/26/20104		25,000			24,973
Abbott Laboratories 0.20% due 11/9/20094		20,800			20,799


Total short-term securities (cost: $4,585,283,000)					4,585,676


Total investment securities (cost: $75,927,799,000)					76,890,347
Other assets less liabilities					238,684

Net assets				$	77,129,031

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

1Represents an affiliated company as defined under the Investment Company Act of 1940.

2Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in “Miscellaneous,” was $27,246,678,000, which represented 35.33% of the fund. This amount includes $27,089,979,000 related to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading.

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

4Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $3,450,842,000, which represented 4.47% of the net assets of the fund.

5Coupon rate may change periodically.

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

7Index-linked bond whose principal amount moves with a government retail price index.

8Scheduled interest and/or principal payment was not received.

9Purchased in a transaction exempt from registration under the Securities Act of 1933. This security (acquired 11/6/2007 at a cost of $10,147,000) may be subject to legal or contractual restrictions on resale.

Key to abbreviation

ADR = American 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-912-1209O-S21448

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Capital Income Builder, Inc.:

We have audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the financial statements of Capital Income Builder, Inc. (the "Fund") as of October 31, 2009, and for the year then ended and have issued our unqualified report thereon dated December 7, 2009 (which report and financial statements are included in Item 1 of this Certified Shareholder Report on Form N-CSR). Our audit included an audit of the Fund's investment portfolio (the “Portfolio”) as of October 31, 2009 appearing in Item 6 of this Form N-CSR. The Portfolio is the responsibility of the Fund's management. Our responsibility is to express an opinion on the Portfolio based on our audit.

In our opinion, the Portfolio referred to above, when read in conjunction with the financial statements of the Fund referred to above, presents fairly, in all material respects, the information set forth therein.

PricewaterhouseCoopers LLP

Los Angeles, California

December 7, 2009

	Beginning shares		Additions		Reductions		Ending shares			Dividend income (000	)		Value of affiliates at 10/31/09 (000	)

CenturyTel, Inc. (8)		3,572,640		15,480,957		-		19,053,597	$	25,107		$	618,480
OPAP SA (2)		15,242,040		1,179,000		-		16,421,040		45,232			420,092
MAp Group (2)		93,268,737		-		-		93,268,737		17,918			238,404
FirstGroup PLC (2)		-		31,300,000		-		31,300,000		6,463			192,962
RPM International, Inc.		7,900,000		440,000		-		8,340,000		6,538			146,951
Symrise AG (2) (8)		885,000		5,950,085		-		6,835,085		3,575			125,969
Wincor Nixdorf AG (2) (8)		1,325,000		825,312		-		2,150,312		3,652			125,865
Hays PLC (2)		-		71,032,000		-		71,032,000		3,771			114,103
De La Rue PLC (2)		8,804,046		731,000		3,160,427		6,374,619		3,965			95,600
De La Rue PLC, Class B		-		8,804,046		8,804,046		-		-			-
Greene King PLC (2)		8,722,210		5,204,153		48,621		13,877,742		4,391			90,021
Greene King PLC, rights, expire 2009		-		5,204,153		5,204,153		-		-			-
S P Setia Bhd. (2)		65,577,500		-		7,550,500		58,027,000		2,019			65,341
Starwood Property Trust, Inc.		-		2,675,000		-		2,675,000		27			53,848
BELIMO Holding AG (2)		42,250		-		-		42,250		1,269			43,314
Ekornes ASA (2)		1,980,425		-		-		1,980,425		910			36,807
Frasers Centrepoint Trust (2)		30,400,000		8,864,000		-		39,264,000		1,535			33,431
Colony Financial, Inc. (3)		-		750,000		-		750,000		-			14,587
Oakton Ltd. (2)		4,617,960		-		-		4,617,960		84			14,304
Ambuja Cements Ltd. (2) (9)		98,960,919		-		87,156,003		11,804,916		4,496			-
Cambridge Industrial Trust (9)		50,291,000		-		50,291,000		-		457			-
Embarq Corp. (9)		9,263,327		-		9,263,327		-		19,106			-
Fong's Industries Co. Ltd. (9)		36,590,000		-		36,590,000		-		-			-
Fortune Real Estate Investment Trust (9)		52,408,500		-		52,408,500		-		-			-
Frasers Commercial Trust (9)		44,940,001		-		44,940,001		-		440			-
Macquarie Communications Infrastructure Group (9)		27,867,700		-		27,867,700		-		895			-
Macquarie Communications Infrastructure Group (9)		4,539,041		-		4,539,041		-		34			-
Macquarie Infrastructure Group (9)		133,598,374		-		133,598,374		-		7,757			-
Macquarie International Infrastructure Fund Ltd. (9)		83,170,000		-		83,170,000		-		-			-
SBM Offshore NV (9)		9,319,188		-		9,319,188		-		-			-
Singapore Post Private Ltd. (2) (9)		107,025,000		-		46,625,000		60,400,000		4,557			-
TICON Industrial Connection PCL (9)		41,951,000		-		41,951,000		-		-			-
TICON Industrial Connection PCL, warrants, expire 2014 (9)		-		13,983,666		13,983,666		-		-			-

									$	164,198		$	2,430,079

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) Represents an affiliated company as defined under the Investment Company Act of 1940.
(2) 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 $27,246,678,000, which represented 35.33% of the net assets of the fund. This amount includes $27,089,979,000 related to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading.
(3) Security did not produce income during the last 12 months.
(4) Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities, including those in "Other securities," was $3,450,842,000, which represented 4.47% 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) Index-linked bond whose principal amount moves with a government retail price index.
(8) This security was an unaffiliated issuer in its initial period of acquisition at 10/31/2008; it was not publicly disclosed.
(9) Unaffiliated issuer at 10/31/2009.


Key to abbreviation
ADR = American Depositary Receipts


See Notes to Financial Statements

Statement of assets and liabilities
at October 31, 2009	(dollars in thousands)

Assets:
Investment securities, at value:
Unaffiliated issuers (cost: $73,390,076)	$	74,460,268
Affiliated issuers (cost: $2,537,723)		2,430,079	$	76,890,347
Cash denominated in currencies other than U.S. dollars (cost: $4,080)				4,080
Cash				9,614
Receivables for:
Sales of investments		991,015
Sales of fund's shares		80,816
Dividends and interest		360,609		1,432,440
				78,336,481
Liabilities:
Payables for:
Purchases of investments		1,016,237
Repurchases of fund's shares		126,644
Investment advisory services		14,693
Services provided by affiliates		43,481
Directors' deferred compensation		1,385
Other		5,010		1,207,450
Net assets at October 31, 2009			$	77,129,031

Net assets consist of:
Capital paid in on shares of capital stock			$	89,395,929
Undistributed net investment income				352,821
Accumulated net realized loss				(13,583,978	)
Net unrealized appreciation				964,259
Net assets at October 31, 2009			$	77,129,031

(dollars and shares in thousands, except per-share amounts)
Total authorized capital stock - 3,000,000 shares, $.01 par value (1,662,044 total shares outstanding)
	Net assets		Shares outstanding		Net asset value per share*
Class A	$	56,647,598		1,220,593	$	46.41
Class B		3,519,614		75,865		46.39
Class C		8,322,656		179,409		46.39
Class F-1		3,142,187		67,701		46.41
Class F-2		978,977		21,099		46.40
Class 529-A		1,221,274		26,319		46.40
Class 529-B		147,016		3,170		46.38
Class 529-C		459,799		9,914		46.38
Class 529-E		56,541		1,219		46.40
Class 529-F-1		33,125		714		46.41
Class R-1		125,524		2,706		46.38
Class R-2		632,742		13,642		46.38
Class R-3		800,653		17,257		46.40
Class R-4		346,887		7,476		46.40
Class R-5		376,433		8,109		46.42
Class R-6		318,005		6,851		46.42

(*) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Classes A and 529-A, for which the maximum offering prices per share were $49.24 and $49.23, respectively.


See Notes to Financial Statements

Statement of operations
for the year ended October 31, 2009				(dollars in thousands)

Investment income:
Income:
Dividends (net of non-U.S. taxes of $158,118; also includes
$164,198 from affiliates)	$	2,285,111
Interest		1,310,612		$	3,595,723

Fees and expenses*:
Investment advisory services		190,754
Distribution services		255,789
Transfer agent services		69,870
Administrative services		26,131
Reports to shareholders		4,774
Registration statement and prospectus		10,137
Directors' compensation		642
Auditing and legal		192
Custodian		7,842
State and local taxes		701
Other		3,721
Total fees and expenses before waiver		570,553
Less investment advisory services waiver		3,266
Total fees and expenses after waiver					567,287
Net investment income					3,028,436

Net realized loss and unrealized appreciation on investments and currency:
Net realized (loss) gain on:
Investments (net of non-U.S. taxes of $171; also includes $406,299 net loss from affiliates)		(12,532,669	)
Currency transactions		20,852			(12,511,817	)
Net unrealized appreciation on:
Investments		19,437,426
Currency translations		6,639			19,444,065
Net realized loss and unrealized appreciation on investments and currency					6,932,248
Net increase in net assets resulting from operations				$	9,960,684

(*) Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.

See Notes to Financial Statements



Statements of changes in net assets				(dollars in thousands)

	Year ended October 31
		2009			2008
Operations:
Net investment income	$	3,028,436		$	4,035,765
Net realized (loss) gain on investments and currency transactions		(12,511,817	)		19,237
Net unrealized appreciation (depreciation) on investments and currency translations		19,444,065			(42,874,028	)
Net increase (decrease) in net assets resulting from operations		9,960,684			(38,819,026	)

Dividends and distributions paid or accrued to
shareholders:
Dividends from net investment income		(3,441,672	)		(4,584,311	)
Distributions from net realized gain on investments		-			(4,042,060	)
Total dividends and distributions paid or accrued to shareholders		(3,441,672	)		(8,626,371	)


Net capital share transactions		(4,762,774	)		9,153,317

Total increase (decrease) in net assets		1,756,238			(38,292,080	)

Net assets:
Beginning of year		75,372,793			113,664,873
End of year (including undistributed
net investment income: $352,821 and $637,559, respectively)	$	77,129,031		$	75,372,793


See Notes to Financial Statements

Industry sector diversification (percent of net assets)

Telecommunication services	8.56	%
Financials	8.52
Consumer staples	6.73
Utilities	6.70
Energy	6.56
Convertible securities & preferred stocks	1.02
Bonds & notes	30.07
Other industries	25.59
Short-term securities & other assets less liabilities	6.25

							Percent
				Value			of net
Common stocks - 62.66%	Shares				(000	)	assets

Telecommunication services - 8.56%
AT&T Inc.		52,431,230		$	1,345,910			1.75	%
Verizon Communications Inc.		33,541,700			992,499			1.29
América Móvil, SAB de CV, Series L (ADR)		18,738,000			826,908			1.07
CenturyTel, Inc. (1)		19,053,597			618,480			.80
Koninklijke KPN NV (2)		27,589,050			500,815			.65
Telefónica, SA (2)		17,460,000			487,955			.63
Other securities					1,825,089			2.37
					6,597,656			8.56

Financials - 8.52%
Banco Santander, SA (2)		82,073,972			1,322,796			1.72
BNP Paribas SA (2)		6,312,291			475,461			.62
Banco Bradesco SA, preferred nominative		22,083,300			434,500			.56
HSBC Holdings PLC (Hong Kong) (2)		26,741,178			292,962
HSBC Holdings PLC (United Kingdom) (2)		9,728,436			107,824			.52
Hang Seng Bank Ltd. (2)		24,991,100			354,651			.46
Westpac Banking Corp. (2)		15,251,722			354,634			.46
Bank of China Ltd., Class H (2)		574,785,000			331,360			.43
Fannie Mae (3)		10,000,000			10,800			.01
Freddie Mac (3)		5,300,000			6,519			.01
Other securities					2,882,327			3.73
					6,573,834			8.52

Consumer staples - 6.73%
Philip Morris International Inc.		30,030,800			1,422,259			1.84
PepsiCo, Inc.		10,980,000			664,839			.86
Nestlé SA (2)		10,975,000			511,070			.66
Coca-Cola Co.		8,972,000			478,297			.62
Kraft Foods Inc., Class A		13,527,870			372,287			.48
Altria Group, Inc.		19,755,000			357,763			.46
Other securities					1,382,564			1.81
					5,189,079			6.73

Utilities - 6.70%
GDF Suez (2)		16,302,320			683,129			.89
Exelon Corp.		9,601,500			450,886			.58
Dominion Resources, Inc.		11,251,980			383,580			.50
Scottish and Southern Energy PLC (2)		20,452,784			362,654			.47
Hongkong Electric Holdings Ltd. (2)		65,466,500			349,786			.45
FirstEnergy Corp.		7,755,500			335,658			.44
Other securities					2,603,148			3.37
					5,168,841			6.70

Energy - 6.56%
Royal Dutch Shell PLC, Class A (ADR)		9,328,000			554,177
Royal Dutch Shell PLC, Class B (2)		5,067,187			147,013
Royal Dutch Shell PLC, Class B (ADR)		1,866,228			108,540
Royal Dutch Shell PLC, Class A (2)		3,055,000			90,976			1.17
BP PLC (2)		94,932,042			895,435			1.16
Sasol Ltd. (2)		22,431,827			836,568			1.08
Eni SpA (2)		28,260,866			701,552
Eni SpA (ADR)		912,492			45,241			.97
ConocoPhillips		8,257,970			414,385			.54
Woodside Petroleum Ltd. (2)		7,880,000			330,590			.43
Other securities					931,613			1.21
					5,056,090			6.56

Industrials - 5.73%
Siemens AG (2)		6,126,000			552,705			.72
Other securities					3,862,601			5.01
					4,415,306			5.73

Health care - 5.36%
Merck & Co., Inc.		28,266,100			874,270			1.13
Bayer AG (2)		8,184,000			567,577			.74
Novartis AG (2)		8,565,000			447,563			.58
Roche Holding AG (2)		2,721,000			436,730			.57
Johnson & Johnson		6,500,000			383,825			.50
Bristol-Myers Squibb Co.		16,450,000			358,610			.46
Pfizer Inc		20,000,000			340,600			.44
Other securities					727,191			.94
					4,136,366			5.36

Information technology - 3.95%
Taiwan Semiconductor Manufacturing Co. Ltd. (2)		275,461,272			499,375
Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)		10,455,599			99,746			.78
Microsoft Corp.		15,321,800			424,874			.55
Other securities					2,025,492			2.62
					3,049,487			3.95

Consumer discretionary - 3.18%
OPAP SA (1) (2)		16,421,040			420,092			.54
Other securities					2,035,561			2.64
					2,455,653			3.18

Materials - 2.80%
Akzo Nobel NV (2)		8,673,000			513,189			.67
Koninklijke DSM NV (2)		8,539,000			374,068			.49
Israel Chemicals Ltd. (2)		26,930,907			314,641			.41
Other securities					956,958			1.23
					2,158,856			2.80

Miscellaneous - 4.57%
Other common stocks in initial period of acquisition					3,527,138			4.57


Total common stocks (cost: $47,138,147,000)					48,328,306			62.66



							Percent
				Value			of net
Preferred stocks - 0.75%	Shares				(000	)	assets

Financials - 0.65%
Banco Santander, SA, Series 10, 10.50% (3)		1,748,757			47,990			.06
Fannie Mae, Series S, 8.25% noncumulative (3)		2,000,000			2,325
Fannie Mae, Series O, 0% (3) (4) (5)		874,555			1,924
Fannie Mae, Series P, 4.50% noncumulative (3)		1,600,000			1,280
Fannie Mae, Series E, 5.10% (3)		608,441			1,027
Fannie Mae, Series L, 5.125% (3)		570,000			832			.01
Freddie Mac, Series V, 5.57% (3)		3,485,635			3,703
Freddie Mac, Series Z, 8.375% (3)		2,041,640			2,271
Freddie Mac, Series W, 5.66% (3)		650,000			658
Freddie Mac, Series Y, 6.55% (3)		350,250			368			.01
Other securities					436,296			.57
					498,674			.65

Other - 0.10%
Other securities					78,276			.10


Total preferred stocks (cost: $869,512,000)					576,950			.75



							Percent
				Value			of net
Convertible securities - 0.27%	Shares				(000	)	assets

Financials - 0.02%
Fannie Mae, Series 2008-1, 8.75% noncumulative convertible preferred (3)		1,352,000			2,163
Fannie Mae, Series 2004-1, 5.375% convertible preferred (3)		240			1,200			.01
Other securities					6,836			.01
					10,199			.02

Other - 0.08%
Other securities					62,740			.08


Miscellaneous - 0.17%
Other convertible securities in initial period of acquisition					131,521			.17


Total convertible securities (cost: $315,872,000)					204,460			.27



	Principal						Percent
	amount			Value			of net
Bonds & notes - 30.07%		(000	)		(000	)	assets

Mortgage-backed obligations (6) - 9.90%
Fannie Mae 0%-11.00% 2012-2047 (2) (5)	$	4,198,846			4,405,632			5.71
Freddie Mac 0%-7.50% 2017-2047 (5)		945,152			987,543			1.28
Other securities					2,246,668			2.91
					7,639,843			9.90

Bonds & notes of U.S. government & government agencies - 7.36%
U.S. Treasury:
2.25% 2014		396,000			397,762
7.50% 2016		250,000			321,543
3.75% 2018		349,950			360,830
0%-11.75% 2010-2039 (2) (7)		3,000,413			3,184,205			5.53
Fannie Mae 2.00%-6.625% 2010-2015		544,815			590,796			.77
Freddie Mac 1.75%-6.875% 2010-2012		146,500			155,766			.20
Other securities					663,008			.86
					5,673,910			7.36

Financials - 3.29%
Sovereign Bancorp, Inc. 8.75% 2018		27,160			31,146
Santander Issuances, SA Unipersonal 5.805%-6.50% 2016-2019 (4) (5)		29,600			27,799			.08
Other securities					2,479,667			3.21
					2,538,612			3.29

Energy - 1.21%
Shell International Finance B.V. 4.00% 2014		8,580			9,025			.01
BP Capital Markets PLC 3.125% 2012		5,000			5,173			.01
Other securities					918,575			1.19
					932,773			1.21

Health care - 1.05%
Merck & Co., Inc. 1.875%-4.00% 2011-2015		43,885			45,364			.06
Other securities					766,954			.99
					812,318			1.05

Telecommunication services - 1.00%
AT&T Wireless Services, Inc. 7.875% 2011		76,700			83,114
AT&T Inc. 4.85%-6.55% 2013-2039		44,545			47,349
SBC Communications Inc. 5.875%-6.25% 2011-2012		30,000			32,274
AT&T Corp. 8.00% 2031 (5)		17,000			20,979			.24
Verizon Communications Inc. 3.75%-8.75% 2011-2019 (4)		142,595			155,565
Verizon Global Funding Corp. 7.375% 2012		7,000			7,969			.21
Other securities					424,367			.55
					771,617			1.00

Other - 6.26%
Other securities					4,825,882			6.26


Total bonds & notes (cost: $23,018,985,000)					23,194,955			30.07



	Principal						Percent
	amount			Value			of net
Short-term securities - 5.94%		(000	)		(000	)	assets

Freddie Mac 0.12%-0.305% due 11/2/2009-5/26/2010	$	1,873,625			1,872,478			2.43
U.S. Treasury Bills 0.161%-0.33% due 11/19/2009-7/29/2010		860,900			860,191			1.12
Fannie Mae 0.15%-0.70% due 11/16/2009-9/1/2010		430,250			430,042			.56
Other securities					1,422,965			1.83

Total short-term securities (cost: $4,585,283,000)					4,585,676			5.94


Total investment securities (cost: $75,927,799,000)					76,890,347			99.69
Other assets less liabilities					238,684			.31

Net assets				$	77,129,031			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. One of these securities (with a value of $11,131,000, which represented .01% of the net assets of the fund) may be subject to legal or contractual restrictions on resale.

Share class	Initial sales charge	Contingent deferred sales charge upon redemption	Conversion feature
Classes A and 529-A	Up to 5.75%	None (except 1% for certain redemptions within one year of purchase without an initial sales charge)	None
Classes B and 529-B*	None	Declines from 5% to 0% for redemptions within six years of purchase	Classes B and 529-B convert to Classes A and 529-A, respectively, after eight years
Class C	None	1% for redemptions within one year of purchase	Class C converts to Class F-1 after 10 years
Class 529-C	None	1% for redemptions within one year of purchase	None
Class 529-E	None	None	None
Classes F-1, F-2 and 529-F-1	None	None	None
Classes R-1, R-2, R-3, R-4, R-5 and R-6	None	None	None

(dollars in thousands)
Undistributed ordinary income	$	557,441
Capital loss carryforward expiring 2017*		(12,854,600	)
Gross unrealized appreciation on investment securities		5,883,084
Gross unrealized depreciation on investment securities		(5,857,943	)
Net unrealized appreciation on investment securities		25,141
Cost of investment securities		76,865,206
*The capital loss carryforward will be used to offset any capital gains realized by the fund in future years through the expiration date. The fund will not make distributions from capital gains while a capital loss carryforward remains.

	Year ended October 31, 2009						Year ended October 31, 2008
Share class	Ordinary income		Long-term capital gains		Total distributions paid or accrued		Ordinary income		Long-term capital gains		Total distributions paid or accrued

Class A	$	2,597,362	$	-	$	2,597,362	$	3,474,759	$	2,964,774	$	6,439,533
Class B		145,837		-		145,837		199,198		208,829		408,027
Class C		333,808		-		333,808		456,121		478,117		934,238
Class F-1		158,029		-		158,029		252,058		216,992		469,050
Class F-2*		23,817		-		23,817		649		-		649
Class 529-A		51,291		-		51,291		56,066		46,160		102,226
Class 529-B		5,534		-		5,534		6,162		6,376		12,538
Class 529-C		16,511		-		16,511		17,767		18,002		35,769
Class 529-E		2,267		-		2,267		2,554		2,273		4,827
Class 529-F-1		1,482		-		1,482		1,643		1,232		2,875
Class R-1		4,564		-		4,564		5,038		4,894		9,932
Class R-2		21,974		-		21,974		23,202		23,352		46,554
Class R-3		31,906		-		31,906		34,113		29,724		63,837
Class R-4		12,916		-		12,916		12,549		9,805		22,354
Class R-5		28,662		-		28,662		42,432		31,530		73,962
Class R-6†		5,712		-		5,712		-		-		-
Total	$	3,441,672	$	-	$	3,441,672	$	4,584,311	$	4,042,060	$	8,626,371

*Class F-2 was offered beginning August 1, 2008.
†Class R-6 was offered beginning May 1, 2009.

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

Investment securities:	Level 1		Level 2			Level 3		Total
Common stocks:
Telecommunication services	$	3,809,414	$	2,788,242	*	$	-	$	6,597,656
Financials		1,932,579		4,641,255	*		-		6,573,834
Consumer staples		4,287,615		901,464	*		-		5,189,079
Utilities		2,473,246		2,695,595	*		-		5,168,841
Energy		1,496,608		3,559,482	*		-		5,056,090
Industrials		1,528,573		2,886,733	*		-		4,415,306
Health care		2,198,665		1,937,701	*		-		4,136,366
Information technology		1,351,528		1,697,959	*		-		3,049,487
Consumer discretionary		809,664		1,645,989	*		-		2,455,653
Materials		333,081		1,825,775	*		-		2,158,856
Miscellaneous		1,016,801		2,510,337	*		-		3,527,138
Preferred stocks		23,730		553,220			-		576,950
Convertible securities		28,697		175,763			-		204,460
Bonds & notes:
Mortgage-backed obligations		-		7,621,868			17,975		7,639,843
Bonds & notes of U.S. government & government agencies		-		5,673,910			-		5,673,910
Corporate bonds & notes		-		5,055,320			-		5,055,320
Other		1,776		4,824,106			-		4,825,882
Short-term securities		-		4,585,676			-		4,585,676
Total	$	21,291,977	$	55,580,395		$	17,975	$	76,890,347

The following table reconciles the valuation of the fund's Level 3 investment securities and related transactions for the year ended October 31, 2009 (dollars in thousands):

	Beginning		Net transfers				Net			Net			Ending
	value		into		Net unrealized		purchases			realized			value
	at 11/1/2008		Level 3		appreciation (†)		and sales			loss (†)			at 10/31/2009
Investment securities	$	15,047	$	112,337	$	33,370	$	(124,420	)	$	(18,359	)	$	17,975

Net unrealized depreciation during the period on Level 3 investment securities held at October 31, 2009 (dollars in thousands) (†):													$	(575	)

(*) Includes certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading; therefore, $27,089,979,000 of investment securities were classified as Level 2 instead of Level 1.
(†) Net realized loss and unrealized appreciation (depreciation) are included in the related amounts on investments in the statement of operations.

Share class	Sales(1)				Reinvestments of dividends and distributions				Repurchases(1)						Net (decrease) increase
	Amount		Shares		Amount		Shares		Amount			Shares			Amount			Shares
Year ended October 31, 2009
Class A	$	6,862,281		166,287	$	2,702,648		65,760	$	(13,150,034	)		(322,740	)	$	(3,585,105	)		(90,693	)
Class B		202,862		5,032		151,950		3,701		(841,987	)		(20,669	)		(487,175	)		(11,936	)
Class C		949,248		22,910		330,977		8,055		(2,242,034	)		(55,251	)		(961,809	)		(24,286	)
Class F-1		751,710		18,200		151,672		3,698		(1,704,349	)		(41,759	)		(800,967	)		(19,861	)
Class F-2		946,117		22,353		15,154		352		(175,438	)		(4,103	)		785,833			18,602
Class 529-A		190,087		4,573		56,949		1,383		(146,201	)		(3,566	)		100,835			2,390
Class 529-B		11,516		286		6,144		149		(15,147	)		(369	)		2,513			66
Class 529-C		85,169		2,056		18,273		444		(68,975	)		(1,678	)		34,467			822
Class 529-E		10,680		258		2,517		61		(9,278	)		(227	)		3,919			92
Class 529-F-1		7,550		180		1,646		40		(7,927	)		(191	)		1,269			29
Class R-1		31,963		761		5,013		122		(26,350	)		(641	)		10,626			242
Class R-2		193,887		4,693		24,139		586		(143,166	)		(3,489	)		74,860			1,790
Class R-3		222,576		5,367		35,131		853		(193,481	)		(4,677	)		64,226			1,543
Class R-4		151,581		3,580		14,215		345		(88,311	)		(2,133	)		77,485			1,792
Class R-5		246,841		6,015		29,756		734		(641,048	)		(15,598	)		(364,451	)		(8,849	)
Class R-6(2)		275,144		6,725		5,709		130		(153	)		(4	)		280,700			6,851
Total net increase
(decrease)	$	11,139,212		269,276	$	3,551,893		86,413	$	(19,453,879	)		(477,095	)	$	(4,762,774	)		(121,406	)

Year ended October 31, 2008
Class A	$	13,528,465		233,084	$	5,970,821		100,498	$	(12,820,585	)		(240,213	)	$	6,678,701			93,369
Class B		713,699		12,283		376,329		6,301		(924,293	)		(17,147	)		165,735			1,437
Class C		2,513,537		42,921		841,222		14,079		(2,615,364	)		(48,785	)		739,395			8,215
Class F-1		1,914,480		32,727		394,113		6,631		(2,119,450	)		(39,577	)		189,143			(219	)
Class F-2(3)		130,148		2,693		197		4		(9,116	)		(200	)		121,229			2,497
Class 529-A		345,677		5,962		100,205		1,690		(124,472	)		(2,293	)		321,410			5,359
Class 529-B		32,438		561		12,299		206		(14,430	)		(265	)		30,307			502
Class 529-C		145,645		2,518		34,981		587		(70,505	)		(1,286	)		110,121			1,819
Class 529-E		15,484		268		4,736		80		(7,605	)		(143	)		12,615			205
Class 529-F-1		15,716		269		2,798		47		(5,945	)		(111	)		12,569			205
Class R-1		61,656		1,059		9,577		161		(37,646	)		(694	)		33,587			526
Class R-2		274,675		4,783		45,274		759		(173,016	)		(3,120	)		146,933			2,422
Class R-3		397,293		6,893		61,998		1,044		(229,469	)		(4,134	)		229,822			3,803
Class R-4		158,819		2,769		21,733		367		(76,366	)		(1,383	)		104,186			1,753
Class R-5		358,985		6,194		65,644		1,109		(167,065	)		(3,159	)		257,564			4,144
Total net increase
(decrease)	$	20,606,717		354,984	$	7,941,927		133,563	$	(19,395,327	)		(362,510	)	$	9,153,317			126,037

(1) Includes exchanges between share classes of the fund.
(2)Class R-6 was offered beginning May 1, 2009.
(3)Class F-2 was offered beginning August 1, 2008.

			Income (loss) from investment operations(2)								Dividends and distributions
	Net asset value, beginning of period		Net investment income(3)		Net gains (losses) on securities (both realized and unrealized)			Total from investment operations			Dividends (from net investment income)			Distributions (from capital gains)			Total dividends and distributions			Net asset value, end of period		Total return(4) (5)			Net assets, end of period (in millions)		Ratio of expenses to average net assets before reimbursements/ waivers			Ratio of expenses to average net assets after reimbursements/ waivers(5)			Ratio of net income to average net assets(3) (5)
Class A:
Year ended 10/31/2009	$	42.26	$	1.83	$	4.40		$	6.23		$	(2.08	)	$	-		$	(2.08	)	$	46.41		15.44	%	$	56,648		.66	%		.66	%		4.40	%
Year ended 10/31/2008		68.58		2.31		(23.58	)		(21.27	)		(2.65	)		(2.40	)		(5.05	)		42.26		(32.88	)		55,418		.58			.55			4.03
Year ended 10/31/2007		59.91		2.52		9.62			12.14			(2.30	)		(1.17	)		(3.47	)		68.58		20.93			83,524		.58			.55			3.97
Year ended 10/31/2006		52.58		2.13		8.06			10.19			(2.17	)		(.69	)		(2.86	)		59.91		20.00			58,439		.58			.55			3.82
Year ended 10/31/2005		50.75		2.01		2.56			4.57			(1.84	)		(.90	)		(2.74	)		52.58		9.11			42,303		.59			.57			3.79
Class B:
Year ended 10/31/2009		42.26		1.51		4.40			5.91			(1.78	)		-			(1.78	)		46.39		14.57			3,520		1.44			1.43			3.64
Year ended 10/31/2008		68.58		1.87		(23.58	)		(21.71	)		(2.21	)		(2.40	)		(4.61	)		42.26		(33.41	)		3,711		1.35			1.33			3.25
Year ended 10/31/2007		59.91		2.03		9.62			11.65			(1.81	)		(1.17	)		(2.98	)		68.58		20.02			5,923		1.35			1.32			3.19
Year ended 10/31/2006		52.58		1.69		8.06			9.75			(1.73	)		(.69	)		(2.42	)		59.91		19.07			4,413		1.37			1.34			3.04
Year ended 10/31/2005		50.75		1.59		2.56			4.15			(1.42	)		(.90	)		(2.32	)		52.58		8.26			3,371		1.38			1.36			3.01
Class C:
Year ended 10/31/2009		42.26		1.50		4.40			5.90			(1.77	)		-			(1.77	)		46.39		14.54			8,323		1.47			1.47			3.59
Year ended 10/31/2008		68.58		1.84		(23.58	)		(21.74	)		(2.18	)		(2.40	)		(4.58	)		42.26		(33.45	)		8,609		1.40			1.38			3.21
Year ended 10/31/2007		59.91		2.00		9.62			11.62			(1.78	)		(1.17	)		(2.95	)		68.58		19.97			13,406		1.39			1.37			3.16
Year ended 10/31/2006		52.58		1.67		8.06			9.73			(1.71	)		(.69	)		(2.40	)		59.91		19.02			8,616		1.41			1.38			2.99
Year ended 10/31/2005		50.75		1.56		2.56			4.12			(1.39	)		(.90	)		(2.29	)		52.58		8.19			5,867		1.44			1.42			2.94
Class F-1:
Year ended 10/31/2009		42.26		1.84		4.39			6.23			(2.08	)		-			(2.08	)		46.41		15.43			3,142		.66			.66			4.43
Year ended 10/31/2008		68.58		2.29		(23.58	)		(21.29	)		(2.63	)		(2.40	)		(5.03	)		42.26		(32.90	)		3,701		.62			.59			4.00
Year ended 10/31/2007		59.91		2.50		9.62			12.12			(2.28	)		(1.17	)		(3.45	)		68.58		20.89			6,020		.61			.58			3.95
Year ended 10/31/2006		52.58		2.11		8.06			10.17			(2.15	)		(.69	)		(2.84	)		59.91		19.94			3,494		.62			.60			3.76
Year ended 10/31/2005		50.75		1.96		2.56			4.52			(1.79	)		(.90	)		(2.69	)		52.58		9.01			2,141		.68			.65			3.71
Class F-2:
Year ended 10/31/2009		42.26		1.78		4.54			6.32			(2.18	)		-			(2.18	)		46.40		15.68			979		.42			.41			4.09
Period from 8/1/2008 to 10/31/2008		54.90		.43		(12.53	)		(12.10	)		(.54	)		-			(.54	)		42.26		(22.13	)		105		.10			.10			.90
Class 529-A:
Year ended 10/31/2009		42.26		1.81		4.39			6.20			(2.06	)		-			(2.06	)		46.40		15.36			1,221		.71			.71			4.34
Year ended 10/31/2008		68.58		2.27		(23.58	)		(21.31	)		(2.61	)		(2.40	)		(5.01	)		42.26		(32.93	)		1,011		.66			.63			3.97
Year ended 10/31/2007		59.91		2.47		9.62			12.09			(2.25	)		(1.17	)		(3.42	)		68.58		20.84			1,273		.65			.63			3.92
Year ended 10/31/2006		52.58		2.10		8.06			10.16			(2.14	)		(.69	)		(2.83	)		59.91		19.92			760		.64			.61			3.77
Year ended 10/31/2005		50.75		1.95		2.56			4.51			(1.78	)		(.90	)		(2.68	)		52.58		8.99			458		.71			.68			3.70
Class 529-B:
Year ended 10/31/2009		42.26		1.47		4.40			5.87			(1.75	)		-			(1.75	)		46.38		14.47			147		1.53			1.52			3.53
Year ended 10/31/2008		68.58		1.80		(23.58	)		(21.78	)		(2.14	)		(2.40	)		(4.54	)		42.26		(33.49	)		131		1.47			1.44			3.15
Year ended 10/31/2007		59.91		1.96		9.62			11.58			(1.74	)		(1.17	)		(2.91	)		68.58		19.89			178		1.46			1.44			3.09
Year ended 10/31/2006		52.58		1.63		8.06			9.69			(1.67	)		(.69	)		(2.36	)		59.91		18.93			122		1.49			1.46			2.93

Qualified dividend income	$	2,377,211,000
Corporate dividends received deduction	$	922,657,000
U.S. government income that may be exempt from state taxation	$	142,659,000